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Trump reinvented tariffs and it worked

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(edited)

Well, after a whole lot of discussion on here about Tariffs and Trump, it would appear that my and other's positive stance to them is coming to light of day.  I'm sure the naysayers will still hold their ground, but the following article sheds light on what I believe are the realities.

Trump reinvented tariffs and it worked

A couple of excerpts:

Tariffs were once a mainstay in U.S. trade policy. Constituting the main source of federal revenue from 1790-1914, and at one point providing over 90% of government income, they were a pivotal component of U.S. fiscal and foreign policy. Their main motivation in those times: protect U.S. industry from foreign opposition. It wasn’t until colossal industrial growth coupled with the introduction of the income tax rendered them less critical to the government balance sheet, and their use declined.

...

While presidents have implemented them since, the degree to which President Trump has deployed them drew near universal rejection. Pundits disparaged them as economically illiterate, and the same class of expert that predicted Trump will lay waste to the economy claimed these tariffs would usher in recession and global malaise. Even members of Trump’s own staff resigned because they carried such ideological opposition to even the notion of tariffs.

Well, none of that happened. It turns out tariffs make for quite the negotiating instrument.

Trump’s simplistic-yet-correct sentiment that leverage in a trade war essentially resides with the party who incurs the trade deficit should no longer be condescendingly dismissed by economy wonks who denigrate any policy that isn’t globalist goodthink. China relies far more on exporting to the United States than we do purchasing those same cheaply made imports: a straightforward notion that tariffs exposed.

...

So, the questions are:

-Has anyone changed their minds over the last months? 

-Did you believe they were bad and now agree that they might be just the tool that was needed at just this moment in time (and possibly more often in the future)? 

-Did you believe there were good and now believe they were not as good as you thought?

Edited by Dan Warnick
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June 18, 2019 United States Steel Corp on Tuesday said it would idle two blast furnaces in the United States and a third in Europe, as lower steel prices and softening demand led the steel producer to forecast current-quarter earnings below the Wall Street estimates.

Steel producers in the United States have brought old capacity online after President Donald Trump’s imposed tariffs on imported steel from countries including China, resulting in a surplus supply of steel at a time when manufacturing demand has weakened, suppressing prices.

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The Trump tariffs keep working, to the consternation of many economists

(excerpt)

And in December, America’s largest steelmaker, Nucor, announced the addition of a coil paint line at its Mississippi County, Arkansas, mill that will coat roughly 250,000 tons of steel each year. The plant will add 50 new jobs in Arkansas, joining the hundreds of positions that the company is currently adding in new mills under construction in Missouri and Florida. 

These companies are just a few examples of a broader trend showing that the Trump administration’s tariffs are working. The steel industry in particular offers ample evidence, with America’s steel companies investing some $13 billion in new steelmaking and mills across the nation.

This isn’t what many economists predicted, however. And frustrated by the flow of such positive news, the economics profession is looking for other means to wage their war against tariffs. Last month, two Federal Reserve Board economists, Aaron Flaaen and Justin Pierce, claimed that the tariffs have led to a “relative” loss for manufacturing employment in affected sectors. They also reported other small but negative effects from rising input costs. Their report follows other attempts to demonstrate that the tariffs aren’t helping the economy.  

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Tariffs work well for this steel buyer

My company has 2,700 employees, including 600 in the Chicago area alone. We’re a major steel buyer, and we purchase more hot-rolled steel coil each year than General Motors. We think the tariffs are working well.

The steel we buy is used to manufacture tubing and piping at 16 facilities across the United States. Our products are used in everything from commercial construction and apartment buildings to energy infrastructure and data centers. Since 2017, we’ve hired 750 new employees while increasing our sales by 20 percent.

Last year, the Trump administration imposed tariffs on steel imports. And the net effect has been to level the playing field, allowing America’s steel producers to make major improvements and increase plant utilization. When the tariffs were first announced, there were short-term price spikes as America’s steel mills took stock. But steelmakers subsequently invested in world-leading electric arc furnaces to boost capacity and better compete with China. Even though my company’s primary component cost is raw steel, I supported the tariffs. I knew that in the long run it would lead to a more sustainable domestic steel industry.

Now, we’re seeing America’s steel industry investing $14 billion to transition from older blast-furnaces to newer mini-mills. Ironically, media coverage has portrayed the closures of these older steel plants as evidence that the tariffs have failed. But actually, these are smart, logical moves by a steel sector now reinventing itself and making major capital investments in high-tech mini-mills. Fears about higher prices have proven to be overblown, too. Steel prices have fallen 50 percent from peak levels last year and are now below pre-tariff levels.

