Trump's Steel Tariffs Start Cascade of Downstream Pain

Mish

On Jan 24, Trump issued a proclamation on further steel and aluminum tariffs because the initial tariffs backfired.

Cascading Protection

With little fanfare or reporting, Trump issued a Proclamation Adjusting Imports of Steel and Aluminum Products.

I picked this story up courtesy of a Tweet Thread by Chad P. Bown.

  1. On Friday night, Trump admitted that US companies whose costs he has raised – by imposing tariffs on the metals they need – are no longer competitive with foreign firms. Because of his policies, they too must now be shielded from trade...
  2. Trump announced he was expanding the product coverage of his national security tariffs on STEEL and ALUMINUM to include "derivative" goods that use steel and aluminum as an input - eg, steel nails or aluminum bumpers.
  3. Imports of those "derivative" products have increased, in part because US companies have had their COSTS go up because of Trump's tariffs on steel and aluminum. In Econ 101 terms, the cost increase shifts the US supply curve (DS) to the LEFT. That makes imports INCREASE.
  4. Economists call this "cascading protection." Trump's tariffs on inputs lead to higher costs for US companies making the downstream products, and this results in a clamoring for ADDITIONAL trade protection for those products. This was all completely predictable.

Results Speak For Themselves

  1. GDP Internals show business investment contraction: Ignore the Headline, Real GDP is Much Worse Than It Looks
  2. How to Buy an Election - Durable goods orders excluding defense were -2.5%: Of Durable Goods Orders (and How to Buy an Election)
  3. Freight shipments collapse: Cass Year-Over-Year Freight Index Sinks to a 12-Year Low

Cheerleader Silliness

Meanwhile, people cheer Trump for shrinking imports. That was the biggest boost to 4th-quarter GDP.

However, were it not for huge government spending and absurd measures of inflation, it would be clear there is nothing to cheer about. GDP would have been 0.22% (see link number 1).

And by the way, imports always decline in recessions.

Addendum - Updates From Chad Bown

Mike "Mish" Shedlock

Comments (4)
No. 1-4
Realist
Realist

These new tariffs will further hurt US manufacturers of finished goods (like autos), making them less competitive with foreign firms. Expect more tariffs on finished goods to follow, in order to “protect” US manufacturers.

Of course, since according to Trump, all these tariffs are paid by everyone “except” US consumers and businesses, then what’s to worry about?

Plus, since all these tariffs cause the US Government to run a budget surplus and are paying down the US Debt (again according to Trump), then he should be putting tariffs on everything he can.

What a stable genius you Americans have as President!

LMAO!

Carl_R
Carl_R

Re: "This was all completely predictable."
And, in fact, it was predicted on these pages.

Tony Bennett
Tony Bennett

"This was all completely predictable."

...

Absolutely.

Oh, and NECESSARY.

Never said the reset would be easy.

ksdude69
ksdude69

What an idiot. What will our reward be for getting rid of him? Bernie Sanders? What a joke.


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