I just read the recently published Navarro piece in the Times and I wanted to balance that with Paul Krugman’s take on trade deficits. Navarro makes some compelling arguments explaining how big our deficits are with Germany, Japan and Canada.
But something is missing from Navarro's perspective. SOFT goods. Software and digital goods. Isn’t it bad accounting to leave out an entire multi billion dollar industry from your analysis?
I get the argument that software isn’t a trade item because it’s not a hard good. But I don’t understand WHY it isn’t even considered.
Dear Dr. Krugman,
Please forgive my ignorance, because I'm not even remotely an economist, but I have one fundamental question about the promotion of "balanced trade" that seems to be the premise of Donald Trumps recent tariffs. (The actual reason I suspect has much more to do with vanity.)
If I look at some basic consumption stats from WorldWatch:
- The United States, with less than 5 % of the global population, uses about a quarter of the world’s fossil fuel resources—burning up nearly 25 % of the coal, 26 % of the oil, and 27 % of the world’s natural gas.
- As of 2003, the U.S. had more private cars than licensed drivers, and gas-guzzling sport utility vehicles were among the best-selling vehicles.
-New houses in the U.S. were 38 % bigger in 2002 than in 1975, despite having fewer people per household on average.
How and why is achieving balanced trade with every single country a possibility, when the USA has 10x the population to feed, clothe and house, and 20x the excessive consumption habits to support? It seems to me that the only way to achieve that would be to suck the resources of your own country dry.
https://twitter.com/paulkrugman/status/973968697822982147
Paul Krugman @paulkrugman
OK, so it's Kudlow for top economic adviser. At least he's reliable -- that is, he's reliably wrong about everything. We all make mistakes, but if Kudlow says it, you know it won't happen
http://www.calculatedriskblog.com/2018/03/larry-kudlow-is-usually-wrong.... …
10:06 AM - 14 Mar 2018
He's also a bitter foe of Keynesian economics, indeed any kind of demand-side economics, even after a decade that has overwhelmingly confirmed Keynesian predictions on the effects of monetary and fiscal policy
But Trump isn't looking for good advice, he's looking for sycophancy, praise for whatever he does. And that's something Kudlow can certainly provide
5
Just as the president can't be bothered to read or listen to advice from real economists (or any other professionals, for that matter), it seems his voters don't want to be bothered with all that technical stuff, either. It's a variation of the "if it feels good, do it" mantra of the 60s.
Many of his voters are the ones who lost high paying manufacturing jobs that required no advanced education, no special training, and didn't involve worries or thought about work after they left the plant at 5. Well, sorry. The gravy train has ended for them and now it's time to train up, educate themselves for the new economy, and deal with the world as it is. I am so disgusted with their willful ignorance that it makes it hard to empathize. Given their (and the president's) intellectual laziness, this isn't going to get better for them any time soon. They are probably still eagerly anticipating the big bonuses and pay raises that they believe will result from the recent tax cut--the one that won't be scooped up almost entirely by wealthy managers and shareholders. Hah.
5
When I was teaching economics in northwest Indiana--the steel center of America--I used to be very unpopular with some people because I was not a fan of taxing steel imports, or quotas. I argues that we could--quite successfully--reduce *steel* imports. But if we did, we would encourage imports of cars, appliances, agricultural implements, heavy equipment ('dozers, etc.)--we'd still be importing much the same amount of steel, just in a different form...
7
Steel production in the US has been pretty much the same for three decades. The drop in employment is due to automation. Most manufacturing job loss is due to this, and it will not reverse course in the near future. The presidency is not the job for a stupid man that can't, or is just to stubborn to read. And, an economist who just supplies data to verify Trumps instincts? Are those the same instincts that built so many bankrupt projects? Guess his supporters don't need to read either.
8
Looks to me that we have an example of Rands neo-nietzschean philosophy. Maybe the good DR. Krugman can convince Rep. Ryan to explain it to the great unwashed.
Maybe we could get the ringmaster to bring in the rest of the elephants before they kill them all.
Or maybe we should wonder how our great leap backwards will end.