Since the tariffs were imposed, my company has been expanding. We’ve doubled our capital expenditures to $160 million annually. And we’re even looking to hire 400 new workers across the eight states where we operate manufacturing facilities.

Clearly, we’re doing better, our workers are doing better, and many struggling communities are starting to get back on their feet. But all of that could turn around again.

Despite global calls for Beijing to reduce steel supply, production has continued to rise. China now produces more steel than the rest of the world combined — and it continues to overproduce in order to maintain its world-leading capacity while exporting steel at prices often set below the cost of production.

China has made no meaningful effort to curb its overproduction, and Washington must remain focused. The tariffs should continue, as a tool for subsequent negotiations. However, tariffs can be skirted by currency moves. Not only is the U.S. dollar rising in value — which makes imports cheaper—but China has also lowered its own currency in response to the tariffs. That’s why quotas on steel imports should be considered, since they function independently of currency fluctuations.

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Yes Trump reinvented wheel

Policy is adjusted to current needs. After WW2 US was most competitive so free trade was meme of the day. In 21st century US is falling behind many countries in many areas so it needs tariffs again to protect domestic market.

China is against tariffs cause as the largest manufacturing hub of everything apart from semiconductors is more competitive than US.

Very simple No need to create unnecessary ideology to these simple economic interdependencies.

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(edited)

I am happy that you watch steel and steel tariffs. Steel is the good indicator of the new normal coming to the world with the rise of china.

Nobody can compete with China because of economies of scale - provided that China gets needed technologies.

In 2019 US output of steel was 87.9 M tons and in China 996.3 M tons. Increase in Chinese production in 2019, was larger than total US production.

I watch for a few years how China destroys global steel manufacturing in all countries. Only wise countries with steel tariffs will prevail as steel producers.

This is our future in everything from steel to 5G.

Edited by Marcin2
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1 hour ago, notsonice said:

June 18, 2019 United States Steel Corp on Tuesday said it would idle two blast furnaces in the United States and a third in Europe, as lower steel prices and softening demand led the steel producer to forecast current-quarter earnings below the Wall Street estimates.

Steel producers in the United States have brought old capacity online after President Donald Trump’s imposed tariffs on imported steel from countries including China, resulting in a surplus supply of steel at a time when manufacturing demand has weakened, suppressing prices.

Blast furnaces are not ideal for steel production these days...you can not shut them down and must keep them ‘hot’ whether you are producing steel or not. This is a constant outlay in fuel cost. If you shut them down, the material in the furnace cools and solidifies, rendering the furnace useless. Electric arc ‘furnaces’ are preferred (probably incorrect nomenclature...).

Japan destroyed their blast furnaces years ago, I assume others did as well.

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(edited)

1 hour ago, Douglas Buckland said:

Blast furnaces are not ideal for steel production these days...you can not shut them down and must keep them ‘hot’ whether you are producing steel or not. This is a constant outlay in fuel cost. If you shut them down, the material in the furnace cools and solidifies, rendering the furnace useless. Electric arc ‘furnaces’ are preferred (probably incorrect nomenclature...).

Japan destroyed their blast furnaces years ago, I assume others did as well.

That is the correct nomenclature, according to the article above.

"When the tariffs were first announced, there were short-term price spikes as America’s steel mills took stock. But steelmakers subsequently invested in world-leading electric arc furnaces to boost capacity and better compete with China."

Another part of that article that hit home with me, which is usually missed by the antagonists, is what all this was/is about as far as Trump and many Americans are concerned, and the fact that it's working makes me very happy indeed:

"Clearly, we’re doing better, our workers are doing better, and many struggling communities are starting to get back on their feet. "

Let China and the world have their own steel supply chain; what we want is for companies to be able to keep and add jobs at home, and if that means that companies are able to modernize and profit in the face of unfair world dumping practices, so much the better.

Edited by Dan Warnick
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3 hours ago, Dan Warnick said:

That is the correct nomenclature, according to the article above.

"When the tariffs were first announced, there were short-term price spikes as America’s steel mills took stock. But steelmakers subsequently invested in world-leading electric arc furnaces to boost capacity and better compete with China."

Another part of that article that hit home with me, which is usually missed by the antagonists, is what all this was/is about as far as Trump and many Americans are concerned, and the fact that it's working makes me very happy indeed:

"Clearly, we’re doing better, our workers are doing better, and many struggling communities are starting to get back on their feet. "

Let China and the world have their own steel supply chain; what we want is for companies to be able to keep and add jobs at home, and if that means that companies are able to modernize and profit in the face of unfair world dumping practices, so much the better.

