Author Topic: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum  (Read 35695 times)

RichardGibbons

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Re: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum
« Reply #210 on: March 09, 2018, 10:13:07 AM »
99% of world population used to work in agriculture. Now that has been mechanized heavily and so low single digits work in agriculture in most places. Are we seeing 90%+ unemployment?

No, but I didn't say that there would be 90% unemployment.  I actually said there are an effectively infinite number of jobs, just not at the same wage.

In your sci-fi scenario, what you're talking about would be a large discontinuity with historical processes, not the kind of thing that is happening with globalization and Ricardo comparative advantage kind of stuff. In that case, we'd probably be in a post-scarcity society, so the problems and opportunities would probably be very different.

The point of the robot example isn't to show a post-scarcity world, but rather to show that labor costs depend on the supply of labor.  So what happens if you have a robot that can do everything humans can do at 90% of the cost of humans?  Do human wages remain the same?  What if they can do it at 50% of the cost?  Do human wages remain the same?  Do you interpret my example as humans making the exact same amount they do today right until robots can do everything for free, and then suddenly human wages fall from $30 to $0 overnight?

Really, it's just supply vs. demand.  If the supply of labor increases, the place where the supply and demand curves intersect falls.

But as things stand right now, trade benefits both sides in the vast majority of cases.

I agree with this with a couple provisos, which I wrote about here on my blog a while back. 

FWIW, I think the second flaw I discussed on my blog probably isn't applicable in the vast majority of cases.  So I suspect we largely agree here.  But it's more interesting talking about the edge cases than the obvious places where trade is good.



Liberty

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Re: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum
« Reply #212 on: March 09, 2018, 10:29:52 AM »
99% of world population used to work in agriculture. Now that has been mechanized heavily and so low single digits work in agriculture in most places. Are we seeing 90%+ unemployment?

No, but I didn't say that there would be 90% unemployment.  I actually said there are an effectively infinite number of jobs, just not at the same wage.

In your sci-fi scenario, what you're talking about would be a large discontinuity with historical processes, not the kind of thing that is happening with globalization and Ricardo comparative advantage kind of stuff. In that case, we'd probably be in a post-scarcity society, so the problems and opportunities would probably be very different.

The point of the robot example isn't to show a post-scarcity world, but rather to show that labor costs depend on the supply of labor.  So what happens if you have a robot that can do everything humans can do at 90% of the cost of humans?  Do human wages remain the same?  What if they can do it at 50% of the cost?  Do human wages remain the same?  Do you interpret my example as humans making the exact same amount they do today right until robots can do everything for free, and then suddenly human wages fall from $30 to $0 overnight?

Really, it's just supply vs. demand.  If the supply of labor increases, the place where the supply and demand curves intersect falls.

But as things stand right now, trade benefits both sides in the vast majority of cases.

I agree with this with a couple provisos, which I wrote about here on my blog a while back. 

FWIW, I think the second flaw I discussed on my blog probably isn't applicable in the vast majority of cases.  So I suspect we largely agree here.  But it's more interesting talking about the edge cases than the obvious places where trade is good.

If you postulate that machines are suddenly better than humans at everything, that's a very special thing. I assumed that meant not only better at physical work, but also at intellectual work. Maybe that's not what you meant.

As things stand, the most boring, repetitive, dangerous, and mind-number jobs are being automated, and more jobs are being created in fields that require creativity, or at least thinking (programming, designing, arts (just Netflix and Amazon will soon be spending something like 20bn on creating content that wasn't being created before), experiences (food, travel, live events, etc), healthcare, engineering, architecture, science, etc). To me, that's a good thing.

Blue collar jobs have been romanticized for too long, but there's a reason why almost everybody aspires for their kids to stay in school and do something else with their lives...
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Cardboard

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Re: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum
« Reply #213 on: March 09, 2018, 10:57:03 AM »
"The whole "celebrate stupidity, insult intelligence" thing that has started during my lifetime is a really bad trend, I think."

You think? You should be quite worried Richard as they will be coming for you and your rich family.

And denying them employment such as mega projects including Kinder Morgan TransMountain and all these LNG plants will not help your cause either. There is a direct relation between crime and employment.

Moreover, do you believe that the Greens will spare you because you were on their side once they run hungry?

