There’s a scene in Christopher Nolan’s excellent Dark Knight where Joker plants bombs on two different boats. One boat contains law-abiding citizens while the second contains prisoners from Blackgate. Joker tells them they have two choices: either turn the key on the detonator to make sure the other boat explodes or do nothing and risk those on the other boat setting off the other detonator. He’s certain at least one, possibly both, boats will go up in flames. The good news is neither boat explodes because good wins the day.
That’s not happening in the current tariff war between the U.S. and, well, everyone else.
The Wall Street Journal reported Saturday American companies are running into difficulties because the tariffs mean they have to raise prices on consumers. The article is behind a paywall, but Cato’s Scott Lincicome took screenshots which really don’t paint a pretty picture.
It begins: because of Trump's tariffs, American companies that use steel/aluminum are seeing their US customers opt for imported competitors OR are thinking of moving their own production offshore https://t.co/uoVHvkAnX6 pic.twitter.com/cdfzRXCRa5
— Scott Lincicome (@scottlincicome) June 2, 2018
Other companies appear to be running into problems too. Plug Power CEO Andy Marsh told The New York Times he agrees with President Donald Trump on putting pressure on China over intellectual property theft and government subsidies. The tariffs, though, are causing plenty of angst.
In February, Congress and Mr. Trump gave Plug Power an injection of optimism, by extending a tax credit that was crucial to the manufacturer’s American expansion plans. The credit allowed Plug Power to reduce the price of its fuel cells for trucks and forklifts, and to forge ahead with new hiring.
By May, Mr. Marsh had slowed his efforts to fill more than 10 open positions in Plug Power’s factory as he began worrying that the tariffs on steel and some Chinese products crucial to its business would raise the costs of the components it imports to build fuel cells. So executives had raised the price on their fuel cells, and sales were slowing as a result…
“For us, it’s created uncertainty,” Mr. Marsh said this week, referring to the administration’s flurry of trade threats and decisions in recent months. “I buy a good deal of metal parts and electronic assemblies around the world. I sit, and I’m not really sure what my costs may be and what I should be charging in price.”
Raise your hands if you’re shocked this is happening. I’m certainly not, and it’s beyond frustrating and annoying. AP wrote already about the reaction from Canada over the new tariffs and how almost $17B in retaliatory tariffs are coming. Japan is already planning its own tariffs on American products with more probably coming due to the potential auto tariffs. Toyota North America CEO Jim Lent told The Dallas Morning News in April he was pretty sure the price of their vehicles were going to go up at least $130 because of the steel tariffs. He even said the company may have to raise prices on consumers to make up the difference (even though Toyota has a huge manufacturing presence in the U.S.). You’ll probably see higher prices at American-based businesses to make up the cost differences too.
By the way, those claims by Commerce Secretary Wilbur Ross of a “trivial increase” in U.S. goods aren’t true.
— Scott Lincicome (@scottlincicome) June 1, 2018
A Peterson Institute for International Economics study also found the U.S. economy would suffer one way or the other with the tariffs. The analysis found the Trump tariffs probably would result in 195K jobs lost without retaliatory tariffs. Factor those in and the job losses would be 695K. That’s not good for an economy, even if the most recent jobs report was pretty positive. PIIE’s report also pokes holes in the theory American manufacturers will just switch to American companies.
It is possible that some automakers may shift production locations to the United States to avoid tariffs. However, such relocation decisions would have to factor in the costs of broken supply chains, investment uncertainties in light of the administration’s trade policies thus far, and less demand for products due to higher prices.
Again, not good for the economy. But, hey, at least Trump is willing to admit the tariffs are a tax, right?
The solution to stop Trump’s unilateral action on tariffs is for Congress to stop whining and do its job. Trump is using part of the Trade Expansion Act of 1962 to enact these tariffs. Congress has to either pass a bill which limits the President’s authority on steel tariffs or repeal Section 232 of the aforementioned Trade Expansion Act. Senator Bob Corker appears to be willing to do something, but it depends on if other Republicans are willing to get on board. It’s doubtful Democrats will because they’re beholden to labor unions who are in favor of tariffs. It’s doubtful anything will happen which is too bad because other countries look to be willing to, which will only hurt our economy and theirs.
To quote Joker, “Here…we…go...”