Foolishness of Trump’s Steel Tariffs in One Image

March 2, 2018

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10:29 am

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52 comments

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Economics

Trump wants to save steel-related jobs.

Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world. We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!

— Donald J. Trump (@realDonaldTrump) March 1, 2018

However, the jobs are gone and will never return. NAFTA has nothing to do with it.

The US is producing 7.7% more steel than in March of 1990 with over 48,000 fewer workers.

I created that Chart in Fred by totalling steel workers in Indiana, Ohio, Texas, and Pennsylvania. Those are the only states tracked now. If there were more states tracked in 1990, the decline in workers is even greater. There is production in other states but it is minimal.

Don’t blame NAFTA. Steel employment went on a deep dive nearly four years earlier.

The fact of the matter is US plants are aging dinosaurs compared to China’s. China invested in modernized plants, the US didn’t.

Before anyone bitches about subsidies, please take a look at US subsidies in the aerospace sector from absurd defense spending contracts.

Consider Sugar and Corn

The US cannot compete with sugar production from countries like Brazil where cane grows better, so we have sugar tariffs. As a direct result of sugar tariffs, US candy production went overseas.

US crop subsidies support excess corn production which we dump on the rest of the world. Still, we have tariffs on ethanol from Brazil because it is cheaper to make ethanol from sugar cane than corn.

The US and EU are the worst offenders when it comes to agriculture. Global trade talks break down every year over US and EU agricultural policies.

Blatant Hypocrisy

It’s easy to criticize China over steel because no one hears third world complaints against the US on agricultural policy.

Economic Madness

The bottom line is simple: If its good for the consumer, it’s good policy.

Instead, Trump is promoting trade wars that mathematically cannot be won.

For a mathematical explanation of trade deficits, please see Trump’s Tariffs Show He’s “Clueless About Trade”.

Also consider Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?

Trump’s trade policies are set to exacerbate the next global recession, but economic illiterates are egging him on.

A global trade war looms.
It’s economic and mathematical madness.

Mike “Mish” Shedlock

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Mish

52 Comments

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Tony_CA

6 years ago

Correction: Free Trade is a complete scan, and everyone know is it. It’s simply a labor arbitrage game- nothing more.

Tony_CA

6 years ago

Free trade is complete scam, and everyone no is it. It’s a labor arbitrage game nothing more.

ahengshp58

6 years ago

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ahengshp58

6 years ago

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QTPie

6 years ago

True, but there’s a big difference between ‘maintain’ and ‘decimate’.

ahengshp58

6 years ago

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pi314

6 years ago

even if it ‘maintain’ its market presence, it is losing out and eventually will become irrelevant.

pi314

6 years ago

‘

pi314

6 years ago

@QTPie – If Google was restricted to operate only in the US due to trade barrier, even if it

QTPie

6 years ago

What you say may or may not be true. I don’t know without seeing the actual the numbers since while other countries have increased their production, at the same time their domestic consumption of steel has been rising much more than ours and at least part of their production increase has been to satisfy increasing domestic demand (and as such you’d expect a natural decline in our world market share as the denominator including the whole world has been growing). The pertinent point though is that I still think that you are making a different argument than the president’s. If he says that our steel industry has been “decimated” then one would recon that there’s has been a significant decrease in our domestic steel production – which is definitely not the case.

Maximus_Minimus

6 years ago

That is probably bloombergism. Aluminum production is an electrolytic process, and at face value, producing 1 unit consumes the same amount of electricity anywhere in the world. The examples mentioned might be somewhat due to lower viscosity of the electrolyte at higher current flow (just guessing), and external factors.

pi314

6 years ago

@QTPie – no, we have lost significant (worldwide) market share even if we maintain the same level of production. Had we maintained or increased market share, we would have many more steel workers today. If you take a holistic view, other countries impose far more trade barriers against the US than the other way round. I have already mentioned Chinese barriers on US Internet businesses (e.g. Google/FB.)

IICS

6 years ago

Electricity is roughly 1/3 of the cost of aluminum. If US smelters are consuming 10x the electricity to make similar quality aluminum, they would all be bankrupt, it wouldn’t even be close because China also subsidizes electricity.

Maximus_Minimus

6 years ago

Bloomberg could have broght it to a logical conclusion. If I was a young lad deciding what path to choose in life, I would have to be braindead to choose manufacturing, and the result is what it is. There are very few good choices left: financialization industry, government sponsored job (in a broad sense), and…bitcoin.

