Tag Archives: Trade War

American Consumers, Not China, Have Been Eating Trump’s Trade Tariffs All Along

New York Fed and academic researchers found that U.S. consumers and companies have borne the brunt of the president’s trade war.

WASHINGTON — American businesses and consumers, not China, are bearing the financial brunt of President Trump’s trade war, new data shows, undermining the president’s assertion that the United States is “taxing the hell out of China.”

“U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers,” Mary Amiti, an economist at the Federal Reserve Bank of New York, wrote in a National Bureau of Economic Research working paper. The other authors of the paper were David E. Weinstein of Columbia University and Stephen J. Redding of Princeton.

Examining the fallout of tariffs in data through October, the authors found that Americans had continued paying for the levies — which increased substantially over the course of the year. Their paper, which is an update on previous research, found that “approximately 100 percent” of import taxes fell on American buyers.

The findings are the latest evidence that voters and American businesses are paying the cost of Mr. Trump’s penchant for using tariffs to try to rewrite the terms of trade in favor of the United States.

Manufacturing is slumping, a fact economists attribute at least partly to uncertainty stemming from the trade spats, and business investment has suffered as corporate executives wait to see how — or if — the tensions will end.

The United States and China have reached a trade truce and are expected to sign an initial deal this month, but tariffs on $360 billion worth of Chinese goods will remain in place. The levies, which are as high as 25 percent, have forced some multinational businesses to move their operations out of China, sending operations to countries like Vietnam and Mexico.

Mr. Trump and his supporters say that the United States had no choice but to resort to tough tactics to try to force China to abandon unfair economic behaviors, like infringing on American intellectual property and providing state subsidies to Chinese firms. And Mr. Trump has continued to incorrectly assert that China — not American companies and consumers — is paying the cost of the tariffs.

Tariffs may have worked as a negotiating chip to get China to the table, but recent academic research shows that leverage has come at a steep price for some American businesses and consumers.

The authors of the latest study used customs data to trace the fallout, examining import values before and after the tariffs. The research showed that the tariffs had little impact on China.

“We’re just not seeing foreigners bearing the cost, which to me is very surprising,” Professor Weinstein said in an interview.

They also found a delayed impact from the tariffs, with the decline in some imports roughly doubling on average in the second year of the levies.

That is because “it takes some time for firms to reorganize their supply chains so that they can avoid the tariffs,” the authors write.

Reaction to the tariffs has varied across business sectors, however. In the steel industry, for example, companies that export to the United States have dropped their prices — suggesting that other countries are in fact paying “close to half” of the cost of tariffs, according to the paper.

Because China is only the 10th-largest steel supplier to the United States, though, exporters in the European Union, Japan and South Korea are most likely bearing much of that cost. And as foreign prices drop, domestic steel production has barely budged, which bodes poorly for hiring in the United States steel industry, the authors note.

“The steel industry isn’t getting that much protection, as a result,” Professor Weinstein said.

In previous research, the authors found that by December 2018, import tariffs were costing United States consumers and importing businesses $3.2 billion per month in added taxes and another $1.4 billion per month in efficiency losses. They did not update those numbers in the latest study.

Their analysis joins a growing body of research examining the effects of the escalating tariffs Mr. Trump has imposed since the beginning of 2018.

A study released in late December by two economists at the Fed, Aaron Flaaen and Justin Pierce, found that any positive effects that tariffs offered American companies in terms of protection from Chinese imports were outweighed by their costs. Those costs include the higher prices companies must pay to import components from China, and the retaliatory tariffs China placed on the United States in response, the economists said.

Another study, published in October by researchers at Harvard University, the University of Chicago and the Federal Reserve Bank of Boston, also found that almost all of the cost of the tariffs was being passed on from businesses in China to American importers.

The October study found that the situation was not the same for the tariffs that China has placed on American goods in retaliation. The researchers found that American businesses had less success passing on the costs of those tariffs to Chinese importers, most likely because of the types of goods being sold.

Many of the products that the United States sells to China are undifferentiated commodities, like agricultural goods, but China sends many specialized consumer goods like silk embroidery, laptops and smartphones to the United States. China can easily swap Brazilian soybeans for American ones, but the types of goods that China sends to the United States are harder for American businesses to substitute, the researchers said.

Ms. Amiti’s colleagues at the New York Fed have traced the costs of tariffs in other research. Their study similarly found that import prices on goods coming from China had remained largely unchanged as tariffs rolled out, and argued that already-narrow profit margins — ones that leave no room for cutting — and a dearth of competitors could be among the factors insulating Chinese exporters.