1
Ayn Rand isn't "neo-Nietzschean."
The Ayn Rand inspired "new right" creed:
"My function, really, as an economist is to try to provide the underlying analytics that confirm his intuition. And his intuition is always right in these matters."
When I was a troubadour for the new left, facts were to be determined later, I already knew the truth. That is where the right has been since the other wing was rejected 30 or 40 years ago. That is why they get so frustrated with your damn facts.
4
NAFTA was signed into law by President Bill Clinton on December 8, 1993, a little more than a year after his election, and he then started enforcing NAFTA on January 1, 1994.
Greedy US businesses created jobs for US citizens in the USA before NAFTA and PNTR for China were signed into law by President Clinton.
NAFTA and PNTR for China removed the import tariffs on products from Mexico and China that protected US worker pay scales and job security.
All of the higher paying US STEM manufacturing jobs possible were then "Sucked off to Mexico and China" (just like Ross Perot predicted) when US workers refused to work for the wages and benefits that Third World workers would gladly accept.
Reagan did start the NAFTA negotiations with Mexico, was probably in favor of NAFTA and he would probably have signed it into law also.
PNTR for China was totally President Clinton's gift to China, and maybe it was part of his “Chinagate” bribery transaction.
US citizens that knew how to manufacture things are now probably long gone and maybe even dead and buried.
2
People who understand manufacturing are still around. You can drive down the street from my house and have the best bacon, egg and cheese biscuit assembled that you ever tasted with production occuring 24/7!
Given that many of the largest exporters of steel and aluminum to the US are likely to be exempted, this might be a typical administration policy--one that sounds good to the base but does little.
3
https://twitter.com/paulkrugman/status/972864994906959878
Paul Krugman @paulkrugman
Not the first to point it out, but calling Pennsylvania-18 "steel country" is generations out of date. Vastly more people employed in health and education than in primary metals; three times as many in hospitals alone. Shares of total employment in Pittsburgh:
https://fred.stlouisfed.org/graph/?g=iZAo
9:01 AM - 11 Mar 2018
2
https://fred.stlouisfed.org/graph/?g=iZAo
January 4, 2018
Primary Metal Manufacturing, Hospital and Education & Health Service employees as a percent of total nonfarm employees in Pittsburgh, Pennsylvania, 1990-2017
https://twitter.com/paulkrugman/status/972886746903011329
Paul Krugman @paulkrugman
This might be a good time to talk about the arithmetic of trade and manufacturing, or, why even a full-on trade war can't restore the manufacturing-centered economy Trump wants back 1/
10:27 AM - 11 Mar 2018
Once upon a time manufacturing really was a third of employment; these days it's well under 10 percent 2/
But how much does trade have to do with this decline? The US used to run roughly balanced trade; now it runs a deficit of about 3 percent of GDP. If that deficit were closed, most of the shift would be in manufacturing 3/
But a dollar of trade shift in manufacturing would add much less, maybe 60 cents, to manufacturing value-added, because mfg uses a lot of service inputs. So were talking about maybe 1.8% of GDP added to mfg -- or about 15% more than now 4/
First-pass estimate would be a comparable increase in employment. So we'd be talking about raising manufacturing from 8.5% of employment to maybe 9.8%. We'd still be overwhelmingly a service economy, nothing like we once were 5/
Not saying that trade had no role; over shorter periods, like the surge in deficits under Bush, it was a big factor in absolute changes in mfg employment. But over the long run manufacturing decline reflects forces much bigger than trade 6/
1
https://fred.stlouisfed.org/graph/?g=iZjp
January 4, 2018
Manufacturing employees as a percent of nonfarm employees, 1939-2018
https://research.stlouisfed.org/fred2/graph/?g=3HcY
January 30, 2018
Share of Gross Domestic Product of Net Exports 1929-2017
https://fred.stlouisfed.org/graph/?g=dgU2
January 15, 2017
Percent of Employment in Manufacturing for United States, France, Germany, Sweden and United Kingdom, 1971-2012
(Indexed to 1971)
https://fred.stlouisfed.org/graph/?g=dgTW
January 15, 2017
Percent of Employment in Manufacturing for United States, France, Germany, Sweden and United Kingdom, 1971-2012
Paul Krugman: 10, Peter Navarro: Nil.