QTPie

6 years ago

Again, that wasn’t Mish’s point. His point was that the president is tying the decline in the steel industry (not its potential growth) with foreign competition. Mish shows that we are producing the same amount or more of steel as before, but with a lot less workers. Therefore, the president’s argument does not hold water.

tedr01

6 years ago

You raise a valid point to which I do not have an answer. Tough choices have to be made about this subject. As with all matters like this there will always be winners and losers.

IICS

6 years ago

Automation costs jobs, but it still doesn’t answer the question: is it better to have the robot steel factory in the USA or in China? Do you want the robot and AI software jobs in the USA or China? If we have 100% employment and major wage pressure then you can make a great case for free trade. When there’s still mass unemployment (out of the labor force), budget deficits and trade deficits, it’s a harder sell for shipping the tax base and emerging industries overseas.

Stuki

6 years ago

@whirlaway
They are consumers of the future earnings streams of those assets. And just as lower prices are good for “consumer goods,” so are lower prices for future “consumer goods” purchased on layaway. In general, the less you must pay for a given future earnings stream, the wealthier you are. The less everyone must pay for a given future set of earnings streams, the wealthier everyone, hence society, is.

If the total current price of all assets is bid up due to improved prospects of increased future earnings streams, that is a good thing. But pumping up, via inflation and/or regulation, the current cost of unchanged earnings streams, is no more beneficial than doing so for so called consumer goods.

tedr01

6 years ago

Automation costs jobs. Just a fact of life. Those workers that are affected must adapt to this reality and move on to something else. Smart people adapt to change and survive.

klausmkl

6 years ago

Most opinions here are based off Mish’s chart. He blows the trumpet and you sing. Why not try and figure out how to bank some coin. Mish needs click bait. Who cares, market is rallying.

ahengshp58

6 years ago

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Carl_R

6 years ago

Thanks for the chart, Mish, This does show that the steel industry, while not as efficient as elsewhere in the world, is vastly more efficient than it was in 1990. Of course, protected by trade barriers, they have little incentive to modernize further.
I love this quote “As a direct result of sugar tariffs, US candy production went overseas. ” This is a point I made in your prior post on the tariff. As a direct result of this tariff, US Manufacturing jobs will be forced overseas. Any product made from steel can now be made for 30% less overseas. The only way to stop this is to add tariffs on all products that contain any steel. Trade barriers lead to more barriers.
Regarding the US Agricultural surpluses, they are easy enough to understand. Farmers think that things like subsidies and price supports are designed to help them. Ha! The real purpose it to encourage over-production. Why? Lot’s of things rile up voters, but nothing will get them nearly as riled up as a food shortage. Both Republics and Democrats would be very, very unhappy if that were to happen.

pi314

6 years ago

@QTPie – yes, but we could have much more steel production here if the playing field is level. I am sure global steel production is significantly higher now than a few decades ago but it is not the case for US steel.

Escierto

6 years ago

I am loving this. I hope he announces more trade barriers and tariffs and sinks the entire economy! Come on, Trump, you can do it!

QTPie

6 years ago

The point is that our genius president is blaming foreign competition for the loss of steel jobs. Mish’s point is that the loss of steel job is instead much more likely due to advancements in steel manufacturing which facilitate producing more steel than before with a lot less workers needed.

pi314

6 years ago

What is the point of the chart? If you substitute auto/farm workers for steel workers, you get very similar chart. I.e. fewer auto/farm workers and more auto/crop productions over time.

pi314

6 years ago

Are you aware of any major Internet company doing well in China? FB, Google, Ebay, Amazon,… Instead, the Chinese blocked every one of them and copied them.

SMF

6 years ago

All I know is this, and this is not from reading or from anyone telling me this, this is from personal experience. The cost of American products overseas is often 2X the price of what we pay here. Levi Jeans are almost a luxury item. When family comes to the US, they can almost pay for the cost of their tickets just by purchasing anything here rather than at home. Once I saved $100 by buying a TV here, paying $80 for airplane freight, and sending it back home. I don’t know if tariffs are the answer, but I do know that the markup of many products (including the iPad I sold for $400 when I may have sold it for $200 here) is insane. Consumers overseas would be better served by lower prices.

IICS

6 years ago

If we don’t need steel factories, then why would China or any other nation retaliate from this change in trade policy? The U.S. is shooting itself in the foot according to free trade economists. Other countries should laugh at America’s stupidity and do nothing, let their factories move to the USA which will make their economies stronger, and they can import cheap US steal.

