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Trump Tariffs to Tank Markets, Manufacturing, Farming…

Team Trump appears determined to repeal and replace the bull market and the Obama recovery by taxing imports, maybe 5%, maybe 10%. Trump’s advisors and House Republicans are talking about a “border adjustment tax” that could close the U.S. trade deficit and strengthen the dollar.

But there go stocks and Gross Domestic Product:

If implemented, economists at Deutsche Bank estimate the tax could send inflation far above the Federal Reserve’s 2 percent target and drive a 15 percent surge in the dollar.

Analysts calculate that, all else being equal, a 5 percent increase in the dollar translates into about a 3 percent negative earnings revision for the S&P 500 .SPX and a half-point drag on gross domestic product growth. The dollar index .DXY has already gained more than 5 percent since the U.S. election [Rodrigo Campos, “Stocks Could Suffer as Trump Trade Policy Takes Shape,” Reuters, 2016.12.23].

And there go industries that depend on global supply chains, like tech and auto:

The idea of a tax on imports “should alarm people,” according to Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

…O’Rourke said technology, a sector that represents the globalization trade, would be among the hardest hit by taxing imports.

Deutsche Bank’s auto sector equities analyst estimated the border tax could slam other industries that rely on global supply chains, with the cost of a new car, for instance, jumping by as much as 10 percent [Campos, 2016.12.23].

If anyone on Team Trump read history, we could put the brakes on the Trump tariffs with two words: Smoot-Hawley:

The Commercial and Financial Chronicle dated June 21, 1930 led off  with  the major  events  of  the  week –”the signing by the President of  the  Smoot-Hawley  tariff  bill” and “a renewed violent collapse of the stock market.” Without ever quite linking the two events, the Chronicle did observe that “if the foreigner cannot sell his goods to us he cannot obtain the wherewithal to buy our goods.” Other sections noted  that  international  stocks  were  particularly hard hit, that 35 nations had vigorously  protested  the tariff and threatened retaliation, and that Canada and other  nations had already hiked their own tariffs “in view of the likelihood of such legislation in the United States.”

It may be hard to realize how international trade could have so much impact on the domestic economy.  For years, in explaining income movements in the Thirties, attention has instead been focused on federal spending and deficits. Yet on the face of it, trade was far more important: exports fell from $7 billion in 1929 to $2.5 billion in 1932; federal spending was only $2.6 billion in 1929 and $3.2 billion in 1932. In 1929, exports accounted for nearly seven percent of our national production, and a much larger share of the production of goods (as opposed to services). Trade also accounted for 15 to 17 percent of farm income in 1926-29, and farm exports were slashed to a third of their 1929 level by 1933.

Even these numbers, however, understate the significance of trade. Critical portions of the U.S. production process can be crippled by a high tax on imported materials. Other key industries are heavily dependent on exports.  Disruptions in trade patterns then ripple throughout the economy.  A tariff on linseed oil hurt the U.S. paint industry, a tariff on tungsten hurt steel, a tariff on casein hurt paper, a tariff on mica hurt electrical equipment, and so on. Over eight hundred things used in making automobiles were taxed by Smoot-Hawley. There were five hundred U.S. plants employing sixty thousand people to make cheap clothing out of imported wool rags; the tariff on wool rags rose by 140 per cent [Alan Reynolds, “What Do We Know about the Great Crash?National Review, 1979.11.09].

Rural America, you voted for Trump—you want more Smoot-Hawley?

The tariff not only closed off the U.S. export market to farmers, it also left a vast volume of heterogeneous and specific capital goods used in agricultural production idle and suddenly worthless. Empty silos and buildings, rusting tools and machinery, and unused acreage—all in particular geographical regions—led to severe liquidations and farm foreclosures in the states experiencing the first banking crisis, with the vast bulk of failures involving small state-chartered rural banks. Economic historian Eugene White, who examined individual bank balance-sheet data, identifies the agricultural distress in the Midwestern states as a central reason for the pattern of failures. The Smoot-Hawley tariff was a direct factor in both the pattern of failures and their geographic location [Theodore Phalan, Deema Yazigi, and Thomas Rustici, “The Smoot-Hawley Tariff and the Great Depression,” Foundation for Economic Education, 2012.02.29].