Excellent analysis.
3
Following Gail Collin's lead from yesterday, I am pretty sure that the tariffs and the Korea visit are just costume jewelry to get the attention of Western Pennsylvania voters and will be abandoned as soon as the election is over on Tuesday. All he cares about is his ego. His biggest fear and primary motivator is not loss of jobs or Korea nukes, but rather losing in any way.
1
Let's presume Trump was elected by Putin to destroy America's preeminence in the global economy. Now you can't make it too obvious. So some exceptions have to be carved out. Same with the tax cut/give away to the corporations and top 1%. Give the peons a few bucks for a few years and it's not so obvious. Now add in disrupting health care, the environment and the financial safeguards to protect consumers and against another market crash. Finally, supercharge the markets and inflation. If destruction is the ultimate goal, how could it be designed any better?
1
It seems most of what Trump does is designed to alienate us from our allies and weaken and isolate us in ways that please our enemies. This tariff thing is just one more example. The idea might as well have come from Putin himself.
3
Professor Krugman alludes tothe price elasticity of demand for final products affected by higher price steel and aluminum costs. The tool used in past to estimate the finer details of demand/supply by final product that incorporates higher cost tariff goods is an 'input/output' anlysis that permits variable changes to cost (inputs) to dervie hypothetical changes to prices and hence, demand/supply (output) for the end products affected by tariffs.
Paul Krugman is possibly the best explainer of trade writing for any media on the planet. It begs the question, 'why wasn't fundamental economic analysis' completd to ensure the President was well-informed of the finer details of economic results from implementing a tariff on steel and aluminum?
The answer is relatively simple. It leans heavily on politics rather than economics: Americans don't understand economics; don't care about those that do; and only want to hear positive news. The President is their man.
WH occupants from Sarah Huckabee Saunders to the top echelon of policy winks are living on borrowed political time. Sarah can cash-in with a tell-tale book after the curtain draws on 45. Wealthy people in the cabinet spoofing their love of country took dividends by marshalling a tax package that will see their cohorts net surplus income increase substantially. Eventually, the sheep will discover that congress and senate work for the Fortune 500. This group of America's top corporations represent about 70% of U.S. GDP .
1
As Krugman knows well there's theory and there's politics--rarely will the two meet anywhere close to reality. In this case, admittedly egregious, the politics have taken over with bad judgment, limited experience, tendentious views, and no sense of responsibility. That makes rowing the theory boat an upwind job. DJT isn't listening, just talking; Navarro isn't advising, just posturing; and Ross doesn't actually care about Commerce only his personal portfolio. Added to all that DJT is perfectly willing to risk the US economy for a possible few votes in Pennsylvania, as well, of course, as creating a distraction from the shameless Stormy Daniels et al story. We can expect a stream of these pointless outbursts, witness the North Korea travesty, to distract everyone from the tawdry behavior our rascal in chief carries with him.
1
The poorly educated whites Trump claims to love are having economic problems because increasingly the better paying jobs they have the intelligence to perform adequately are being performed better and less expensively by computers and robots,
By encouraging them to blame foreign imports Trump encourages them to blame foreigners. So far it has been good politics, but it is bad economics.
In addition to blaming foreign workers they blame non whites, Jews, and liberals in this country. That is the appeal of the alt right.
1
Please, you need to study history. While automation has displaced some manufacturing workers imports have also displaced workers. As part of your history lesson look into how the labor wing of the Democratic Party had villainized imports since the days of the first oil embargo. This was with the full blessing of the party. Now those same manufacturing workers are deemed regressive, xenophobic, racist and deplorable. What a world, what a world.
danielmiessler
U.S. Manufacturing is as Strong as Ever: We Just Need Way Fewer People to Do It
NOVEMBER 28, 2016 IN POLITICS
Although we frequently hear claims that the US manufacturing sector is dying or in a state of decline, manufacturing output in the US, except during and following periods of economic contraction like the Great Recession, has continued to increase over time, and reached the highest level of output ever recorded in 2014.