Source: by Jeanna Smialek | The New York Times

Farm Crisis: Suicides Spike In Rural America As Trade War Deepens

https://whiskeytangotexas.files.wordpress.com/2019/05/distressed_maga_hat.jpg?w=511&zoom=2

The deepening trade war between the US and China has roiled complex global supply chains and America’s Heartland. The latest breakdown in negotiations comes at a time when soybean exports to China have crashed, and huge stockpiles are building, have resulted in many farmers teetering on the verge of bankruptcy. Mounting financial stress in the Midwest has allowed a public health crisis, where suicide rates among farmers have hit record highs, according to one trade organization’s interview with the South China Morning Post.

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Trudeau Prepares Sacrifice Of Canadian Job Market For Her Majesty

Remember Ottawa Justin is nothing more than her majesty’s spokesman…

Report: Canada Comfortable Resisting Trump By Intentionally Missing Trade Negotiation Timeline…

According to a CBC article citing a “Senior Canadian Official”, the Trudeau government is completely “comfortable” missing an October 1st deadline to join the U.S-Mexico trade alliance:

…”The source who spoke to CBC News on background, due to the sensitivity of the talks, said the external political pressure “is not a good enough reason,” for Canada to be forced into a fast finish.”… (more)

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This statement follows a series of actions by Canadian Foreign Minister Chrystia Freeland and Justin Trudeau which highlights their intent to resist any trade agreement while counting on domestic politics to deliver electoral forgiveness.  Indeed for all intents and purposes it would appear Justin and Chrystia are willing to damage their economy for political benefit.

Meanwhile the Mexican government is affirming their intent to go forward with a bilateral trade deal if needed because the U.S-Mexico joint agreement is in their best interests.  According to Mexico’s Chief Negotiator, Kenneth Smith-Ramos:

“We hope the U.S. and Canada will conclude their bilateral negotiation shortly. If that is not possible we are ready to advance bilaterally with the U.S … the agreement in principle that we closed with the U.S. is positive for Mexico because it preserves free trade and modernizes our trade agreement …”

A year ago it seemed almost impossible to see an agreement with Mexico that would facilitate the interests of both countries.  However, with the successful election of Mexican President Lopez-Obrador, a remarkable populist shift dramatically changed the landscape within the Mexican economic outlook and policy.

Outgoing Mexican President Peña Nieto, structured his economic policy around accepting multinational corporate investment and the parasitic outcomes at follow. Exfiltration of wealth and exploitation of resources/labor are an outcropping of predatory multinational trade exploitation and globalism.

Retention of the multinational schemes generally leads to massive corruption. In the U.S. this corruption is known as “lobbying”, in Mexico the process is called ‘bribery’; however, the activity is the same.

The incoming Mexican President, Lopez-Obrador (AMLO), is more of an economic nationalist; and quite remarkably his economic outlook, at least as his team has described the objectives so far, is quite Trumpian. You might even say: “Make Mexico Great Again”.

Both U.S. President Trump and Mexican President-elect AMLO have similar outlooks toward predatory multinational corporations and economic exploitation. If you think about how Mexico was used by the multinationals in the past twenty years; and then think about a very real possibility of a U.S President and Mexican President having an economic friendship; well,… holy cats, those multinationals could be remarkably nervous right now.

AMLO supports labor and has an agenda to create a strong middle-class. President Trump supports labor, and his economic agenda is laser focused on a strong middle-class. AMLO views Wall Street multinationals as predatory by disposition. President Trump views those same multinationals as tending toward predatory behavior and in need of correction for their participation in the erosion of the American middle-class. AMLO is a strong Mexican Nationalist. President Trump is a strong American Nationalist.

As long as AMLO stays away from the authoritarian tendencies of power, ie. government ownership of private industry; surprisingly he and President Trump are likely to have a great deal more in common than most would think. Both populists; both nationalists.

This explains why the framework of the U.S-Mexico trade agreement was possible to construct. Right now both teams are filling in the details.

With AMLO and President Trump, Mexico and the U.S. have joint-interests in an economic trade bloc. President Trump and President Lopez-Obrador have common objectives; and with the economic approach outlined by AMLO toward using Mexico’s energy resources as leverage for expanded investment, the U.S. is well positioned to help.