El_Tedo

6 years ago

Consumers & producers have been the ONLY ones represented with our passive trade policies. Trump is taking a more balanced approach in considering workers as well.

whirlaway

6 years ago

They rarely are *consumers* of those assets. They are speculators. Different thing altogether. And even if one considers only investors, most people are out of the picture anyway, as everyday life is a struggle and they are trying to make ends meet.

Stuki

6 years ago

“The bottom line is simple: If its good for the consumer, it’s good policy.”

+a lot.

Just remember to include consumers/buyers of so called “assets” in that calculation, as well. Lots of “investment types,” even those who ought to know better, tend to mess that one up.

whirlaway

6 years ago

My point was it is ludicrous to make blanket statements like low prices are good for the consumer no matter what else happens. Lower prices are good only if your income does not fall precipitously.

Kinuachdrach

6 years ago

We need analysis — not knee-jerk Anthropogenic Global Warming-type alarmism in support of a “Free Trade” chimera which does not exist in the real world.

Kinuachdrach

6 years ago

Be careful with statistics! Once upon a time, everyone who worked in a factory was an employee. But over the decades since the 1970s, the cleaners & the canteen workers & the back office staff & even some of the technical staff were transferred to contractors. So, low & behold! The number of “workers” in some of those statistics went down.

whirlaway

6 years ago

Make that: “Is B still better than A?”

whirlaway

6 years ago

“If it’s good for the consumer, it’s good policy.” is really a meaningless statement if it doesn’t take the full context into account. If in Scenario A, an item costs the consumer $100 and in Scenario B, the same item costs $50, is A automatically better than B for the consumer? What if in Scenario A, the consumer had a job and in B, he was unemployed and dirt poor? Is still A better than B?

Bam_Man

6 years ago

The motto actually is, “If it’s good for the banks and the corporations profitability, it’s good policy.”

Bam_Man

6 years ago

Too bad consumers have ZERO representation in government – especially at the Federal level.

Bam_Man

6 years ago

“If it’s good for the consumer, it’s good policy.”

whirlaway

6 years ago

Huh? Why should the companies expect *Trump* to tell them what to do?! Shouldn’t they know that it is in their interest to modernize? Or, are they more interested in fattening their own executives’ pay packets and bonuses and stock holdings and golden parachutes?

QTPie

6 years ago

Why invest in modern plant if you can just buy back your own stock?

whirlaway

6 years ago

“A global trade war looms. It’s economic and mathematical madness.”

It is ALREADY an economic nightmare for the vast majority of Americans. So, if the so-called trade war affects the cushy little world of the elites, they don’t give a crap! And they shouldn’t.

whirlaway

6 years ago

“Don’t blame NAFTA. Steel employment went on a deep dive nearly four years earlier.”

NAFTA was yet another nail in the coffin. There were other aspects of Reaganomics and Thatcherism that had been screwing the Americans over since 1980.

It doesn’t matter whether NAFTA can be blamed for this particular mess or not. NAFTA and a whole bunch of other things (deregulation, tax loopholes etc.) are to be blamed for the whole mess.

KidHorn

6 years ago

The irony is this will make it more expensive to produce cars in the US. Which will make us less competitive. Trump is a moron. I voted for him. Mainly because I thought Hillary would be an out of control neocon. But now I have doubts if I voted for the right candidate.

jiminy

6 years ago

How soon will large steel consumers build overseas to avoid overpriced US steel?

Robin Banks

6 years ago

Time for foreign countries to hit back and tax the likes of Google, Amazon, Apple et al on turnover and not profits. This might make them stop off shoring their profits.

ReadyKilowatt

6 years ago

I grew up in a steel town. There were thousands of workers needed to run blast furnaces, coke ovens, and rolling mills. A few years before the plant shut down they installed an electric furnace, which uses mostly recycled steel and a fraction of the labor. A few years ago the show “How It’s Made” visited a steel plant. There were two people running an entire electric furnace. There aren’t going to be any jobs. There might be some profits though.

ReadyKilowatt

6 years ago

Wall street isn’t about to reward anyone who attempts to spend money modernizing their infrastructure. That would require spending money that could better be put into stock buybacks, dividends and M&A activity.

KnotchoLibre

6 years ago

Seems trivial but isn’t the following likely to happen now? Here are my thoughts:

HIgh steel tariffs will push total product manufacture overseas rather than pull partial product (steel panels only) back to the US. Labor isn’t exactly expensive everywhere else.

Following this — the tax break incentives for overseas cash will dissipate against this pressure and we will end up right where we were a year ago but with really expensive products and slightly fewer jobs in industry.

Foolishness of Trump’s Steel Tariffs in One Image

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