What has been in a steady state of decline is the number of manufacturing workers needed to produce the increasing amount of manufacturing output ...
U.S. manufacturing is doing just fine. In fact, it’s just about the best it’s ever been. But...manufacturing jobs are completely evaporating...
The reason the manufacturing jobs are going away is because the companies have replaced most of their workers with software and machines...
The jobs aren’t coming back.
https://danielmiessler.com/blog/u-s-manufacturing-is-as-strong-as-ever-w...
---------
Few people have the courage to talk about it, but the jobs created by the new economy require quite a bit more IQ power than the jobs destroyed by it. When anyone ventures to talk about it, he is shouted down.
"The reason the manufacturing jobs are going away is because the companies have replaced most of their workers with software and machines..."
Keep telling yourself that's the only reason. Then you can rest easy with your simplified view of the US.
Dr. Krugman,
There may be an unintended bright side to the metal tariffs.
Just as higher oil prices made Fracking and Solar energy more cost-effective, so too could higher metal costs make alternatives more cost-effective.
High-strength framing and housings, now made of Steel or Aluminum can be constructed from Fiberglass, carbon-fiber, or Aramid (Kevlar) Epoxy-composites. The Boeing 787 is an example of Aluminum replaced by Carbon-fiber/epoxy composite technology. High-performance automobiles like Ferrari, Lamborghini, Porsche, and Audi have made framing from composite structures for decades. Auto manufacturers have been developing durable ceramics for use in high-temperature applications like engine blocks and cylinder heads.
In most cases, the alternatives provide better performance and higher efficiency than metal. Once the manufacturing techniques are perfected, they can be applied to all sorts of manufactured products.
This could well lead to a REDUCTION in demand for Steel and Aluminum from all sources - perhaps permanently.
Jus' sayin'
2
"Just as higher oil prices made Fracking and Solar energy more cost-effective, so too could higher metal costs make alternatives more cost-effective."
That's a bad analogy. Higher oil prices reflect actual economic factors, not costs artificially imposed by politicians.
Anyway: "As a material for car parts, carbon fibre currently costs 20 times more than steel and 10 times more than aluminium, according to research (pdf) from Jaguar Land Rover."
Carbon fibre: the wonder material with a dirty secret
by Mark Harris
The Guardian
22 Mar 2017
The world price outside of the US will drop due to reduced US imports causing a price drops. Other countries will support their own steel production keeping the low price over produced steel on the market for some time to come putting the US at a high cost disadvantage for steel and its products. Yes theoretically in the long run the supply and demand shifts shown in Krugman's article will apply . But again that is a very long run after considerable permanent damage and disruption occurs in the markets all to the US disadvantage. .
1
Dear Leader is taking the economy back almost a century. I remember what you point out when developing countries were trying to promote higher tariff to manufactured goods and also remember the quotas. In Latin America, we had ECLAC (created within the UN in 1948 to promote economic development in Latin America and the Caribbean) which became a dinosaur in the 90s when almost all ex-CEPAL countries embraced the WTO in order to get to the twentieth century.
So Trump is acting like he is leading a developing country of last century when it was the USA the world leader that pushed free trade agreements in order to open markets for its goods and services. It took a long time. By the way, Navarro probably thinks that Trump can perform open heart surgery as well.
6
Trump's real intuition as a salesman is that it does not matter in politics what is true, only what people believe to be true. This will play well with certain voters and they will resist any intrusion of evidence in their beliefs. Sad.
3
I just spoke to someone in a steel business in my state of Ct. His company gets steel and customizes it for use in construction, as an example they cut beams to custom lengths, cut bolt holes in them among other things before sending them out for jobs. He says that it’s going to hurt his company severely because the price of steel is going way up no matter who they buy it from. Trump never even started to think this through.
3
Paul Krugman practitioner of that dismal science misses the point in his analysis of the impact of steel tariffs. For Trump it's not about job creation, it's about showmanship and grabbing headlines and making fans cheer. This is the reality show president. He played a billionaire and now he's playing a president.