President Trump is well positioned to assist the united trade bloc with expanded cross-border investment for economic development. AMLO wants a higher standard of living for Mexican workers; President Trump wants greater parity between Mexican workers and their U.S. counterparts. Heck, it was U.S. Commerce Secretary Wilbur Ross and USTR Robert Lighthizer who first proposed raising the Mexican minimum wage. Now both countries have agreed to an incremental Mexican minimum wage aspect of $16/hr within the auto sector.

Combining the wage aspect with the content and origination agreement, this has become a win/win for both AMLO and President Trump. The multinationals within the auto-sector might not like it, but they’ve already put a massive amount of money into plant and manufacturing investment in their existing Mexican footprint. They have no choice.

In an generally overlooked outcome the nationalist interests of Mexico, specific to AMLO, are very close to alignment with the nationalist MAGA agenda of President Trump. Canada is the globalist oddball in this tri-fecta; which makes a trilateral deal almost impossible, and explains why Mexico is so willing to sign a bilateral agreement.

The U.S. economy is expanding at an unprecedented rate, and Mexico prepares to surf the MAGAnomic tsunami known as Donald Trump.

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Finish by listening to Canadian Ezra Levant of The Rebel to break it all down for us…

Source: by Sundance | The Conservative Tree House

China’s Trade War Surplus With US Hits Record High At The Worst Possible Time

Three days after the US reported a record trade deficit with China, overnight Beijing confirmed this record print when the General Administration of Customs announced that China’s trade surplus with the U.S. hit another record monthly high in August, rising to $31.05 billion from $28.09 billion in July, and surpassing the previous record set in June as the world’s second-largest economy faced the threat of more tariffs from the Trump administration.

https://www.zerohedge.com/sites/default/files/inline-images/China%20trade%20US%20aug.jpg?itok=1Kae-6y7

A key reason for the latest record print was the sharp slowdown in US outbound trade, as China’s imports from the US grew only 2.7% in August, a sharp slowdown from 11.1% in July. At the same time, China’s exports to the United States accelerated, growing 13.2% from a year earlier from 11.2% in July, even as U.S. tariffs targeting $50 billion of Chinese exports took full effect for their first full month in August.

Over the first eight months of the year, China’s trade surplus with the US – its largest export market – has risen nearly 15% arguably at the worst possible time, as the number will surely add to tensions in the trade relationship between the world’s two largest economies which culminated with Trump’s announcement on Friday that he is planning to slap tariffs on virtually all Chinese goods entering the US.

Behind China’s export boost a combination of factors: i) the weaker Chinese yuan and ii) exporters’ front loading of shipments in anticipation of more tariffs, both of which contributed to the worsening trade imbalance according to Liu Xuezhi, an economist with Bank of Communications.

Chinese officials acknowledged Chinese exporters have been rushing out shipments to beat new U.S. tariffs, artificially buoying the headline growth readings, while some companies such as steel mills are diversifying and selling more products to other countries. “In the short term, it is difficult for the trade gap to narrow because American buyers cannot easily find alternatives to Chinese products,” Liu said. This suggests that the trade war, which has been escalating, won’t be resolved quickly, the Shanghai-based economist said.

A more optimistic take came from Zhang Yi, an economist at Zhonghai Shengrong Capital Management, who told Reuters that “there is still an impact from front-loading of exports, but the main reason (for still-solid export growth) is strong growth in the U.S. economy.”

Whatever the reason, for Trump the growing trade deficit with China is confirmation that his trade policies have failed to yield results in boosting trade; this has prompted the US president to roll out increasingly more aggressive tactics to pressure Chinese trade. A summary timeline of the trade tensions between the US and China is laid out below.

https://www.zerohedge.com/sites/default/files/inline-images/china%20us%20timeline.jpg?itok=uUuQdt5x

President Trump said Friday the administration is ready to announce tariffs on another $267 billion in Chinese goods, on top of levies on $200 billion of Chinese products it has been preparing. If enacted, the third round of tariffs would bring the total amount of goods subject to levies to more than the $505 billion of products the U.S. imported from China in 2017, according to the U.S. Census Bureau.

Aside from the US, overall Chinese trade in August posted a modest slowdown, as China reported a trade surplus of $27.91 billion in August, narrowing from a surplus of $28.05 billion a month earlier, and below the $31 billion consensus estimate. 