Any of you guys truly watching what is going on??? Who won the election in Italy this week-end? This is all over the world. While it is interesting to look at theories and economics, the herd does not have 5 years to re-educate themselves to put food on the table for their families.

Finally, if the current global approach is so perfect why does Canada has to spend $600 million dollars just to protect the coming G7? Should lease a cruise ship instead for a month and let them party quietly:

https://www.thestar.com/news/canada/2018/02/27/federal-budget-allocates-600-million-for-g7-summit-in-charlevoix-quebec.html

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netnet

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Re: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum
« Reply #214 on: March 09, 2018, 11:33:02 AM »
Interesting discussion, but this thread has mostly evolved into a political/theoretical discourse.

My practical question, (should I start another thread?) now that we really seem to have tariffs: what are the market implications for this?

% probability of a mild but contained trade tiff or
% of a full on trade war

The markets have shrugged off the tariffs and a full on trade war.  Is this one of those animal spirits/ridiculous optimism prior to crack-up.
Some have argued quite convincingly that just stay fully invested no matter what. (h/t racemize) Others of us are not so sure.  The US stock market teaches one thing-stay invested, which probably should be the base case, but the markets in Germany in say 1928 says something entirely different.

(Not a setup for a joke, but a side note, what is the difference between an
  • outcome that is too hard to discount say an all out trade war or far worse N. Korea attacking
  • and just ignoring the grim possibilities?
)

RichardGibbons

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Re: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum
« Reply #215 on: March 09, 2018, 03:01:12 PM »
"The whole "celebrate stupidity, insult intelligence" thing that has started during my lifetime is a really bad trend, I think."

You think? You should be quite worried Richard as they will be coming for you and your rich family.

I don't think violent class struggles are likely in the short term, and if they are, I think they'll be a reflection of the cities in which they happen.  So for Vancouver, it's likely that they would go for the Chinese and people who own expensive west-side houses.  It's unlikely they'd start by targeting a family of four that rents a 1100 sq. ft. townhouse.

And denying them employment such as mega projects including Kinder Morgan TransMountain and all these LNG plants will not help your cause either. There is a direct relation between crime and employment.

Hmm, you think in a province of 4.6M people, 800 jobs is the difference between democracy and Mad Max?  Curious.  I think if there were a significant number of jobs created in BC, Horgan wouldn't have started down this path.  (I would guess if you factor in a small chance of huge job losses as a result of an oil spill, the expected number of jobs created would be pretty close to zero or negative.)

Moreover, do you believe that the Greens will spare you because you were on their side once they run hungry?

Not quite sure what this means.  The Greens are shorthand for soylent green?

Any of you guys truly watching what is going on??? Who won the election in Italy this week-end? This is all over the world. While it is interesting to look at theories and economics, the herd does not have 5 years to re-educate themselves to put food on the table for their families.

I agree.  I think when you start to get gross inequality, bad stuff starts happening, like people electing the Nazis, the NDP, Hugo Chavez, and Donald Trump.  This is why society should take actions to stop gross inequality, rather than encouraging gross inequality.

Finally, if the current global approach is so perfect why does Canada has to spend $600 million dollars just to protect the coming G7? Should lease a cruise ship instead for a month and let them party quietly:

The cruise ship thing is actually a really good idea.  The $600M number is insane.

One can't simply say "we're discussing globalism, therefore everything bad that happens in the world is the result of globalism."  That said, this is actually another really interesting argument for you to make, since almost all anti-globalism protesters at these meetings are left-wingers.  I would've thought that I would be making the anti-globalism argument, not you.

Just to be clear, are you suggesting that generally free, global trade is bad and leads to instability in the world?  Because, while I think it's possible to make a solid, credible argument for that point of view, I really wouldn't have expected to hear that argument from you.  (If this isn't what you're arguing, what is is that you're arguing?)



RichardGibbons

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Re: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum
« Reply #216 on: March 09, 2018, 03:04:14 PM »
That is a really great chart, EliG. Thanks for posting it.  I need to think about how to reconcile that with the very popular statistic that median wages haven't increased much at all since the 1970s to figure out what's happening.

RichardGibbons

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Re: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum
« Reply #217 on: March 09, 2018, 03:29:19 PM »
My numbers:
% probability of a mild but contained trade tiff or
100%: This has already happened.