5
Capitalism starts with fake assumptions about people. The dogma was summed up in seminal writings over one hundred years ago. John Calvin's predestination theology argued that some are predestined for damnation. Karl Marx (1818-83) identified class structures that had divergent interests. Max Weber (1864-1920), preached frugality and merged religious (anti-Catholic) themes and devotion to a 'calling' - the capitalist class. Thorstein Veblem (1857-1929), Theory of the Leisure class described the culture of the wealthy. Economist and diplomat John K. Galbraith (1908-2006) followed-through mid-20th century with The Affluent Society, The New Industrial State and American Capitalism (1950-1960). (Galbraith's son Kenneth [1952- ] is a noted economist in his father's tradition and offers insight and writing skills similar to JKG).
The Calvin Weber influence on society encouraged a fusion of protestantism, predestination and frugality - a subserviant conditioning of workers until the union movement and Henry Ford improved assembly workers incomes and stimulated the development of a skilled middle class. Marx set the stage for unionism and collective bargaining that increased workers' pay.
Capitalism isn't the problem. Bad "capitalist actors" are the problem. Henry Ford treated workers' well; they returned the favor by buying cars they built. It offers a glimpse of an early basice version of a 'circular economy' - 'I treat you well, you return the favor, we both do very well'.
1
I'm not sure the president even has a strategy, because when he announced the tariffs he talked about how terrible it is that American made automobiles are being out-competed by foreign cars. First of all steel tariffs aren't going to help that. Second of all that's down to design, foreign autos like Volvo and Mitsubishi are just better than Cadelac or Ford cars. And third "foreign car" is a pretty mushy subject when you consider that many "foreign" cars are made domestically and many "domestic" cars are made in Mexico.
3
Yes, I get this. But what's weird is Trump claims steel manufacturers are opening closed mills. Yet the tariffs aren't even in place. And who knows, along with Canada, Mexico, what other places could be exempted? What effect would tariffs have after all the exemptions? So why would any American steel plant reopen now?
To the Editor:
Re “Mr. Trump’s Destructive Trade War” (editorial, March 4):
You warn that a trade war including tariffs on steel imports that President Trump wants imposed might harm workers in American steel-using industries like autos, and you say these tariffs will send the United States into a “broader trade war, the likes of which the world hasn’t seen since the Great Depression.”
In fact, we have been in trade wars for many years.
When China subsidized the investment into enormous excess steel-producing capacity that could be got rid of only by dumping it on world markets, it was in effect declaring a trade war.
When China adopted the policy of everything “made in China 2025,” it was declaring a trade war. When Japan allowed its auto producers to control the auto distributors, it was declaring a trade war.
When China said Google and Facebook could not operate in China, it was declaring a trade war, and moreover, also declaring an ideological war.
Conventional free-trade wisdom has little to do with reality.
CLYDE PRESTOWITZ, KULA, HAWAII
The writer was chief United States trade negotiator with Japan in the Reagan administration.,
Mr. Krugman has zero knowledge about tariffs and protectism
2
Prestowitz: "In fact, we have been in trade wars for many years."
Prestowitz should have consulted a dictionary before attempting to redefine "trade war":
"trade war: A situation in which countries try to damage each other's trade, typically by the imposition of tariffs or quota restrictions." (Oxford online dictionary)
"When China subsidized the investment into enormous excess steel-producing capacity ..."
If Prestowitz believes that trade with China is a problem, he should advocate that the US:
1. File complaints with the WTO.
2. Impose tariffs that target China.
1
Excellent analysis and tutorial. However, given that the exemptions from the tariffs currently under consideration, it seems to me that the objective of the tariffs is limited and will not be beneficial to the wages and employment of workers in the US but the theatre of the announcement, White House Meeting, and the President's trip to the contested district, is designed to assure a Republican win on Tuesday.
So it seems to me that we will not know until Tuesday evening whether the President's strategy is effective or not.
