What Happens If Trump's Trade Agenda Brings On Another Great Depression?

Something like 9,000 of barrels of bourbon were destroyed in a Kentucky warehouse crash Friday. I wonder if insurance will cover the damages. Maybe the company was lucky... since bourbon is one of the U.S. exports being targeted by countries around the world in retaliation for Trump's trade war.

The NY Times reported yesterday-- Lobsters, Small-Batch Whiskey and Trump’s Trade War-- that Trump's trade war may become politically perilous for Republicans because his "trade policies are starting to inflict economic pain across the country, including in areas that are home to the voters who helped him win election... Business owners across the country are fearing the worst and wondering if Mr. Trump, who calls himself a master negotiator, will get the better end of the deal." Malcolm Broome, executive director of the Mississippi Peanut Growers Association, is worried because now China is moving into the U.S. share of European peanut butter exports. He said that many of the peanut farmers in his state have been supportive of Trump’s economic agenda, but that they will be watching carefully to see how he manages the trade negotiations. "If this can give him some leverage to get a deal made, they’d be all for that," Broome said. "If it doesn’t work and he’s miscalculated, then it could be a different story."

The cascade of tit-for-tat tariffs has spooked corporate executives, potentially slowing investment, and the Federal Reserve suggested this week that it might have to rethink its economic forecasts if the trade wars continue.

On Friday, Mr. Trump only added fuel to the fire when he threatened in a tweet to impose a 20 percent tariff on all European cars coming into the United States if the European Union did not remove its auto tariffs. “Build them here!” the president wrote.

...In the 2016 presidential election, George Skarich, the vice president of sales for the Missouri-based Mid Continent Nail Corporation, voted for Mr. Trump and hoped that he would use his business acumen to supercharge the economy.

The economy is booming, but Mr. Skarich said he was not reaping the benefits. Instead, as a result of Mr. Trump’s trade policies, Mr. Skarich said his nail company may soon be out of business.

Mid Continent, the largest American producer of nails, imports steel from Mexico to make its nails. That steel is now subject to the 25 percent tariffs that Mr. Trump imposed on dozens of countries, forcing Mid Continent to raise its prices by nearly 20 percent.

Orders have plummeted by 50 percent this month as the company tries to compete with cheaper foreign-made nails. Those foreign manufacturers are not facing higher steel costs, giving them an advantage over Mid Continent.

The company, which employs about 500 workers, has already cut 60 jobs. It could potentially cut 200 more in the coming weeks.

While Mr. Trump might propose that Mid Continent simply buy American-made steel, it might not be so simple: Mr. Skarich notes that the cost of American-made metal is much higher than what the company had been importing from Mexico, meaning it would still have to raise prices for its nails if it used domestic steel.

Mr. Skarich, a Republican, has lobbied Senator Claire McCaskill, a Democrat from Missouri, for help.

“He ran on ‘Make America Great Again,’ and the point was to defend and protect jobs in the United States,” Mr. Skarich said. “Now here is an action he decides to take that has the potential to cost 500 U.S. citizens their jobs.”

Friday, The Atlantic published a piece, How Do You Know When It's Officially a Trade War?. Thanks to Trump's idiocy, we're now locked in a trade war with our closest allies. Imposing tariffs, which are met with retaliatory tariffs, which are then met with even more retaliatory tariffs, is the kind of tit-for-tat behavior global trading rules were designed to prevent. On Friday Trump was threatening more tariffs on counties that respond the tariffs he's already imposed, which they're doing anyway. "[T]he EU’s new tariffs, on items like bourbon and blue jeans, went into effect Friday. It’s not clear whether Trump’s new threat was timed to mark that event. After all, it was only two days ago that U.S. Commerce Secretary Wilbur Ross told American lawmakers that the White House had made “no decision” on whether to recommend tariffs on automobile imports.

But how do you know when it has materialized? Marianne Schneider-Petsinger, a U.S. geoeconomics fellow at the London-based Chatham House, told me a trade war requires two elements. “One is the tit-for-tat tariffs that set off a downward spiral of protectionism,” she said. Check. “The other element is that there is no more space for negotiations to potentially de-escalate the dispute.”

It’s this element that’s missing so far. Though the EU has previously stated that it will not negotiate under threat, the bloc hasn’t ruled out negotiations entirely. In fact, Germany’s auto industry—which would be hardest hit by automobile tariffs—has said it would be amenable to reducing auto tariffs between the U.S. and Europe, provided that it be discussed through negotiations. “The basis for future agreements between the EU and the U.S. must be the rules of the WTO,” the German Association of the Automotive Industry (VDA) said this week in a statement. “There is no proposal for unilateral concessions or the mutual dismantling of car duties exclusively.”

Whether the Trump administration would be open to such negotiations is still unclear. The American president instructed the Commerce Department to investigate whether there could be national-security grounds for imposing tariffs on European automobiles and auto parts, which was the justification the administration used to impose its metal tariffs. Ross, the commerce secretary, said the department aims to wrap up its review within the next two months.

But if the Trump administration is not open to negotiations, the EU has already signaled its willingness to make a collective response. “We did not want to be in this position,” Malmström said Wednesday in a statement in reference to its retaliatory tariffs, adding that when it comes to the bloc’s retaliatory measures, “Our response is measured, proportionate and fully in line with WTO rules. Needless to say, if the U.S. removes its tariffs, our measures will also be removed.”

“I do think that at the moment Trump is using this as more of a negotiation tactic-- I don’t think it’s just a coincidence that he tweets that on the same day that the European [retaliatory] tariffs go into effect,” Schneider-Petsinger said. “There are tensions that cannot be ignored and shots are being fired, but it’s not a full-blown trade war yet because there is still room for de-escalation.”

If it’s still something less than a trade war, it will no doubt incur casualties-- on both sides. Germany sold 1.35 million vehicles in the U.S. in 2017. And as the VDA pointed out last month, U.S.-based German automobile plants employ as many as 110,000 people. Half of those jobs, the VDA says, are dependent on German exports.

Saturday, David Lynch, writing for the Washington Post, reported that "in less than two weeks, U.S. customs officers are scheduled to begin collecting tariffs on Chinese imports, a step that will either give President Donald Trump the leverage he needs to secure a trade deal with Beijing or plunge the world's two largest economies into a dangerous commercial conflict. With no talks underway between the two sides, prospects for an early deal that averts imposition of the import levies appear dim.

Once the U.S. tariffs on the first $34 billion in Chinese goods take effect on July 6-- and trigger Chinese retaliation against American farmers and exporters-- the political pain will mount for the president, according to several former U.S. negotiators and trade analysts.

Complaints from affected voters could push Trump to settle for a limited deal involving higher Chinese purchases of American products and promises of future market openings and leave the president vulnerable to charges of having blinked in his confrontation with China, the former officials said.

...Trump's base, which cheers his attacks on Beijing as a hostile power guilty of "economic aggression," expects him to fulfill his promise to shrink the trade gap, which he blames for the loss of millions of American manufacturing jobs.

So far, that gap has widened during his presidency and is on course to set a record in 2018. Through the first four months of this year, the U.S. trade deficit with China was nearly 12 percent higher than during the same period last year, according to the U.S. Census Bureau.

...More than twice as many jobs are exposed to Chinese tariffs in counties that voted for Trump in 2016 as in areas that backed Hillary Clinton, according to the Brookings Institution.

"They have mapped this out to a very fine level of detail, down to congressional districts," said China expert Aaron Friedberg of Princeton University. "It is intended to inflict maximum pain on people they recognize as being Trump's primary constituents in hopes that it will make him change course."