Of course, rural America lobbied for Smoot-Hawley, so their record of voting for their best interest is dubious.

But hey, let’s not pick on farmers. Let’s pick on President Obama, who tried a tire tariff in 2009. How did that go?

…the total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011. The cost per job manufacturing saved (a maximum of 1,200 jobs by our calculations) was at least $900,000 in that year. Only a very small fraction of this bloated figure reached the pockets of tire workers. Instead, most of the money landed in the coffers of tire companies, mainly abroad but also at home.

The additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment in the retail industry. On balance, it seems likely that tire protectionism cost the US economy around 2,531 jobs, when losses in the retail sector are offset against gains in tire manufacturing. Adding further to the loss column, China retaliated by imposing antidumping duties on US exports of chicken parts, costing that industry around $1 billion in sales [Gary Clyde Hufbauer and Sean Lowry, “US Tire Tariffs: Saving Few Jobs at High Cost,” Peterson Institute for International Economics, Policy Brief PB12-9, April 2012].

Trump’s trade policy, like everything else he says and does, is based on impulse, not intelligence and inquiry. So asking him to listen to the lessons of past years is likely as futile as asking him to listen to this year’s Nobel laureate in economics, Harvard’s Oliver Hart:

“The idea of tearing up trade agreements or imposing tariffs is not a good way forward, so I’m worried about that,” Hart said in an interview in Stockholm on Wednesday. “Maybe it is all talk. It would be bad for the world economy and it would be bad for the U.S. to proceed along those lines.”

Hart said a better approach would be “to find other ways to help the people who have been left behind by globalization.” These would include training programs and income redistribution, he said.

“But trying to bring back jobs that have been lost, it’s an extremely inefficient and expensive thing to do,” Hart said. “So we should be looking at other ways forward. I don’t think the rich should be paying less in tax, they should be paying more, in my opinion” [Amanda Billner, “Trumponomics ‘Bad for World Economy,’ 2016 Nobel Laureate Warns,” Bloomberg, 2016.12.07].

Education? Income redistribution? Taxes on the rich? Not likely from the Trump plutocracy. Maybe our only hope is the outcome David Brooks suggested yesterday:

…even though some of us are afraid that he’ll be a very authoritarian leader and do a lot of very strong things, I can easily paint a scenario where he’s a very feckless leader and he sits in the cloud of words and the agencies of government who are career staff, they just go along their merry way and nothing actually settles into their world, the world of actual reality [David Brooks, in conversation with E.J. Dionne and Ari Shapiro, “Week in Politics: U.N. Condemns Israeli Settlements, Trump on Nuclear Weapons,” NPR: All Things Considered, 2016.12.23].

When the best we can hope for from a President is fecklessness, we’ve messed up.


  1. jerry 2016-12-24 08:37

    Hard to believe that this is the same guy that could loose money as a casino owner.

  2. Darin Larson 2016-12-24 08:45

    Trump is Herbert Hoover 2.0. At least Hoover could be forgiven for not having the benefit of hindsight and the benefit of modern economic theory and experience.

    I was hoping for fecklessness from Trump. But a feckless leader doesn’t put someone who is against public education in charge of public education. A feckless leader doesn’t put a guy who hates the EPA in charge of the EPA. A feckless leader doesn’t appoint a guy nick-named “Mad Dog” to secretary of defense. A feckless leader doesn’t appoint a secretary of labor who doesn’t believe in the minimum wage.

    This is not going to end well.