Exports growth for China moderated to 9.8% from 12.2% in July, below the 10% estimate. Imports growth decelerated as well to 20.0% yoy in August, from a strong increase of 27.3% yoy in July, but above the 18.7% consensus estimate, boosted by the cut in import duties for some consumer goods from July 1, 2018.  In sequential terms, exports momentum weakened to a contraction of 0.8% M/M non-annualized, the first time since April, from +0.2% in July. Imports declined as well by 1.0% M/M non-annualized, down from +5.6% in July.

And here a curious observation: China’s trade surplus with the United States was larger than China’s total net surplus for the month, which means China would be running a deficit if trade with the world’s largest economy was excluded.

https://www.zerohedge.com/sites/default/files/inline-images/China%20trade%20balance%20total%20aug%202018.jpg?itok=DzojA3XR

While no one has predicted a sudden, sharp blow from U.S. tariffs, China’s official export data has been surprisingly resilient so far, with growth exceeding analysts’ expectations for five months in a row.

Yet while economists have noted that disruptions in supply chains are likely to be more company specific, and will take time to be reflected in broad economic data and corporate earnings reports, anecdotal evidence of mounting trade damage on both sides of the Pacific is on the rise. Official and private manufacturing surveys for China show global demand for Chinese goods is clearly on the wane, with export orders shrinking for months in a row.

“Risks have increased due to the negative impacts of China-U.S. trade friction. The impact on exports may gradually start to show up, with future export growth possible declining,” said Liu Xuezhi said.

For now however, the tenuous stalemate remains: while Trump is winning the trade war as represented by the capital markets, China continues to win in what really matters: a growing trade surplus with the US.

Source: ZeroHedge

Trade Wars Just Beginning… In A Fight Over An Indefinitely Shrinking Pie

From a growth perspective, it doesn’t matter if the world is 7.5 million or 7.5 billion persons…it only matters how many more there are from one year to the next.  Economic growth (or the ability to consume more…not produce more) is about the annual growth of the population among those with the income, savings, and access to credit (or governmental social pass-through programs).  That’s what this trade war is all about and why it’s just beginning.  First it was a fight for decelerating growth…but now it’s about a shrinking pool of consumers.

https://www.zerohedge.com/sites/default/files/inline-images/download%20%281%29_3.png?itok=DO2GUo09

Nowhere is this decline in potential consumers more acute than East Asia (China, Japan, N/S Korea, Taiwan, plus some minor others).  I have previously detailed China’s situation HERE but the chart below shows the broader East Asia total under 60 year old population (blue line) and annual change in red columns.  Peak growth in the under 60yr/old population (consumer base) took place way back in 1969, annually adding 22 million potential consumers.  As recently as 1988, an echo peak added 19 million annually but the deceleration of growth since ’88 has been inexorable.  Then in 2009, decelerating growth turned to decline and the decline will continue indefinitely.  What began as a gentle decline is about to turn into progressively larger tumult.  By 2030, the under 60yr/old population will be 9% smaller than present.  East Asia’s domestic consumer driven market is collapsing in real time and it’s reliance on exports greater than ever.

The chart below shows the total 0-65 year old global population (minus Africa and India…blue line) and the annual change in that population in the red columns.  Why excluding Africa/India?  Because they represent nearly all global population growth, consume less than 10% of the global exports, and haven’t the income, savings, or access to credit to consume relative to the rest of the world.  Growth (x-Africa/India) peaked in 1988, annually adding 52 million prime consumers.  However, the annual growth of that population has decelerated by 2/3rds to “just” 17 million in 2018.  Before 2030, the under 65 year old population will peak and begin shrinking.

https://www.zerohedge.com/sites/default/files/inline-images/download%20%282%29_3.png?itok=_EGpOR1Q

Simply put, West and East are fighting over a soon to be shrinking pie.  Of course, individual companies will perform better than others…but on a macro basis, global demand will be falling indefinitely aside from the debt and monetization schemes  federal governments and central bankers can conjure.

From an asset appreciation viewpoint, consider the decelerating (and soon to be declining consumer population) vs. accelerating asset appreciation.  The chart below shows the same annual under 65yr/old population growth (x-Africa/India) versus the fast rising Wilshire 5000 (all publicly traded US equities, yellow line) and global debt (red line).

https://www.zerohedge.com/sites/default/files/inline-images/download%20%283%29_3.png?itok=S9vdS79y

Next, consider the decelerating annual global population growth (as a percentage of total population x-Africa/India) versus the supposed infinite 7.5% appreciation of assets (chart shows the Wilshire 5000 continuously growing at 7.5%) versus fast decelerating consumer growth. Clearly, anticipated asset appreciation is all about rising debt and monetization…not organic growth.

