Trump Plays Dangerous Game Of Chicken With Trade Tariffs

Discussion in 'Economics' started by Tom B, Jun 3, 2018.

  1. Tom B

    Tom B

    Trump Plays Dangerous Game Of Chicken With Trade Tariffs

    Trade: President Trump's decision to slap tariffs on steel and aluminum imports from the European Union, Canada and Mexico might be an effective negotiating tool to win further concessions on a trade deal, but it's not a good economic one. If it leads to a global beggar-thy-neighbor trade war, it could cost us all dearly.

    Effective immediately, the U.S. will impose a 25% tariff on steel and 10% on aluminum for foreign-made imports.

    We understand why Trump has pursued this tack. Many of our past trade deals have been badly negotiated, giving away too much and getting too little in return. There's a difference between truly free trade and lop-sided trade, and sometimes it's hard to tell the difference.

    And Trump has made an explicit link between national security and the economy. "We take the view that without a strong economy, you can't have strong national security," said Secretary of Commerce Wilbur Ross, in announcing the tariffs Thursday morning.

    But now comes the hard part. Because we can certainly expect a tit-for-tat response from the EU, Mexico and Canada.

    Already, German Chancellor Angela Merkel vowed a "smart, determined and jointly agreed" response to Trump's tariffs. And already, the EU has talked about imposing billions of dollars in tariffs on U.S. exports, possibly including orange juice, kitchenware, peanut butter, clothing, shoes, washing machines, textiles, whiskey, motorcycles, boats and batteries.

    For its part, Mexico said it will target bacon, apples, grapes, cheese and flat steel. Canada's retaliatory list wasn't revealed, but it did pledge a response.

    So, a trade war now seems likely. And it might get even larger. In two weeks, the White House releases a tariff hit-list of 1,300 Chinese goods valued at $50 billion. China has vowed to respond in kind.

    Get the picture?

    Nor will they be without cost to the domestic U.S. economy.

    As Competitive Enterprise Institute fellow Ryan Young notes, "While the tariffs could potentially save 33,000 steel jobs, the harms to downstream industries from automobiles to construction to food production could result in a net loss of 146,000 American jobs. It also encourages America's biggest trading partners to raise their trade barriers, harming their economies as well as ours."

    Tariffs = Higher Costs
    Others note that steel tariffs will boost costs in a number of industries.

    That's especially true of energy, where oil field and pipeline construction depend heavily on steel. "The cost of steel represents roughly 10% to 20% of the overal cost of construction and operating an oil field," writes American Enterprise Institute Fellow Benjamin Zycher. "Pipelines often are made of specialty steels not currently produced in the U.S., and replacing that foreign output domestically will raise prices."

    Not to mention that the U.S. will almost certainly be challenged in the World Trade Organization and likely will lose.

    Trump is playing chicken with major U.S. trading partners, hoping they swerve at the last minute. The big question is, can Trump force can concessions in trade talks with with minimal damage to the U.S. economy, or will a trade war lead to a nasty downturn in global markets or even hurt the U.S. economy's growth? What if no one in this game of chicken swerves?

    These are legitimate questions. Trade is a dangerous weapon, one that can backfire on those who use it as one. Yes, not all trade deals are perfect. But to the extent they lead to freer trade, and more goods and services crossing borders, they represent a net benefit to America — and to our trading partners.

    We can only hope that these tariffs won't last, with a quick resolution of issues on both sides. The U.S. today needs Canadian, Mexican and European Union support on a number of issues, ranging from sanctions on Iran to stemming illegal immigration.

    https://www.investors.com/politics/editorials/trump-trade-tariffs/
     
  2. smallfil

    smallfil

    You think the other countries do not have their self interest at hand? They have the unfair trade advantage which is why they are not going to give it up willingly. That is why you need the tariffs as a cudgel! What the US has is leverage because we are probably, the largest market on the planet. If they want to continue doing business in the US, they have to engage in fair trade which is simply, this. If you export $100 billion into the US, you have to buy $100 billion in US products! Why do you think the Chinese suddenly, promises to buy another $200 billion in US products? That is to alleviate our anger and demand for fair trade. If we had fair trade, we would not be adding to the deficits because both sides would be equal to zero without a surplus! A win-win for both countries.
    Now, what happens in a trade war? Tariffs are levied on products of both countries. Who loses out? The countries with larger exports loses out! This is just simple math. Say China levies a 25% tariff on US goods and we retaliate by levying 25% tariff on Chinese goods in turn. I read China exports like $200 billion to the US but, buys only $50 billion in US goods? Do the math. Who is going to collect more tariffs? When Chinese goods become more expensive, it hurts US consumers per the arguments of liberals. Not necessarily. Take note, most goods now are produced by multiple countries. So, poorer countries goods could end up being cheaper than Chinese goods. If I have to buy foreign goods, I will not reward China if we have a trade war with them? Why should I? That is aside from the fact that another import probably, is just as good and now, cheaper? Here is the kicker, when Chinese goods become too expensive from tariffs, demand goes down quite a bit. Chinese companies suffer huge losses, layoffs at Chinese companies now struggling. Whose economy took the bigger hit?
     
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  3. I agree with Trump...we have nothing to lose but 800 billion a year if nothing is done.

    I think this is a good time to do this..ok it may soften "the winning" but lets do this now. We will have a better America in the future.


    ES
     
    gkishot, met1989, volpri and 2 others like this.
  4. clacy

    clacy

    People need to understand that "playing chicken" is major component of negotiations. Trump is a negotiator, so he's going to get as good of a deal as he can for the US (which is part of why he was elected).

    Negotiations can seem scary at first if you're a p*ssy.
     
    broomstick, met1989, volpri and 4 others like this.
  5. Palindrome

    Palindrome

    The analogy is, if your at a card table and sit down with 500 bucks, and USA is sitting next to you.. They sit down with 20,000 bucks.

    Trump/USA can bluff and push people around as much as they want.

    "Trade war, Blah blah blah" Love the media panicking all day long. Trump is just squeezing money back into our economy instead of allowing other economies to squeeze us.
     
    traderob, volpri and dozu888 like this.
  6. dozu888

    dozu888

    The left is so desperate now. they have zero agenda to run on.

    ET is a great place to hang out... 1 post with some bogus lefty spin (not a stab to OP), immediately several follow ups from people who can see the truth. Traders do have eyes for the truth.
     
    Tom B and volpri like this.
  7. I'm a european living in europe and i'm disgusted by european press being hypocrite as they are

    for example:

    * the EU has 4 times more import taxes to protect their economy than the USA
    * the EU has twice as big of import tax on cars than the USA

    What trump is doing should have been done decades ago i can only hope we could vote for a president in the EU (we can't) with balls like that

    people forget that the USA is a huge economy with close to 95% of the GDP ONLY DONE IN THE USA

    To put it simple, the USA doesn't need the world, it's the world who needs the USA
     
  8. So its time to take some chips off the table and see how this plays out?
     
  9. Palindrome

    Palindrome

    There is finally someone who knows how to play poker in the white house, especially one that understands he who has the most chips, typically gets what they want.
     
  10. volpri

    volpri

    That is basically what my Dad says. I thought it was american arrogance. I guess I was wrong.
     
    #10     Jun 3, 2018