Dan,

United States has very low primary iron production (only about 25 million tons, mainly from blast furnaces, 10% out of direct reduced iron process) in comparison to steel production.

So US "steel making industry" is mainly scrap remelting, it is reliant on scrap and also to some extent on imported pig iron and direct reduced iron.

So yes locally some communities are thriving, but these mini-mills are the indicator of times when US steel industry operates isolated out of global markets competition. It is a way to save some jobs (and the right decision) and manufacturing capacities from national security point of view, but it is not a viable, competitive business in itself.

Think about it.

And last I checked (2018 data), Japanese blast furnaces are working very well and producing 80 million tons of pig iron each year (US blast furnaces about 20 million tons, and I do not have the latest data ).

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I think the inconvenient truth is if we want to succesfully compete with China we need to restructure our economies not the other way around.

Less globalization, more tariffs and non tariff bariers, otherwise China will evonomically conquer us. The only element they lack at the moment are some technologies that they are busy reinventing, copying, reverse engineering.

It is easier to close technology gap, 10 years needed.

Creation of the civilization the size and type of China took 2,000 years

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If countries banned together around common sense labor practices and environmental laws they could set import quotas on any country not meeting them. This would make the cost advantage more fair and decrease trade imbalances. 
It’s polluters and labor exploiters that need help restructuring. Even developed countries would find it easier to go greener if they felt it was not at a cost of being competitive. But to equalize opportunities there has to be a better framework. 

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The whole concept of globalization has been a fantasy since day one as there is not, and has never been, a ‘level playing field’.

A level playing field assumes equal access to resources and equal access to labor (therefore and equal cost of labor) just to mention two items.

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On 2/3/2020 at 6:06 AM, Marcin2 said:

I am happy that you watch steel and steel tariffs. Steel is the good indicator of the new normal coming to the world with the rise of china.

Nobody can compete with China because of economies of scale - provided that China gets needed technologies.

In 2019 US output of steel was 87.9 M tons and in China 996.3 M tons. Increase in Chinese production in 2019, was larger than total US production.

I watch for a few years how China destroys global steel manufacturing in all countries. Only wise countries with steel tariffs will prevail as steel producers.

This is our future in everything from steel to 5G.

The question comes down to quality as always when discussing China and its products , you know what I’m saying as you all have complained about something built in China (fkn Chinese shit) if you haven’t your a liar or Chinese.

Chinese steel is of very low quality and does not pass the quality requirements for many segments in manufacturing such as large floating structures and high buildings, Chinese steel falls very short of ASTM standards and has very limited in house quality code.

Even Korea don’t buy Chinese Steel, been there seen Chinese landrigs being slapped out one a week and then worked on them two years later , not good!

https://gensteel.com/building-faqs/building-comparisons/chinese-steel-quality-vs-american-steel-quality

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10 minutes ago, Douglas Buckland said:

The whole concept of globalization has been a fantasy since day one as there is not, and has never been, a ‘level playing field’.

A level playing field assumes equal access to resources and equal access to labor (therefore and equal cost of labor) just to mention two items.

The world agreeing to clean up pollution in shipping is pretty much trade neutral because all shippers will comply or not ship. This is a huge cost for everyone but palatable because no trading country gets a big advantage from it other than cleaner air. 
My fantasy says there are other areas the world can find common ground in. Each step if done fairly can improve the quality of life and slow the destruction of the environment. This is unlike companies/oligarchs or nations that will exploit whatever for a buck. 
That is globalization, a cooperative movement by all that trade with an agreed on framework. Or don’t trade. 

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11 minutes ago, James Regan said:

The question comes down to quality as always when discussing China and its products , you know what I’m saying as you all have complained about something built in China (fkn Chinese shit) if you haven’t your a liar or Chinese.

Chinese steel is of very low quality and does not pass the quality requirements for many segments in manufacturing such as large floating structures and high buildings, Chinese steel falls very short of ASTM standards and has very limited in house quality code.

Even Korea don’t buy Chinese Steel, been there seen Chinese landrigs being slapped out one a week and then worked on them two years later , not good!

https://gensteel.com/building-faqs/building-comparisons/chinese-steel-quality-vs-american-steel-quality

A simple rule could be China steel cannot be imported unless it meets ASTM standards. That could go for all its products. A level standard for global trade.

ASTM does not pick winners and losers. They just set quality minimums. These are the common sense approach’s countries should get behind and enforce with quotas. To me that is what globalism should be about. 
How about you can’t be an importer or exporter unless your buildings are energy efficient. 
 

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Okay, so what do you do concerning those that possess certain resources (rare earth metals, oil, certain other ores,...)? Does the ‘global community’ mandate that they must trade these resources and also set the price?