% of a full on trade war
5%: I think the world won't start this, only Trump.  But I think Trump is too flighty to continue to add the tariffs that would be needed to create a full on trade war.  Plus, even if he wanted to do this, I think he doesn't have the time to do it--midterms are too close.

In terms of stay fully invested vs not: For myself, I would say, "stay fully invested".  The challenge with the "sell now" approach is that you have to be right not just about what will happen, but the outcome when it does happen.  World War 2 was a really big deal.  So, one might think that WW2 would be bad for the stock market, but it wasn't too bad, kind of your average bear.

I think the primary case where you can be confident that the market will be completely demolished is if you get a scenario where nukes or biological weapons start flying around, but the right strategy to prosper in that environment is almost orthogonal to investing altogether (fallout shelters, food supplies, etc). 

no_free_lunch

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Re: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum
« Reply #218 on: March 09, 2018, 07:32:11 PM »
I think the berkshire 2004 annual report succinctly explains buffets view on the trade deficit. It was already oosted but i wanted to throw the text in too.  He is basically saying that trade is good but not unlimited trade where you are exchanging goods for wealth.  He recommends government action to combat it.

Trump and buffet agree on this one.

Working off my phone so please excuse the formatting.


Quote
But as I argued in a November 10, 2003 article in Fortune, (available at berkshirehathaway.com),
our country’s trade practices are weighing down the dollar. The decline in its value has already been
substantial, but is nevertheless likely to continue. Without policy changes, currency markets could even
become disorderly and generate spillover effects, both political and financial. No one knows whether these
problems will materialize. But such a scenario is a far-from-remote possibility that policymakers should be
considering now. Their bent, however, is to lean toward not-so-benign neglect: A 318-page Congressional
study of the consequences of unremitting trade deficits was published in November 2000 and has been
gathering dust ever since. The study was ordered after the deficit hit a then-alarming $263 billion in 1999;
by last year it had risen to $618 billion.
Charlie and I, it should be emphasized, believe that true trade – that is, the exchange of goods and
services with other countries – is enormously beneficial for both us and them. Last year we had $1.15
trillion of such honest-to-God trade and the more of this, the better. But, as noted, our country also
purchased an additional $618 billion in goods and services from the rest of the world that was
unreciprocated. That is a staggering figure and one that has important consequences.
The balancing item to this one-way pseudo-trade — in economics there is always an offset — is a
transfer of wealth from the U.S. to the rest of the world. The transfer may materialize in the form of IOUs
our private or governmental institutions give to foreigners, or by way of their assuming ownership of our
assets, such as stocks and real estate. In either case, Americans end up owning a reduced portion of our
country while non-Americans own a greater part. This force-feeding of American wealth to the rest of the
world is now proceeding at the rate of $1.8 billion daily, an increase of 20% since I wrote you last year.
Consequently, other countries and their citizens now own a net of about $3 trillion of the U.S. A decade
ago their net ownership was negligible.
The mention of trillions numbs most brains. A further source of confusion is that the current
account deficit (the sum of three items, the most important by far being the trade deficit) and our national
budget deficit are often lumped as “twins.” They are anything but. They have different causes and
different consequences.

