Trump's tariff wars...long post.

[peteb]

6 minutes ago, tegs07 said:

Over time IMO there will be a shift towards local production. People will have to adjust to a higher cost world. Various factors from Chinese demographics, shipping costs, geopolitics etc will reshape our trading arrangements. It won’t happen overnight but it will happen.

 

That will mean either a significant fall in the standard of living for western workers, or a big drop in income for venture capitalists / rentiers (for want of a better term). I wonder which will happen? 

 

[chris_b]

12 minutes ago, tegs07 said:

Over time IMO there will be a shift towards local production. People will have to adjust to a higher cost world. Various factors from Chinese demographics, shipping costs, geopolitics etc will reshape our trading arrangements. It won’t happen overnight but it will happen.

 

That's OK if we're happy to see the end of consumerism as we've known it for the last 60 years. Buying stuff is what drives many economies in the West. That'll have to stop and we'll have to go back to the attitudes of my grandparents generation, when you had one thing for best and another for daily use. And stuff was so expensive to buy it was repaired instead of thrown away. Sorry buy I can't see that happening, especially in the US.

[peteb]

, 

The import / export of jam is probably not the best example, but the USA does have a lower average external tariff on goods imports than many of its trading partners. However, the difference in average tariffs is less than 1% with the UK and less than 2% with the EU. 

 

Remember that the USA ked the charge for globalisation in the 80s and has structured its economy accordingly. This was massively beneficial to the USA economy, but not for the average American worker in the manufacturing sector. Trying to reverse this process is going to have a further negative impact on these workers, as wages would have to go down to compete with the levels in the far east - you can't put the genie back in the bottle! Trying to address this with tariffs will lead to big price increases, making ordinary families much worse off. They are screwed either way, but will probably be much worse off under Trump's policies. But, don't worry, the very rich will still do aright!  

 

[SumOne]

55 minutes ago, chris_b said:

 

It's doomed from the start. Americans are not going to work for pennies, as Asians often do. They will work for dollars, which will price most of these on-shored products out of the market.

That is the sort of 'business as usual' thing that fans of Trump are against though. Things change quite drastically and quite often throughout history. This level of global trade is a relatively recent thing and things can quickly change - possibly for the worst, but potentially for the better too.

 

Asian living standards are going up, they will be demanding more money. And if people in the USA are forced to pay more due to tariffs then that's just what'll happen - they will pay more and/or buy less (either imports or domestically produced).

 

It was a deliberate move by China to subsidise industries to get a foothold in the west so strong that the west loses its industries and completely relies on China for many manufactured goods.  Next China step would be to put up prices.

 

Perhaps it isn't such a bad thing that the world becomes less reliant on subsidised cheap labour from other countries and we move away from a constant drive to reduce costs however possible.

 

 

Edited 22 hours ago by SumOne

[peteb]

20 minutes ago, SumOne said:

That is the sort of 'business as usual' thing that fans of Trump are against though. Things change quite drastically and quite often throughout history. This level of global trade is a relatively recent thing and things can quickly change - possibly for the worst, but potentially for the better too.

 

Asian living standards are going up, they will be demanding more money. If people in the USA are forced to pay more then that's just what'll happen - they will pay more and buy less (either imports or domestically produced). It was a deliberate move by China to subsidise industries to get a foothold in the west so strong that the west loses its industries and completely relies on China for many manufactured goods.  Perhaps it isn't such a bad thing that the world becomes less reliant on subsidised cheap labour from other countries and we move away from a constant drive to reduce costs however possible.

 

 

 

What you say is correct, except, there is no potential for things to change for the better for American workers. The reliance on cheap labour from other countries isn't going to change until domestic wages go down in real terms to the same level. 

 

[TimR]

35 minutes ago, chris_b said:

 

That's OK if we're happy to see the end of consumerism as we've known it for the last 60 years. Buying stuff is what drives many economies in the West. That'll have to stop and we'll have to go back to the attitudes of my grandparents generation, when you had one thing for best and another for daily use. And stuff was so expensive to buy it was repaired instead of thrown away. Sorry buy I can't see that happening, especially in the US.

 

This was always on the cards. You can't keep switching manufacturing bases to where the cheapest labour is. As China has found, people want the goods they're making, so they want higher pay. 