I have been thinking about what the next act will be if the Democrat wins the election. I suspect we will eventually make a case for protection of intellectual property, developing a level playing field to compensate for the current lack of competition for the global market and avoid the negative protection result that your piece highlights.
" developing a level playing field to compensate for the current lack of competition for the global market"
If someone dominates the global market by having superior IP you want to "level the playing field"?
BTW, how would you level the playing field when it comes to IP for producing underwear? Just curious?
Thank you Dr. Krugman for your pleasant, 101level course, on
relation of prices to tariffs. I know, intuitively, that you are
targeting our Dear Leader, hoping that his so counter-intuitive
intuition will make U-turn, and the world return to its senses
again. Let’s hope…
From the other lesson in economics, we know that tariffs quite
often are imposed due to lobbying by uncompetitive industries.
Is good to remember that our Leader is “intuitively” responding
to his political base, as well.
Maybe, just maybe the whole case, one should evaluate holistically,
and some developmental program for the steel industry,
like some countries are doing, can be then considered.
Such a program cannot be only reactive, it must be well thought.
through.
Dear Leader Trump is trying to follow the wisdom of his own crowd. To keep this mob entertained he must perform various tricks that pleases them. Knee-jerk decisions to his base are needed because they have the attention span of goldfish. Tariffs are the current "wisdom" because it plays well in Steel country (see current special congressional election in PA18).
Dear Leader's crowd cannot analyze what tariffs on steel and aluminum will actually cause in their own community because they are caught in the rapture of the "Leader", and the analysis is just too much work. Besides, the Dear Leader's next act will obliterate the last one in a Hillbilly second.
The analysis in this column requires thinking that involves actions and reactions of economic forces that are ideas, not simpleton slogans.
We cannot give Dear Leader credit for manipulating these slogans, because he believes in them himself. He demands his minions to be "loyal" to whatever he utters, and Peter Navarro obliges.
The Dear Leader has no clothes, but no one is listening to the voices crying in the wilderness. (The one eyed man in the kingdom of the blind is a pariah.)
2
"To keep this mob entertained"
By shouting "hands up, don't shoot!" ?
No matter how strong you may feel about fully free markets or not-so-free markets it is quite clear that Trump's tariffs proposals cannot be justified. My impression is that, similarly to some of his other faulty recommendations re: Obamacare and taxes, they will be revised and washed down by the Republican Congress, Mr. President will adapt and change his mind and if someone shows later the poor or negative impact of his measures he will put the blame on someone else.
7
Also, don't forget that Brazil is one of the largest foreign importers of US Coal for steel smelting. These tariffs may backfire and hurt Trump's beloved coal miners and their beautiful clean coal.
5
What if his purpose isn't anything to do with races in Pennsylvania or Stormy, or NK or NAFTA? What if it's just about destabilizing the stock market so that his friends can skim the volatility?
1
Trump talks before he thinks. People who talk before they thing usually act before they think. So this tariff on steel and aluminum shouldn't be a surprise to anyone.
3
AND some 40 million Americans and their propaganda arm Fox News cheer their manchild-in-chief and await his parade and wall.
It's ok things are great out here in California!
We live large behind our big blue wall in the sheer certainty that a stroke or cancer will eliminate this one man/child plague on our senses - OR - that if not -It will confirm our belief that there is NO god.
3
Oh yes, the great blue state of California is a liberal utopia! The highest level of homelessness, top tier for wealth disparity, unaffordable housing, 7th worse public education and brutal taxes! The great sanctuary state of California needs it migrant slaves to pick its fruit and clean its toilets. The great liberal society of pot smoking , pro abortion, gender confuses people that think all white people are racist and that men are evil. And you wonder why other states when for Trump. All I can say is thanks to our “racist” founding fathers for the Electoral College!
Bet it helps Russian and Chinese steel. That's the important thing these days.