How about labor and the cost thereof? Is the new world government going to mandate a global minimum wage?

You just saw the UK leave the EU because essentially they were not happy being ‘ruled’ by unelected officials in another country. We may see more leaving the EU shortly for the same reason.

People simply do not want globalization at the expense of sovereignty. Furthermore, there is no pressing need for it. Finally, you can see the attitude globally towards ‘elitism’ (not a real word, I know), globalization will simply allow the large multi-national corporations to effectively rule the planet. 

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59 minutes ago, James Regan said:

The question comes down to quality as always when discussing China and its products , you know what I’m saying as you all have complained about something built in China (fkn Chinese shit) if you haven’t your a liar or Chinese.

I have no personal experience with Chinese steel so have no point of reference, but I think it is not actually necessary to have an opinion about such a straightforward topic.

But James, think for a moment: steel has grades according to a sets of globally known, widespread standards, ASTM one of them. China manufactures 53% of global output. Manufacture of steel with certain qualities is pretty straightforward once you are in steel-making business. This steel is used for decades in different applications. Some 7 billion tons in last decade, more than US in all history.

Gensteel needs to be biased, it is their job to be biased, using US steel is their primary business. I have never seen the waiter in a restaurant telling me, go to competition round the corner, their chef is much better. I had to experience this myself when stuck for the job for a week or so in a city or town I have never visited before.

I would like to delve into details of your generalization from your point of view cause you really seem to believe in it. This is not important because it is steel or Chinese. I am interested in a thought process, how uniform msm news stream creates peoples views and attitudes.

So you had steel of certain grade not meeting specification. Was there any lawsuit, what was the follow up ? I mean China is the major player at international markets, dump 50-100 million tons a year. I think there would be lawsuits, high profile cases, we would see it at news among how Chinese toys have lead in themselves, even administrative backlash at a country level, if there would be steel not meeting specification.

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On 2/3/2020 at 2:55 AM, Marcin2 said:

Yes Trump reinvented wheel

Policy is adjusted to current needs. After WW2 US was most competitive so free trade was meme of the day. In 21st century US is falling behind many countries in many areas so it needs tariffs again to protect domestic market.

China is against tariffs cause as the largest manufacturing hub of everything apart from semiconductors is more competitive than US.

Very simple No need to create unnecessary ideology to these simple economic interdependencies.

But if your trade imbalance is 366 billion it is smart to get enough concessions to bring that number to say 50 billion over say 15 years with mile markers on a timeline. 
What China should have done is do this voluntarily making their own moves. The crude way is tariffs firsts followed by quotas. 
Being a greenie I would give them a 5 year extension if they kill coal in the process. 😎

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26 minutes ago, Douglas Buckland said:

Okay, so what do you do concerning those that possess certain resources (rare earth metals, oil, certain other ores,...)? Does the ‘global community’ mandate that they must trade these resources and also set the price?

How about labor and the cost thereof? Is the new world government going to mandate a global minimum wage?

You just saw the UK leave the EU because essentially they were not happy being ‘ruled’ by unelected officials in another country. We may see more leaving the EU shortly for the same reason.

People simply do not want globalization at the expense of sovereignty. Furthermore, there is no pressing need for it. Finally, you can see the attitude globally towards ‘elitism’ (not a real word, I know), globalization will simply allow the large multi-national corporations to effectively rule the planet. 

So who lost sovereignty requiring shippers to quit using bunker fuels. The shippers? An few oligarchs? A few big companies? And you know what? I bet these same shipping players still control shipping. 
Who got hurt? Who should we cry for. We got jobs in retrofitting and refinery reconfigurations. Maybe heavy oil lost while nat gas and light oil won. 

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(edited)

13 minutes ago, Boat said:

But if your trade imbalance is 366 billion it is smart to get enough concessions to bring that number to say 50 billion over say 15 years with mile markers on a timeline. 
What China should have done is do this voluntarily making their own moves. The crude way is tariffs firsts followed by quotas. 
Being a greenie I would give them a 5 year extension if they kill coal in the process. 😎

I suppose it is difficult to go to Apple and say:

"You have this new President, Donald Trump. He believes in economic heresy of importance of bilateral trade balances. So guys I know that you import 280 dollars of components (50 dollars US components and 230 dollars East Asian) and export assembled Iphone for 300 dollars, back to US. But guys, you create 50 billion dollars of bilateral trade deficit (200 million Iphones times 300-50 dollars). So get the f*ck out of China, leave your top tech factories you built with Foxconn for 20 years, please make 2 million of Chinese  unemployed, we need to voluntarily decrease deficit.

