The Department of Commerce initiated a national security investigation on auto and parts products on May 23. Findings and recommendations are due by mid-February 2019 but could be issued much sooner.
PIIE, the Peterson Institute International Economics says Trump’s Proposed Auto Tariffs Would Throw US Automakers and Workers Under the Bus.
President Trump is reportedly considering raising US duties to 25 percent on all imports of automobiles—including SUVs, vans, and trucks—and auto parts, invoking the same national security law recently used to impose tariffs on steel and aluminum. A new PIIE analysis shows that if he did this, production in these industries would fall 1.5 percent and cause 195,000 US workers to lose their jobs over a 1- to 3-year period or possibly longer. The US auto and parts industries would shed 1.9 percent of their labor force. The analysis assumes there would be no exemptions for any country (or even for North American Free Trade Agreement [NAFTA] partners, as in the steel and aluminum cases). The potential trade action would affect more than $200 billion in US imports.
If other countries retaliate in-kind with tariffs on the same products, production would fall 4 percent, 624,000 US jobs would be lost, and 5 percent of the workforce in the auto and parts industries would be displaced (table 1). This second scenario would also hurt US exports of these products more than imports. The aggregate effects on the US economy in either scenario would be small.
Jobs Lost
Both scenarios demonstrate how reliant the domestic industries are on imported parts, or intermediate inputs, that are not produced in the United States or that have no easy US-made substitute. Tariffs would raise the cost of these parts and domestic production, which makes products more expensive to consumers and lowers demand for them in the United States and abroad. Consumers could expect to see prices rise for both imported and domestically produced vehicles.
US Auto Exports
US auto exports total $51.1 billion.
Truck exports are another $15.1 billion, nearly all of it to Canada.
Tweet to Think About
The United Steelworkers don’t support the Trump administration’s latest steel-tariffs move, which extends the duties to Canada. “This decision is unacceptable and calls into serious question the design and direction of the administration’s trade policy.” @steelworkers
— Will Mauldin (@willmauldin) May 31, 2018
Crazy 😜 pic.twitter.com/Dyph6jMqZB
— Tracy@thevinetway (@thevinetway) May 31, 2018
How Stupid is This?
Damn stupid.
The knock-on impacts, which the PIIE did not estimate, are likely to be as important, if not more important
Instead, let’s portray it as “Winning”.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
Why Do This?
As a matter of national security, we allegedly need to harm the US auto sector.
Related Articles
- Trump Considers 25% Tariffs on All Auto Imports as Matter of “National Security”
- Trump Started a Global Trade War Today: Canada, Mexico Responded, So Will Europe
Mike “Mish” Shedlock
“Academic theory predicts that decades of these policies should have made the Chinese much poorer, and US citizens much better off. “
No even half respectable “Academic theory,” nor other “theory,” for that matter, “predicts” any such thing. The single most fundamental “theory” (more like inevitability, but the idiots insisting economics is in some ways beholden to empirical verification will never quite grasp that one…) of economics, is diminishing returns. Low hanging fruit gets picked first. Then things get progressively harder.
When Mao left China, the Chinese had nothing. Americans had everything. Both only slightly exaggerated for effect. “Any” policy on the Chinese side even the tiniest bit less wealth destructive than Maos, would allow the Chinese to get closer in wealth to Americans.
What “Academic theory predicts,” is that those starting from the same spot, will benefit from trading more freely and with less restrictions. IOW, wrt China, that the two freer parts, Taiwan and Honk Kong, would be wealthier than the less free PRC. That’s all.
The EU was created to help avoid the economic conflicts and break the cycle of war on that continent. The premise being that trade partners are more likely to remain peaceful allies. From a communication theory viewpoint, not knowing what another nation is doing creates a great deal of international stress so we spy on each other. There were of course no troops in the ME before the Iraq invasion so with the development of the C31 having troops overseas is no indication that war is more likely.
Its possible Trump can use tariffs to build a more vertical national economy, though the heyday of the bluecollar worker is finished, such a move would make it easier for the Fed and the USG to manage our economy. The degree of interdependence in the global economy is dangerous to stability, and creates a moral hazard where investors no longer have control over which governments and businesses they are using. In turn agreements such as Kyoto are really shams, but remain necessary in order to prevent us from constantly seeking out the least regulated (and hence morally and environmentally polluting) resources on the planet. In short if you must compete with prison labor you become a prisoner yourself.
If fewer things will be made overseas, then fewer troops will be stationed in other countries.
According to John Mauldin (no relation to William) and a few others, the US and world economy is set for a ‘train wreck’ in the next 12-18 months, primarily to due to the ‘credit cycle’. If that occures, it will be convenient to blame it on tariffs.
Mish and his Wall St., friends don’t care about reciprocity etc., in trade. All they care about is their own profits. They don’t give a damn to the American people.
It is hilarious and also pathetic to see them shed crocodile tears NOW about lost jobs – 38 YEARS into the free trade disaster that devastated working Americans.
Yes that is not the world in which normal people live but that IS the world in which the libertarians live. They are like 8 year old Harry Potter fans who think the imaginary worlds described in the books actually exist. Just substitute Harry Potter stuff with the interminable Ayn Rand diarrhea instead.
Carl_R — we agree! My guess is that President Trump is basically on the same side as Mish in wanting free trade; except that DJT wants reciprocal (rather than unilateral) free trade. The President is using whatever is convenient to drag the other parties to the negotiating table. If that is temporary tariffs on inputs, so be it.
You are right – permanent tariffs on inputs would be a bad idea.
Communist China has a problem, that is the Pandora’s box they have opened called freedom. Although censorship is heavily enforced, they have economic freedoms internal to the country that we had befor the ‘50s.