Trump's tariff decisions appear to have been the result of his anger over other issues--he has so many facing him and none to his liking! But reading the steel is not labor-intensive, only one hour required to produce one ton of steel, his goal of more jobs is belied but his base remains bullied. And watching his campaign-rally flashbacks from Pennsylvania last night, the lies kept him animated because he is both Barnum and Bailey. The most disgusting display of the evening was his acknowledgment that people don't think he acts presidential. He then posed as a martinet, stiff, hands to his side, turning like a figure from a German cuckoo-clock to one side and then the other to wild applause and cheers. His take? You'd find it boring, he claims. God to I yearn for boredom, the Obama kind; it's called respect for the office, maturity, intelligence, earning respect from constituents and maintaining our historic standards throughout the world, standards that have made us admired and copied. He doesn't get it and never will. And I tire of the "reality show" host. And yet, he's had to "you're fired" so many times when he isn't simply hearing, "I quit because I'm violating the ethics of my position and of the WH.
7
I note that Russia is one of the top 5 exporters of both steel and aluminum to the US. How long will it be before Trump exempts Russia from the tariffs on the basis of "national security"? You know, we wouldn't want them to start cleaning old tapes out of their vaults or anything.
5
From President Trump's standpoint this isn't quite as stupid as it seems, because it's not about actually making things better, it's about supporting that visual from his campaign of the closed and largely demolished steel mills in Pittsburgh once again rising up from out of the earth. By the way, we're now more than a year into the Trump presidency, and I'm kind of wondering how that's going; have we broken ground yet on those new steel mills? We haven't of course, and we never will—this is a fantasy. Which leaves us with one more question: how the heck can we get Americans, most of whom do not read the New York Times and most of whom (like me) live nowhere near New York, to see through this kind of thing? Part of the job of making that happen falls to the Democrats (I am one), who absolutely dropped the ball on this in 2016 and threw the door wide open for Trump. Let's hope we can figure out how to do better from here on out. But as Professor Krugman points out this is tough stuff, and it's easy for a con man such as our President to have a field day in an area like this.
7
" By the way, we're now more than a year into the Trump presidency, and I'm kind of wondering how that's going; have we broken ground yet on those new steel mills? We haven't of course, and we never will—"
No need to break ground if you have steel mills running at less than capacity.
But nice try.
Tariffs, Stormy Daniels, million dollar donation to Houston storm aid (never Paid), total ban on TV news in 75% of households so the children do not see this president, loosing health insurance, tiki parade in American city----all because of one accident-----called Hillary Clinton----she should have never been our Democratic Party nominee......Do you really blame disfranchised whites who voted this Danny Dennison of "horny porny" Republican Party
If you do not want John Baron or John Miller as your president of this moral less and spine less Republican Party then go VOTE VOTE VOTE.......
10
If the tariffs are imposed, Trump is likely to make exceptions for Canada, Mexico, and South Korea and Japan which now account for almost 50% of our imported steel. Since these countries can continue to supply the US without a tariff, isn't it likely that the tariffs will not be of much benefit toUS steel industry? Presumably these excepted countries have enough capacity to increase shipments to the US to make up for the loss in imports from countries like Brazil which will be faced with the 25% tariff. The net impact on our steel industry may be negligible if they cannot raise their prices for the steel they are producing.
2
Non-economist question: might this not drive the price of steel everywhere else in the world down? After all, if we're not buying it -- at least that's the point of the tariff, we're told -- so there's more available for the rest of the world. So anything made from steel in America -- where steel just got more expensive -- also gets more expensive, while anything from, say, Canada, where steel just became more plentiful, and thus less expensive, will go down. My guess is that will add to a trade imbalance. My guess is that's bad.
5
I think you make a good point. The tariffs essentially raise the cost of metal use within the U.S. relative to the world, making metal consuming manufacturing cheaper outside the US. I doubt steel and aluminum production can adjust rapidly to throw on more production, so raw material costs will increase here. Maybe the net effect will be to drive manufacturing to areas with now lower material costs, leaving final product demand little changed.
2
Assuming US demand for steel will not decrease after the tariff (which it will, by an amount depending on the elasticity of demand), and the world price of steel does not drop (which it will, by an amount depending on the elasticity of supply) just after the tariff, $1,000 worth of foreign steel (one metric ton or so?) will cost $1,200.