 

There becomes a point where there are no cheap goods and no labour differential.

 

Then as people become richer and more educated and mortality decreases, population decreases. 

 

 

[TimR]

Move fast, disrupt works fine when people can leave a business and find another job, or the business can evolve with speed. 

 

A country of 305m people is like a tanker. Once it's heading for the rocks, running around trying to steer it or ramming it in reverse won't make any difference. People are going to be manning the lifeboats pretty soon. 

[tegs07]

13 minutes ago, peteb said:

 

What you say is correct, except, there is no potential for things to change for the better for American workers. The reliance on cheap labour from other countries isn't going to change until domestic wages go down in real terms to the same level. 

 

Or prices globally start to level out due to a combination of factors such as a reduction in numbers of workers, rising costs (including wages) in Asia, increased shipping costs (in part due to geopolitics) etc

[tegs07]

16 minutes ago, TimR said:

 

This was always on the cards. You can't keep switching manufacturing bases to where the cheapest labour is. As China has found, people want the goods they're making, so they want higher pay. 

 

There becomes a point where there are no cheap goods and no labour differential.

 

Then as people become richer and more educated and mortality decreases, population decreases. 

 

 

I think a whole lot of red cap wearers are going to get a nasty shock when they see the price of food, cars, clothing and accommodation increase. Whether this will be offset by big decreases in income and state taxes remains to be seen.

[tegs07]

In terms of the UK at what point do you all think that the penny will drop?

We don’t have the access to a market as large as the EU to have a position of strength and I doubt Trump could care less about the UK, particularly under Labour.

[tegs07]

1 hour ago, chris_b said:

 

That's OK if we're happy to see the end of consumerism as we've known it for the last 60 years. Buying stuff is what drives many economies in the West. That'll have to stop and we'll have to go back to the attitudes of my grandparents generation, when you had one thing for best and another for daily use. And stuff was so expensive to buy it was repaired instead of thrown away. Sorry buy I can't see that happening, especially in the US.

I don’t think it’s going to be voluntary… Asia particularly China has provided a cheap pool of labour. More people in China are over 50 than under 50 now. It’s a trend across the world. Add in climate change, migration, fuel and commodity prices, global instability (yemen, suez, russia, eastern europe) etc

The era of cheap stuff is coming to an end. I have banged this drum for a while now but it’s only recently begun to become apparent that the last 30 years were an exception and not the norm.

Edited 21 hours ago by tegs07

[SumOne]

52 minutes ago, peteb said:

 

What you say is correct, except, there is no potential for things to change for the better for American workers. The reliance on cheap labour from other countries isn't going to change until domestic wages go down in real terms to the same level. 

 

But isn't that something tariffs can potentially help with?

 

e.g. Product imported from China currently costs $100 for US consumers, similar product produced in the USA costs $120, but add a 25% tariff on the Chinese import and consumers will buy more of the US made product - and the US company can even afford to put their prices (and wages) up a bit and still be competitive.  The main problem I can see is that consumers (who are those same workers) lose out, they no longer have the option of the cheaper imports (unless they want to pay that tax - which goes to their government and  in theory helps the government then fund things voters want)

[chris_b]

42 minutes ago, tegs07 said:

The era of cheap stuff is coming to an end. . . .

 

Tell that to the Republican voters. That's not what they signed up for.

[tegs07]

Just now, chris_b said:

 

Tell that to the Republican voters. That's not what they signed up for.

Indeed. I suspect no one wants to accept reality. They would always rather listen to someone who claims to have a solution and their best interests at heart (even if the people involved are billionaires with a track record of doing anything but helping ordinary working people).

[peteb]

3 hours ago, SumOne said:

But isn't that something tariffs can potentially help with?

 

 

That's very unlikely. 

 

Labour costs (wages, health & safety, benefits, pension & healthcare contributions, etc) are generally the biggest component of the cost of manufactured goods. If labour costs in Asia are less than half that of the USA (I imagine that they will be, would have been even less than that a few years ago), then the tariffs have be large enough to offset the additional labour costs minus shipping and any other costs. I doubt that 25% is going to do that, but even if it is, this is assuming that the USA still has the manufacturing capacity to produce the goods that are currently made in the far-east. All of this capacity has moved to the east since the 80s and it will cost trillions to build the factories and buy the plant to build up this capacity again. Who is going to invest that sort of money, given the long payback period and that it is highly likely that a future American government may be forced to scrap the tariffs and go back to the globalist model? Also, supply chains tend to move across national borders these days, which makes the decision to put the same tariffs on Canada and Mexico even more stupid! 