https://www.zerohedge.com/sites/default/files/inline-images/download%20%284%29_3.png?itok=hxWOLOs9

Finally, a peek at the situation in the US. The chart below shows fast decelerating annual growth of the under 65 year old US population as a % of total population (black line), the ebullient Wilshire 5000 (shaded red area), actual and anticipated 7.5% appreciation of US stocks from 1970 through 2025 (dashed yellow line), and total disposable personal income representing the actual economy (blue line).

https://www.zerohedge.com/sites/default/files/inline-images/download%20%284%29_3.png?itok=hxWOLOs9

Infinite growth  models are running headlong into very finite limits.  Invest accordingly.

Source: ZeroHedge

Global Trade War Could Not Have Come At A Worse Time

Despite all the propaganda that the world had reached utopian levels of ‘globally synchronous recovery’ growth last year, 2018 has seen that narrative collapse as China’s credit impulse dries up, The Fed continues on its path to ‘normalization’, and the world wakes up to Europe’s smoke and mirrors economic renaissance…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-06_2-09-59.jpg?itok=B5LidMt4(click for larger image)

And, as if that was not enough to spook even the most ardent bull, Bloomberg notes that rapidly accelerating trade ‘battles’ are focusing minds on that simmering threat to markets: the eventual easing of synchronized global growth.

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-06_2-04-30.jpg?itok=x1PllmGaThe U.S. version – which includes economic, credit and corporate indicators – is close to its 2007 peak.

The trade war tensions have arrived at a risky time, with Morgan Stanley’s cycle gauge for the developed world nearing levels last seen before prior recessions.

Source: ZeroHedge

Some Perspective On The US Trade Deficit With China

In light of increasing trade threats between the US and China, some perspective on US trade deficits is warranted. Piecing together data from a variety of sources, the following chart shows the US balance of trade since 1790, shortly after the country’s founding.

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The US maintained very closely balanced trade for the first 200 years of the country’s history. From 1790 until 1974, the last year in which the US ran a trade surplus, the US exported roughly $102 billion more than it imported. Since 1974, the US has run a cumulative trade deficit exceeding $11.64 trillion. In other words, in the last 44 years the US trade deficit was 113 times larger than the trade surplus it amassed during all previous American history. The massive deterioration in the US balance of trade since the 1970s is both historically anomalous and highly unsustainable. That multiple Presidents and Congresses have come and gone without taking serious action to correct the imbalance is indefensible, particularly given the American people’s near universal recognition of the problem and its deleterious impacts.

The US is not starting a trade war, the US has been in a trade war since the 1970s and it has been losing badly.

As we discussed here, the bulk of America’s trading problem is not with its free trade partners. The US has entered into free trade agreements with 20 countries and has seen its balance of trade improve with 16 of them since adopting an agreement. The notable exceptions are Mexico and Israel. The following chart shows the indexed change in the balance of trade with the US’s free trade partners since the inception of an agreement.

https://i0.wp.com/thesoundingline.com/wp-content/uploads/2017/02/Change-in-US-Trade-Deficit-With-Free-Trade-Partners.jpg

The majority of the US trade deficit is a result of trade with China. The US trade deficit with China is roughly $375 billion, 66% of the total US deficit. If the US managed to eliminate its trade deficit with every country in the world expect China, it would still have the largest trade deficit in the world.

The rarely discussed truth of the matter is that, in addition to a host of non-tariff trade barriers and intellectual property theft, Chinese import tariffs are over twice as high as import tariffs in the US. That the Chinese feel the need to maintain such high import barriers, despite their huge trade surplus and far lower manufacturing costs, is remarkable. They are trying to protect their high tech industries from American competition while denying the US the same privilege.

https://i0.wp.com/thesoundingline.com/wp-content/uploads/2018/03/Weighted-Average-Import-Tariffs-Around-the-World-2016-web.jpg

About 19% of Chinese exports go to the US, making the US the largest export destination for Chinese goods. Conversely, only about 8% of US exports go to China, the third largest export destination for the US. Furthermore, trade represent a significantly larger piece of the Chinese economy than it does in the US. Chinese exports to the US are also generally products that can be manufactured in other lower labor cost economies such as India, Taiwan, or Mexico.

Given all of these factors, China’s overt unwillingness to take any action to remedy a clearly unsustainable situation is likely to encourage, not deter, further American tariffs. It will be to everyone’s detriment, but mostly theirs.

Source: The Sounding Line