A budget deficit in no way reduces the portion of the national pie that goes to Americans. As long
as other countries and their citizens have no net ownership of the U.S., 100% of our country’s output
belongs to our citizens under any budget scenario, even one involving a huge deficit.
As a rich “family” awash in goods, Americans will argue through their legislators as to how
government should redistribute the national output – that is who pays taxes and who receives governmental
benefits. If “entitlement” promises from an earlier day have to be reexamined, “family members” will
angrily debate among themselves as to who feels the pain. Maybe taxes will go up; maybe promises will
be modified; maybe more internal debt will be issued. But when the fight is finished, all of the family’s
huge pie remains available for its members, however it is divided. No slice must be sent abroad.
Large and persisting current account deficits produce an entirely different result. As time passes,
and as claims against us grow, we own less and less of what we produce. In effect, the rest of the world
enjoys an ever-growing royalty on American output. Here, we are like a family that consistently
overspends its income. As time passes, the family finds that it is working more and more for the “finance
company” and less for itself.
Should we continue to run current account deficits comparable to those now prevailing, the net
ownership of the U.S. by other countries and their citizens a decade from now will amount to roughly $11
trillion. And, if foreign investors were to earn only 5% on that net holding, we would need to send a net of
$.55 trillion of goods and services abroad every year merely to service the U.S. investments then held by
foreigners. At that date, a decade out, our GDP would probably total about $18 trillion (assuming low
inflation, which is far from a sure thing). Therefore, our U.S. “family” would then be delivering 3% of its
annual output to the rest of the world simply as tribute for the overindulgences of the past. In this case,
unlike that involving budget deficits, the sons would truly pay for the sins of their fathers.
This annual royalty paid the world – which would not disappear unless the U.S. massively
underconsumed and began to run consistent and large trade surpluses – would undoubtedly produce
significant political unrest in the U.S. Americans would still be living very well, indeed better than now
because of the growth in our economy. But they would chafe at the idea of perpetually paying tribute to
their creditors and owners abroad. A country that is now aspiring to an “Ownership Society” will not find
happiness in – and I’ll use hyperbole here for emphasis – a “Sharecropper’s Society.” But that’s precisely
where our trade policies, supported by Republicans and Democrats alike, are taking us.
Many prominent U.S. financial figures, both in and out of government, have stated that our
current-account deficits cannot persist. For instance, the minutes of the Federal Reserve Open Market
Committee of June 29-30, 2004 say: “The staff noted that outsized external deficits could not be sustained
indefinitely.” But, despite the constant handwringing by luminaries, they offer no substantive suggestions
to tame the burgeoning imbalance.
In the article I wrote for Fortune 16 months ago, I warned that “a gently declining dollar would
not provide the answer.” And so far it hasn’t. Yet policymakers continue to hope for a “soft landing,”
meanwhile counseling other countries to stimulate (read “inflate”) their economies and Americans to save
more. In my view these admonitions miss the mark: There are deep-rooted structural problems that will
cause America to continue to run a huge current-account deficit unless trade policies either change
materially or the dollar declines by a degree that could prove unsettling to financial markets.
Proponents of the trade status quo are fond of quoting Adam Smith: “What is prudence in the
conduct of every family can scarce be folly in that of a great kingdom. If a foreign country can supply us
with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the
produce of our own industry, employed in a way in which we have some advantage.”
I agree. Note, however, that Mr. Smith’s statement refers to trade of product for product, not of
wealth for product as our country is doing to the tune of $.6 trillion annually. Moreover, I am sure that he
would never have suggested that “prudence” consisted of his “family” selling off part of its farm every day
in order to finance its overconsumption. Yet that is just what the “great kingdom” called the United States
is doing.
If the U.S. was running a $.6 trillion current-account surplus, commentators worldwide would
violently condemn our policy, viewing it as an extreme form of “mercantilism” – a long-discredited
economic strategy under which countries fostered exports, discouraged imports, and piled up treasure. I
would condemn such a policy as well. But, in effect if not in intent, the rest of the world is practicing
mercantilism in respect to the U.S., an act made possible by our vast store of assets and our pristine credit
history. Indeed, the world would never let any other country use a credit card denominated in its own
currency to the insatiable extent we are employing ours. Presently, most foreign investors are sanguine:
they may view us as spending junkies, but they know we are rich junkies as well.
Our spendthrift behavior won’t, however, be tolerated indefinitely. And though it’s impossible to
forecast just when and how the trade problem will be resolved, it’s improbable that the resolution will
foster an increase in the value of our currency relative to that of our trading partners.


We hope the U.S. adopts policies that will quickly and substantially reduce the current-account
deficit. True, a prompt solution would likely cause Berkshire to record losses on its foreign-exchange
contracts. But Berkshire’s resources remain heavily concentrated in dollar-based assets, and both a strong
dollar and a low-inflation environment are very much in our interest.


Spekulatius

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Re: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum
« Reply #219 on: March 09, 2018, 08:15:19 PM »
The problem it’s the above is that Trump tariffs don’t really fight the trade deficit. The Gorilla in the room is China and it seems that Trump of sucking up to them rather than trying them to reduce some of the tariffs. The steel and aluminum tariffs mainly hit Canada, which runs a minuscule trade surplus with the US of $17B CAD (relative to the total annual trade of $300CAD).

I think Navarro will have a hell of a time to construct a narrative of Trump’s intuitions.
To be a realist, one has to believe in miracles.