 

What will happen is that prices will go up, companies will take increased short term profits and wages will stay the same. What money is raised by the tariffs will be given as tax cuts to Trump's backers, while living standards will fall for working households due to the higher prices of everyday goods. Of course Trump will then double down, saying the reason the tariffs haven't worked is down to Biden, Canada, the EU, woke culture, etc and he's going to raise them even more (or at least threaten to), leaving the next administration to deal with the mess he's made! 

 

Edited 18 hours ago by peteb

[tegs07]

15 minutes ago, peteb said:

 

That's very unlikely. 

 

Labour costs (wages, health & safety, benefits, pension & healthcare contributions, etc) are generally the biggest component of the cost of manufactured goods. If labour costs in Asia are less than half that of the USA (I imagine that they will be, would have been even less than that a few years ago), then the tariffs have be large enough to offset the additional labour costs minus shipping and any other costs. I doubt that 25% is going to do that, but even if it is, this is assuming that the USA still has the manufacturing capacity to produce the goods that are currently made in the far-east. All of this capacity has moved to the east since the 80s and it will cost trillions to build the factories and buy the plant to do build up this capacity again. Who is going to invest that sort of money, given the long payback period and that it is highly likely that a future American government may be forced to scrap the tariffs and go back to the globalist model? Also, supply chains tend to move across national borders these days, which makes the decision to put the same tariffs on Canada and Mexico even more stupid! 

 

What will happen is that prices will go up, companies will take increased short term profits and wages will stay the same. What money is raised by the tariffs will be give as tax cuts to Trump's backers, while living standards will fall for working households due to the higher prices of everyday goods. Of course Trump will then double down saying the reason the tariffs haven't worked is down to Biden, Canada, the EU, woke culture, etc and he's going to raise them even more, leaving the next administration to deal with the mess he's made! 

 

All the above. I will add that in part the agenda is ideological and fuelled by deep seated loathing rather logic or strategic thinking. I think for the same reasons Trump will pull the USA out of NATO (incrementally at first and then altogether). He is an idiot. Working in an echo chamber of ideologues.

 

I would caution anyone against thinking that these are sound decisions formed by a master strategist. I can find scant support from any economists or analysts who actually have experience and knowledge about these issues.

There is a very good reason that these things haven’t been forced through before!

Edited 20 hours ago by tegs07

[Russ]

18 minutes ago, tegs07 said:

All the above. I will add that in part the agenda is ideological and fuelled by deep seated loathing rather logic or strategic thinking. I think for the same reasons Trump will pull the USA out of NATO (incrementally at first and then altogether). He is an idiot. Working in an echo chamber of ideologues.

 

I would caution anyone against thinking that these are sound decisions formed by a master strategist. I can find scant support from any economists or analysts who actually have experience and knowledge about these issues.

There is a very good reason that these things haven’t been forced through before!

Paul Krugman was on R4 this morning - he's a Nobel-winning economist, and he reckons the whole thing is basically idiotic. He also reckons that the UK needs to follow the EU's lead, as the UK has very little clout on its own. Sadly. 

 

There was some dismay about additional costs that would apply to cars built in the UK. There really aren't many - the only mass-market British-built car brand that's sold in the US is Mini. The rest are all high-end vehicles (Aston Martin, Bentley, Rolls-Royce, etc) and the people who buy those aren't going to be too perturbed by having to pay a bit more for one. They used to sell Swindon-built Honda Civics in the US (I had one) and Sunderland-built Nissans, but that's done now. 

[tegs07]

21 minutes ago, Russ said:

Paul Krugman was on R4 this morning - he's a Nobel-winning economist, and he reckons the whole thing is basically idiotic. He also reckons that the UK needs to follow the EU's lead, as the UK has very little clout on its own. Sadly. 

