Tariff Man

Gary Varvel - Indianapolis Star

Well, he's back.  And so are his tariffs.  Everything tweet-worthy is back in the news  So it is blog-worthy to note that it was about a year ago that President Trump levied a tariff of 25% on imported steel and 10% on imported aluminum.  Translation:  an additional Republican tax on imported steel and aluminum.     

After more than a year of allowing the Republican tax to work its way thru the economy you’re probably wondering what the impact has been on the steel industry, employment, businesses that import steel and aluminum and the consumer.  I think there are four key elements worthy of examination.    

First, The Alliance for American Manufacturing would tell you that the tariffs resulted in an increase of 12,700 domestic jobs related to the production of steel and aluminum.    

Second, domestic steel prices increased.  If you happen to be a manufacturer that uses steel to make something else - the cost of domestically-produced steel is about 10% higher than rest of the world steel. If you are a domestic steel producer - President Trump along with Republican largess - increased your profitability.

On the other hand, if you are the purchaser of an automobile, a box of nails, an aluminum boat, farm equipment or paper clips your costs have likely gone up.  Analysts at the Peterson Institute have calculated the total increase in costs at roughly $11.5 billion a year. 

Most manufacturers take the expedient route and pass this cost of the tariff (the tax) on to the consumer.  For competitive reasons a few manufacturers have decided to absorb some or most of the tax increase.  But this also has a price - reduced profitability.  That's the way the baby bounces.     

Third, the President continues to insist that it is other countries that are paying the Republican tax (tariff) and that this somehow represents a windfall to the US Treasury.  I'll be polite - he is pulling your leg.  (See #2 above).  My theory is that the President knows that if he repeats a lie frequently and confidently his followers will accept it as fact.  He’s probably correct about that.  PT Barnum had a phrase for it too.  But I digress.    

Fourth, those pesky analysts over at the Peterson Institute have also performed some simple math.  If you take the $11.5 billion dollars of additional cost and divide it by the increase of 12,700 new jobs that works-out to more than $900,000 for each new job.  After almost four decades in the investment business that sounds like a rather crappy return on investment.  Moreover, jobs in those companies that use steel outnumber jobs in companies that produce steel by about 80 to 1.  

So here you go.  The quaint-old Chamber of Commerce Republican Party of the past is dead and buried.  Contemporary Republicans raise taxes, pick winners and losers, engage in protectionism and thumb their nose at free trade.  Sounds more like post-soviet central planning, eh?  

Sure, I know that some of my contemporaries are willing to hold their nose and remind me:  Donald Trump is using tariffs to extract concessions from our trading partners (and China).  It is a negotiation strategy.  They're only temporary.  You're exaggerating   You'll see. 

I suppose we will see.  Although I'll not hold my breath.  I only have to look back a few months to the bluster of the government shutdown.  What an embarrassment.  I'll bet that the Chinese got this figured-out far better than Donald Trump thinks. 

If it turns-out I am correct - those tariffs are going to start looking more permanent.  Let's not parse words - call it what it is - a Republican tax hike. 

It’s certainly not the party of Ronald Reagan anymore.    Sigh…..