  3. jerry 2016-12-24 09:14

    Mr. Larson, there were huge gains from the Hoover legacy after he was booted from office. Americans went into a deep depression for sure, but then we got social programs that have endured, so far, to this day.
    The billionaire nominated for public education will probably do more for religious (all of them) charter schools than anyone before her. So there is that.
    The billionaire nominated for the EPA cannot even spell it so there is that.
    Mad Dog could be just the thing rural west river South Dakota needs. When there were all those missile silo’s, the current bankrupt or near bankrupt counties got money from the DOD for road work and agriculture finally got good roads to their places. Local small business had these crews coming in for convenience store goods along with gas and other purchases. The fences are all still where they were so now all they would need to do is re-dig the holes and start all over again. The Future Fund is already smacking their lips for this new bonanza!
    Put a military draft back into place and away we go with no further talk of minimum wage.

    Of course, there is still the matter of making their appointments a fact. How about the World Wrestling lady? What position will Gary Busey and Meatloaf take? Make this last Christmas count boys, your all gonna miss the Black Dude you beat hell out of for 8 years while your pocketbooks had something in them.

  4. John 2016-12-24 11:34

    . . . and maybe Trump will ask Ted Nugent to lead the Peace Corps . . .

    Trump doesn’t have a chance in hell of “making America great again” – presuming that means the world dominate super power militarily, economically, and socially. The only way to do that is a world war that obliterates the economic base of other major powers (aka redo WWII on steroids). Absent that, a quick review of ‘how not to be ignorant about the world’ lays out the population and economic case for the ascending non-US, non-EU world.

    Hint: don’t be like the Swedes. Don’t be like the shimps.

  5. grudznick 2016-12-24 11:51

    I don’t know anything about this Mr. Nugent fellow, but did you know that the Shrivers created the Peace Corps? That is one of the Kennedy clan’s biggest creations, the Corps of Peace. That’s how Mr. Shriver got his title, Sgt. Shriver. I’m sure the next president gets to name the next Sgt. to be the head of the Corps, but I have not heard who Mr. Trump might be considering.

  6. caheidelberger Post author | 2016-12-24 12:25

    John, “Make America Great Again” should be an easy slogan for Democrats to co-opt in four years.

  7. moses6 2016-12-24 12:26

    Grudz I can tell you about draft dodger ted.He evaded the service while us vets served.Nugent not any better than Trump as far as draft dodger.

  8. Richard Schriever 2016-12-24 13:06

    Grudz, Ha!!! FYI the “Sargent” in Sargent Shriver (Jr.) is not some honorific title he somehow earned. It is his given name. But please do continue to demonstrate and acknowledge your general ignorance of things and people politic and hisatoric. It is refreshing to see someone from the “conservative” side actually admit to and own their know-nothingness. Thanks and Feliz Navidad!

  9. Tim 2016-12-24 13:08

    I don’t know what everybody is stressing about, once Trump starts lobbing nukes at anybody that hurts his feelings none of the rest of this will matter. Maybe he figures nuclear winter is a good fix for global warming.

  10. grudznick 2016-12-24 13:18

    Got your goat, Mr. Schriever, eh?

  11. moses6 2016-12-24 14:54

    Amazing draft dodgers will send people to war, but will evade the service .Clinto-Cheyney- Bush jr- and noew the orange menace if he gets the chance.

  12. Jana 2016-12-24 15:50

    Let’s not forget that Trump’s twitter and One China flippancy could lead China to hurt America where it hurts with Agriculture exports and the Trump backing Midwestern states.

    I don’t understand how SD rural voters could vote against their best interests, I would like to think they are smarter than that. Or maybe they just can’t get past the (R) on the ballot that support their xenonophobias, homophobias or nostalgic irrationality.

    Read it here.

  13. John 2016-12-24 20:19

    Returning to the theme of the disgruntled former factory workers . . . alas, the economic disruption of technology and automation is nothing new in modern western life for at least 2 centuries. When it comes to jobs and economic security: adapt, migrate, or die. Get a relevant education or skill, move to where the jobs are, or become irrelevant and bitter.