My observation is that the economy grew at a tremendous pace, far outstripping government growth. As communist government caches up in growth they’ll find they will come into conflict of what they unleashed.
I visited (business trip) China in 1996 and 1997, then again in 2012. What a difference. An engineer may have mad $5k in the newly opened China of the 90s while they make over $60k this decade. This growth in prosperity subdued the older generation who knew true communism .
The new generation that grew in a more open China will revolt when the freedoms and growth in prosperity hits a brick wall, likely soon.
Kinuachdrach, the point I’m trying to make is that if you are going to do tariffs, you should do them on manufacturing outputs, not manufacturing inputs. A tariff on cars or toasters is only going to hurt consumers, not other industries. A tariff on things like steel, aluminum, manufacturing equipment, robotics, etc that are used in manufacturing is going to hurt the ability of American manufacturers to be competitive.
I would guess there is more going on than meets the eye
Trump’s fire and fury and my button is bigger than yours, resulted Kim Jong Un stepping across the border into South Korea to meet his counterpart and agree to end the Korean War.
Europe threatens ballistic tariffs in return, but those reciprocal tariffs will hurt the EU, as Americans won’t be buying their products. What is Trump’s true objective?
Most of us on Mish’s blog are basically on the same page – we would prefer a world with no tariffs, no non-tariff barriers, and minimal political interference in economic activity. Sadly, that is not the world in which we live. What can we learn from real world experience about the efficacy of different approaches to trading?
Since Mao went to well-deserved hell in 1976, there has been a kind of global experiment in trading. China has pursued a good approximation to mercantilist trade policy, with high tariff barriers and even higher non-tariff barriers to imports. The US has been a somewhat poorer approximation to a unilateral free trader, with generally low tariffs and minimal non-tariff barriers.
Academic theory predicts that decades of these policies should have made the Chinese much poorer, and US citizens much better off. But reality has been just the reverse. The standard of living for the average Chinese citizen has risen dramatically over that time and China has a rapidly expanding middle class, while the average US citizen has experienced at best stagnant real income and the US middle class is contracting.
How is this real-world experience possible? It does not fit with the standard simple academic theory.
Obviously, there are many other factors involved in addition to trade policy. However, the Chinese success and the US decline may be explained by a Say’s Law type of analysis – Good things happen as an economy produces more, and bad things happen when productive capabilities decline. Real world experience should influence our thinking about optimum trade policy – until every country agrees to the ultimate objective of bi-lateral free trade.
might not one of the effects of these proposed tariffs be that by increasing the prices of certain goods (autos etc) that this could lead to higher prices and consequently higher interest rates and subsequently a higher load on the overall fiscal situation ie national debt. ie one bad thing leads to another.
We don’t have free market capitalism, which is why prosperity is in decline across the world. The “roaring 20’s” was caused by capital fleeing Europe after WWI – a similar circumstance that’s occurring now after the war on terror and the coming sovereign debt crisis.
The 195-624k job loss will be only in the auto industry, if I understand the article. That’s just the tip of the iceberg. Any US manufacturer whose product includes steel or aluminum is at risk.
I presume that US manufacturers will act rationally and react to the changed circumstances by shifting production overseas. If they continue to produce in the US, they will have to use US made steel and aluminum, and the prices will rise on both because there isn’t enough of it to go around. Alternatively, they can pay a tariff to buy foreign steel and aluminum.
Shifting production overseas will be a significant cost savings, because then they will be able to use the foreign steel and aluminum without having to pay the tariff.
And only super morons believe that there is a benefit to incomes falling many times faster than prices.
You hit the nail on the head. Mish and his ilk are the same “free traders” who earlier took the stance of “Lost your job? That’s your problem. Not mine!” But now the same people are coming out with their crocodilian tears and saying, “I am so concerned that you are going to lose your job.” And they expect the victims of their free trade policies to believe them! Would have been hilarious if the situation were not so tragic.
You have no idea Kinuadrach. But don’t worry. Just keep mouthing off. Ignorance truly is bliss. Enjoy!
Where is Latkes? That clown thinks this kind of policy is “winning”. You can’t help some people.
Show me that 1 million jobs were lost. You can’t because they were lost to automation. Besides, only morons believe there is a benefit to higher prices.
Models are fun! Select the right Garbage In, and you can get any Garbage Out you want — see, e.g., Anthropogenic Global Warming.
So 624,000 jobs are going to be lost — assuming that no business reacts rationally to changed circumstances, and goes back to making some of those formerly made in the USA items, now made in Korea items, in the USA again.
But setting that common sense aside, how does 624,000 jobs lost compare with the Millions of jobs lost over the last 20-30 years while feckless politicians and short-sighted model-intoxicated academics failed to notice that other countries were waging trade war against the US? Common sense tells us that the US cannot run giant trade deficits for ever — something has to change. If anyone has a better idea than the President, bring it forward. (And unilateral surrender is not a better idea!)
Banana – The Mexican middle class has grown enormously since NAFTA… It just that they live and work in the united States.
And NAFTA, we were told by the experts, would create massive middle class jobs in America and in Mexico. Because it would lead to the exponential growth of the Mexican middle class who would then buy American products.
Ummmm….never happened.
From what I’ve read on various forums, many supporters of these tariffs don’t even care if they aid the US economy. They’re so irate over the last 30 years they want a change, any change, in course just to see if it can be done. Consequences be damned. As long as the right talking heads condemn it, many of them would welcome the damage with open arms.
You know who’s not worried about this? Our friends at the BLS. Even if these projections are roughly correct and 500K jobs are lost, they’ll just remove another 800K people from the labor force, maybe even push unemployment under 3%. It’s all so easy!