A Tutorial on Trump, Trade, and Tariffs

Donald Lambro
|
Posted: Jun 02, 2017 12:01 AM
A Tutorial on Trump, Trade, and Tariffs

WASHINGTON - America’s lethargic economy isn’t doing so good and President Trump’s tax cut plan to get it growing again is stalled in Congress for the foreseeable future.

     Economic growth is weak. Consumer confidence fell in May for the second straight month. Manufactured goods orders dropped in April. The Federal Reserve is hedging on its plans to raise interest rates due to worries about the slowdown.
     Meantime, Trump’s attention is almost entirely focused on an armada of government investigators digging deeply into his administration’s suspicious, and possibly illegal, back-channel relations with Vladimir Putin and other Russian officials, bankers and businessmen.
     The Gross Domestic Product, the U.S. Commerce Department’s broadest measurement of the economy’s growth rate, was barely breathing, registering 1.2 percent in the first three months of this year. And “doubts remain about the rest of the year,” CNBC’s economic analysts said this week.
     The first quarter rate “was still weak… and economic measures overall have been missing economists’ expectations at a steady clip,” the business network said.
     Orders for longer-lasting manufactured goods fell 0.7 percent in April, a bleak sign that U.S. manufacturing was barely treading water. Transportation equipment orders dropped 1.2 percent in April.
     New home sales slid 11.4 percent in April, the worst decline in more than two years. Even more disturbing, they fell in every region of the country.
     The Conference Board, a business research group, reported earlier this week that consumer spending “grew at the slowest pace in seven yearsin the first quarter.”
     “After the election… nobody wanted to bet against (Trump’s) predictions that his policies could revive economic growth to 3 or 4 percent,” economist Ed Yardeni, who heads Yardeni Research, told CNBC.
     But “I think it’s looking more and more like a stretch, if nothing else because his policies aren’t going to be implemented anytime soon,” he added.
     Moreover, “the decline in investment spending “doesn’t bode well for the second quarter GDP,” either, says Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets.
     Meantime, Trump’s focus — if one can call it that — is all about declaring war on free trade, like his “border tax” proposal on imports, and imposing 35 percent tariffs on our largest trading partners.
     That of course will send prices through the roof, further weakening our economy and hurting consumers.
     When has raising taxes on consumer goods ever been good for our economy? Especially one as weak as ours. Remember the Smoot-Hawley tariffs that prolonged the Great Depression in the 1930s?
     Last week, during meetings with the European Union leaders, the president went after German Chancellor Angela Merkel, sharply attacking her for the large number of German cars being sold in the U.S. And pressing her to make a deal on a new trade pact.
     What Trump didn’t understand is that any deal must be negotiated with the E.U., not with individual countries.
     When Merkel visited the White House in March, she had to explain to the president how trade deals with the E.U. nations had been negotiated nearly a dozen times.
     According to European news reports, Trump repeatedly asked her again if they could cut a deal between their two countries, but she replied “You can’t do a trade deal with Germany, only the E.U.”
     Finally, Trump embarrassingly “got the message” and replied, “Oh, we’ll do a deal with Europe then.”
     But in his nonstop criticism of our U.S. trading partners and a growing trade deficit, Trump conveniently leaves out a critical fact: Almost all the major “foreign” car companies make their cars here in the U.S., employing hundreds of thousands of U.S. workers.
     “German carmakers employ about 33,000 workers in the United States and German automotive suppliers about 77,000 more,” according to the Reuters news agency.
     In the long run, “the United States would be shooting itself in the foot by imposing tariffs or other trade barriers,” says Matthias Wissmann, president of Germany’s VDA  automotive industry association.
     Daimler’s Mercedes-Benz and BMW, for example, have  “sizable” factories in Spartanburg, S.C. where 65 percent of their cars are exported to Asia and Europe.
     Trump, as we’ve learned, is given to wild exaggeration when talking about his ability to make business deals. But, as his talks with Merkel showed, he didn’t have a minimal understanding of the rules that govern trade negotiations.
     One thing he should understand is that our economy is dangerously anemic, and the cure is tax policy not trade.