    “Whatever else it was, the Brexit [and Trumpenproletariat] vote was the response of democracy to massive condescension from the elite.” . . . “The collapse of social and personal coherence interacts in a devastating way with economic insecurity.” . . . “Perhaps the kind of movement that is important in the modern world is not so much a physical one as a social and psychological one, for which many people are badly equipped. The biggest failure of policy in the United States (and also in the United Kingdom) is a stultifying and rigid educational system that makes physical and social mobility harder. That is perhaps one of the reasons that the most frequently cited last defense and hope of contemporary Western political elites is to augment state transfer systems to compensate the losers of change rather than to change the losers into citizens who can prosper in new circumstances.”. . . “The poverty of courage and imagination afflicting contemporary Western political elites would not be remedied of a sudden if these elites knew more history, although it would not hurt.” Trump, with no-ideology other than doubling down on trade and cold wars has no chance in hell of changing this and will lose his Trumpenproletariat, absent WWIII.

  14. Richard Schriever 2016-12-25 08:31

    Oaky John, so voting for Trump – the most condescendingly “elite” of all the candidates is a protest against the condescending elite. Pure gibberish. Except, of course, that Mr. Trump is such a condescending elitist that HE IS EQUALLY CONDESCENDING (in his language only, of course) toward the “lesser” elites. He is the epitome of condescension, while also being the epitome of the elite.

  15. Richard Schriever 2016-12-25 08:34

    BTW – I do not believe Trump will lose his support no matter how badly his policies affect his supporters. He will continue to shift blame to the “lesser elites” and they will continue to agree with that shifting.

  16. caheidelberger Post author | 2016-12-26 08:13

    “Trumpenproletariat”—excellent word creation, John.

  17. Porter Lansing 2016-12-26 09:17

    Harold James writes in “The American Interest” that massive condescension from the elite caused Don Trump’s win. Now, just who are these “elite”? Are you elite if you bristle at someone calling our President “Obummer”? Elite if you despise the use of “Chimpy the Kenyan” in common speech? How about, “The Jackass in Chief”? Are we elite because when our job was sent to China we went to night school and learned a new skill? Are you “downtrodden” and “put-upon” because you chose a barstool and pain pills over self discipline and re-education? Physical and social mobility is harder in USA because our education system causes you to lose motivation and initiative because it’s repetitive? It’s repetitive because that’s how your brain is wired to learn something new, quickly. Think “flash cards”. We liberals aren’t elite. You who revel in feeling sorry for yourselves are just lazy and looking for anyone or anything to blame but your self.

  18. jerry 2016-12-26 10:01

    I would hang the Carrier deal like an anvil around the neck of the Liar in Chief. The hits will keep coming so we might as well start with the big lie that got him elected in the Rust Belt.

    It is the economy stupid! Always. Same goes for South Dakota in particular. Instead of working for jobs, the governor and his legislature are working hard not to consider them. The work to prevent democracy and transparency in the state, is the work they want to pursue. Nothing for the voters, only for their corrupted pockets. The work they do in Pierre is only to better themselves.

  19. John 2016-12-27 16:27

    In forty years the US steel industry lost 75% of its work force. Yet shipments remained about the same. It’s automation, not imports, not Jina (as Trump sez), not immigrants. Obama, when he had the ability to roll the republicants, went for health care, not a New Deal. While this economic dislocation is far bigger, and pre-dated Obama – yet it’s inescapable that Obama and his predecessors from both parties could have done more.

    And now the Trumpenproletariat has buyer’s remorse . . . shoulda thought about that 6 weeks ago, rocket scientists . . . [make sure you watch the CNN clip via the link in the first sentence]

  20. mike from iowa 2016-12-27 18:24

    WAPO link was a good read, John. I can’t watch the vids- no sound on computer.

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