 

There was some dismay about additional costs that would apply to cars built in the UK. There really aren't many - the only mass-market British-built car brand that's sold in the US is Mini. The rest are all high-end vehicles (Aston Martin, Bentley, Rolls-Royce, etc) and the people who buy those aren't going to be too perturbed by having to pay a bit more for one. They used to sell Swindon-built Honda Civics in the US (I had one) and Sunderland-built Nissans, but that's done now. 

I think that Trump is a bigger problem than the tariffs TBH. Given time and clarity markets and producers can plan and adapt to most eventualities. They cannot do this when nobody knows what to plan and adapt for because it’s in the hands of someone who changes his mind constantly. 

 

IMO the UK are toothless. I think the EU are very adept at this kind of thing though and can inflict (as well as tolerate) significant damage.

 

Edit: Interesting about the cars though. I expect a bigger issue for Germany then? I can’t recall seeing many French or Italian cars in the USA.

Edited 19 hours ago by tegs07

[Russ]

53 minutes ago, tegs07 said:

Edit: Interesting about the cars though. I expect a bigger issue for Germany then? I can’t recall seeing many French or Italian cars in the USA.

BMW and Mercedes have plants in the US - almost all of BMW's SUVs are produced there, including the ones sold in Europe. The only BMWs imported to the US are their saloon cars, and they don't sell all that many of those any more, it's almost all SUVs. VW and Audi do most of their manufacturing for the NA market in Mexico, with a little in Tennessee (mostly the newer electric models). The only German marque that's sold in the US and whose range is entirely manufactured outside North America is Porsche. 

 

There are a few Italian cars to be found in the US - apart from the likes of Ferrari and Lamborghini, Alfa Romeo relaunched in the US in 2016 and have established a little niche for themselves. Fiat re-entered the US market with the 500 and its derivatives and the new Spider around the same time, but are currently only selling the 500. As part of Stellantis, several Fiat and Alfa-derived platforms are used in other, more mainstream US brands - for instance, the Alfa Romeo Tonale is also sold, in gently modified form, as the Dodge Hornet (all that's different are the front and rear body panels and the wheels), and the platform developed for the Fiat 500X is the same one used on the Jeep Renegade. 

 

None of the French manufacturers sell cars in the US any more - the last one to pull out was Peugeot in 2001. Renault platform-share with Nissan though, and Nissan sell several Renault-derived vehicles in the US (mostly their smaller vehicles). However, there's a very good chance the big 3 French manufacturers will end up back in Canada in short order, partly because of what's going on with the tariffs right now, and because of what was agreed in the Canada/EU CETA agreement. 

Edited 19 hours ago by Russ

[asingardenof]

4 hours ago, tegs07 said:

Over time IMO there will be a shift towards local production. People will have to adjust to a higher cost world. Various factors from Chinese demographics, shipping costs, geopolitics etc will reshape our trading arrangements. It won’t happen overnight but it will happen.

The problem, as you've alluded to further up, is what happens in the short term. The infrastructure isn't there to replace all the overseas outsourcing that has happened over the last few decades, and can't be reintroduced quickly enough to respond when sourcing materials outside the US becomes unaffordable, and never mind the materials that simply can't be sourced in the US, like the quantity of high-quality timber they import from Canada for housebuilding.

[asingardenof]

3 hours ago, tegs07 said:

In terms of the UK at what point do you all think that the penny will drop?

We don’t have the access to a market as large as the EU to have a position of strength and I doubt Trump could care less about the UK, particularly under Labour.

Sounds like talks are happening behind the scenes between the UK and EU to secure better trading arrangements in the event that both have to largely abandon the US.

[asingardenof]

2 hours ago, chris_b said:

 

Tell that to the Republican voters. That's not what they signed up for.

It is, it's just not what they thought they signed up for.

[asingardenof]

1 hour ago, peteb said:

 

That's very unlikely. 

 

Labour costs (wages, health & safety, benefits, pension & healthcare contributions, etc) are generally the biggest component of the cost of manufactured goods. If labour costs in Asia are less than half that of the USA (I imagine that they will be, would have been even less than that a few years ago), then the tariffs have be large enough to offset the additional labour costs minus shipping and any other costs. I doubt that 25% is going to do that, but even if it is, this is assuming that the USA still has the manufacturing capacity to produce the goods that are currently made in the far-east. All of this capacity has moved to the east since the 80s and it will cost trillions to build the factories and buy the plant to do build up this capacity again. Who is going to invest that sort of money, given the long payback period and that it is highly likely that a future American government may be forced to scrap the tariffs and go back to the globalist model? Also, supply chains tend to move across national borders these days, which makes the decision to put the same tariffs on Canada and Mexico even more stupid! 