And guys, pray day and night that he does not start to believe in witchcraft. You would need to drown some women to appease him, I am afraid." end of quote

Edited by Marcin2
typo

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(edited)

1 hour ago, Boat said:

If countries banned together around common sense labor practices and environmental laws they could set import quotas on any country not meeting them. This would make the cost advantage more fair and decrease trade imbalances. 
It’s polluters and labor exploiters that need help restructuring. Even developed countries would find it easier to go greener if they felt it was not at a cost of being competitive. But to equalize opportunities there has to be a better framework. 

How would you order this Bangladesh or Cambodia sweatshops (labour too expensive in China to do it anymore) that sew this cheap TK Maxx apparel to increase wages from 1 dollar/hour to 20 dollars/hour ?

And would you like to buy your new trousers for 300 dollars like it is Prada not 30 dollars as usual ?

This is how international division of labour works.

In the future when Cambodia (6-8% of GDP growth last decade, under this Chinese tough debt trap diplomacy) reaches upper-middle income level, it would be subsaharan africa , and if they also go up the in development, TK Maxx trousers would actually cost 300 dollars, everywhere, but till this moment comes, enjoy international division of labour.

Edited by Marcin2
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(edited)

39 minutes ago, Boat said:

So who lost sovereignty requiring shippers to quit using bunker fuels. The shippers? An few oligarchs? A few big companies? And you know what? I bet these same shipping players still control shipping. 
Who got hurt? Who should we cry for. We got jobs in retrofitting and refinery reconfigurations. Maybe heavy oil lost while nat gas and light oil won. 

And the cost of shipping increased, for everyone, because some global entity decided that bunker fuel was ‘bad’.

I see that you didn’t touch on either the cost of labor or resource distribution. Deflective behavior.

Edited by Douglas Buckland
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(edited)

41 minutes ago, Marcin2 said:

How would you order this Bangladesh or Cambodia sweatshops (labour too expensive in China to do it anymore) that sew this cheap TK Maxx apparel to increase wages from 1 dollar/hour to 20 dollars/hour ?

And would you like to buy your new trousers for 300 dollars like it is Prada not 30 dollars as usual ?

This is how international division of labour works.

In the future when Cambodia (6-8% of GDP growth last decade, under this Chinese tough debt trap diplomacy) reaches upper-middle income level, it would be subsaharan africa , and if they also go up the in development, TK Maxx trousers would actually cost 300 dollars, everywhere, but till this moment comes, enjoy international division of labour.

As of 2017, they were earning less than 39 Aussie cents an hour

https://thenewdaily.com.au/news/world/2017/10/29/garment-workers-australia-fast-fashion-oxfam/

Edited by Hotone
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(edited)

2 hours ago, Boat said:

If countries banned together around common sense labor practices and environmental laws they could set import quotas on any country not meeting them. This would make the cost advantage more fair and decrease trade imbalances. 
It’s polluters and labor exploiters that need help restructuring. Even developed countries would find it easier to go greener if they felt it was not at a cost of being competitive. But to equalize opportunities there has to be a better framework. 

 

2 hours ago, Douglas Buckland said:

The whole concept of globalization has been a fantasy since day one as there is not, and has never been, a ‘level playing field’.

A level playing field assumes equal access to resources and equal access to labor (therefore and equal cost of labor) just to mention two items.

Exactly, I really like both comments.

In my opinion we have only 2 choices:

- being simple economically owned by China+vassals (with Chinese force multiplier being Central, East and South East Asian countries in their sphere of influence): most of Eurasia - Chinese backyard.

- create some sort of EU+US+Canada+Mexico+Australia+New Zealand economic area, call it NOEU (North America, Oceania and Europe Union), read like new, similar to current European Union. Seal this market off any Chinese goods and services (unless really necessary). Rebuild core industries. Select a few African and Latin American countries for targeted offshoring, but without any Chinese intermediation.

Unfortunately Japan, South Korea and Taiwan are too tightly connected together and with Chinese economy to join the pack in the first phase. But I think after 5 years, if NOEU proves itself they could be attracted to join.

In my opinion this is our only way forward (or to start learning Mandarin and doing some menial services, finding niche markets, not overhelmed by Chinese behemoth).

Edited by Marcin2
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6 hours ago, Douglas Buckland said:

The whole concept of globalization has been a fantasy since day one as there is not, and has never been, a ‘level playing field’.

A level playing field assumes equal access to resources and equal access to labor (therefore and equal cost of labor) just to mention two items.

Why does it have to be a level playing field? 

Life isn't fair and never will be - especially when it comes to money.  Not everyone starts life with a million from daddy.

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