 

What will happen is that prices will go up, companies will take increased short term profits and wages will stay the same. What money is raised by the tariffs will be give as tax cuts to Trump's backers, while living standards will fall for working households due to the higher prices of everyday goods. Of course Trump will then double down saying the reason the tariffs haven't worked is down to Biden, Canada, the EU, woke culture, etc and he's going to raise them even more, leaving the next administration to deal with the mess he's made! 

 

Agreed, assuming his not-so-veiled threat of changing things so he can have a third (and maybe more) term doesn't come to fruition.

[tauzero]

5 hours ago, SumOne said:

I don't want to seem a fan of Trump, but I do feel that people take these tariffs as some crazy global market disaster - rather than just being reciprocal. Of all the Trump policies, this one feels the most sane. It is an upheaval, but possibly needed doing if the USA wants to bring manufacturing in-country and for supply chains to be less globalised, it is a big enough country that it could potentially do that (the UK would have bigger problems trying the same).

 

Biden was trying to bring some manufacturing to the US by investment in green energy, and it was working: https://www.renewableenergyworld.com/energy-business/energy-finance/the-biden-administration-has-spurred-1-trillion-in-clean-energy-investments/. Expect to see Trump demolish all of that with his anti-green policies.

 

Simply weaponising tariffs isn't going to induce manufacturers to invest in the US - in fact, given that it is fast becoming highly unstable, expect to see investment move away from the US instead.

[Pseudonym]

1 hour ago, tegs07 said:

I would caution anyone against thinking that these are sound decisions formed by a master strategists. I can find scant support from any economists or analysts who actually have experience and knowledge about these issues.

 

I have been watching Line of Duty recently. The targets of the investigations are usually wily, cunning, rather flash and cocky officers whose inherent willingness to bend the rules leads to them getting into ever-deeper waters until they sink under the combined weight of evidence and exhausted luck. Until that happens, however, dramatic conventions require that these cunning and flash officers seem to be getting the better of the team that seeks to box them in with the truth.

 

Trump thrives on destabilisation. He is a gifted opportunist, not least because he has routinely exploited a kind of precedural asymmetry that often places him at an advantage against people who are working within generally accepted guidelines.

 

He is not really trying to execute a master strategy. He is striving to get to the end of the episode. I think that is probably part of his appeal to his base, because a lot of those voters do not have the luxury of strategic plans. They are trying to get through the week. In that regard, the range of outcomes from tariff brinksmanship is far too wide to be predictable, and the kinds of people who care about predictability are the kinds of people who want reliable plans -- not the kinds of people for whom glib recommendations to keep an emergency fund of six months' living expenses are both laughable and in some way humiliating. As for his wealthiest backers, they are very noticeably the ruthless opportunists we love to hate in narratives: adrenaline-driven tech types, old-school corporate-raider types, seat-of-the-pants crypto gamblers, and other kinds of people who usually get played as charming rogues (or antic-comic fall guys) in dramas that also portray any version of the establishment as desiccated and dull.

 

It does little harm to analyse all of the current events in economic terms, but I honestly think one might as well look at audience responses to Goodfellas or ponder why it is sad to see what happens to Robert de Niro in Heat. When the status quo has disappointed you, the action is the juice. Catharsis is deeply satisfying, and the cost is tomorrow's problem.

 

There is little to be gained from trying to understand the plot of an action movie by scrutinising the actual market for whatever loot the baddies are trying to unload, or whether the hero could really chase anyone on the subway after sustaining those injuries. We are in it for the payoff, not the process. The moment the American electorate decided to favour someone from the television industry over a career prosecutor, process scarcely matters. Only the payoff matters. That is also why everybody associates catchphrases with the performers who utter them rather than with the writers who write them.

 

I don't think suspension of disbelief is indefinitely sustainable. I just know it is effective.