However, because of the tax cut the dollar will become stronger, and in a year or so the cost of importing that same amount of steel will be back down to $1,000.
Something similar will take place with aluminum.
The problem is the strong US dollar because of the federal budget deficit.
"...and he's almost surely doing it by accident, out of sheer ignorance..."
All you need do is look at that lineup of economic geniuses in the photo to confirm this statement.
5
Donald Trump and any '...negative protection racket...' is all and only wonkish. Trump can not tweet and speak his way to protecting America's steel and aluminum industries. The five men in this photo are not organized crime family godfathers.
Vladimir Putin's socioeconomic political foes end up in hospitals, prisons, mental institutions, urns and coffins. While Putin's friends end up occupying the Oval Office of the White House. That is straight up gangster godfather strictly business that personally primarily profitably protects Putin's Russia.
3
"My function, really, as an economist is to try to provide the underlying analytics that confirm his intuition. And his intuition is always right in these matters."
Isn't that all that needs to be said about this fool? (both of them)
10
Is this about trade or about a "stormy" news week in advance of a critical special election in Western PA? I suspect the only one who really knows is the Worlds Greatest Economist President who wanted to go to a rally in Western PA talking about tarrif's Making America Great Again rather than be talking about his Stormy week. Once again misdirection was the real reason....
4
Not to try to crack the supply and demand curve here, but Trump has shown to be good at painting a picture of "hard working Americans" for political gain. Coal mining, basic steel milling, farming and oil drilling all tug at the heartstrings of "real America." Like check out "The Man Store" online. The clothing focuses on personal protection equipment and clothing for steel, oil and refining jobs. Or check out clothing at Farm & Fleet. Even Illinois' governor Bruce Rauner can be seen wearing a new Carhartt jacket while touring real Illinois. The overall market for this wear might be limited, but the less rigorous wear sure looks good on a Trump voting assistant systems analyst driving from exurbia to the office of a life insurance company.
On the other hand, Northwest Indiana (NWI) produces around 30% of steel in the US. Pence might have something to do with this. On the other-other hand, those steel jobs (mostly engineering) bleed into that god forsaken metro area that shall remain nameless. Trump is actually helping Chicago (sorry, should have remained nameless).
Funny thing, it was DoC secretary Wilbur Ross' private equity group that swallowed up much of NWI steel in the 1980s and almost shuttered the entire industry. Then Indian/Brit Lakshmi Mittal bought it from Ross and turned it back into a business. It was Obama's bailout of GM that kept NWI steel going in 2009. The biggest mill on the lake was two days from shuttering. Thanks, Obama.
4
The Peter Navarro quote,"My function, really, as an economist is to try to provide the underlying analytics that confirm his intuition. And his intuition is always right in these matters." Shows just how bankrupt the Trump Brain trust has become. It serves no other purpose than to provide cover for the simplistic drivel that is Trumps world view, and the chaotic, self contradictory policy that results.
3
When Joe the Plumber can't afford his pipes, maybe then he'll regret throwing away his vote on Trump.
When Suzie the steel worker gets done celebrating the tariffs, she might realize the cost of her new car just went up.
The rich get richer and the working class and poor get taken for a ride. Is this the new American way?
7
navarro has always been a second rate economist so it's quite natural Trump listens to him. Now he is even telling us that he thinks his job is to justify anyting Trump wants to do. He's the perfect aid for Cadet Bone Spurs.
3
What if Trump did this whole tariff shtik just because of the special election in Pennsylvania, to satisfy his steel industry electoral base there? He's quite stupid enough to have done such a thing, on a whim, his usual reasoning factor. One more reason to get this gonif out of office ASAP, and perhaps the GOP is finally willing to acknowledge that?
3
Trump and worse is what happens when corporations and big money are given citizens status and free unaccountable access to our electoral politics. "We the People" cease to exist usurped by a form of neo-monarchy (plutocracy). Hence the ongoing orchestrated assault on the regulatory abilities of the government and democratic norms and institutions. That Trump and his swamp are a direct assault on the rule of law is no accident, he is there by design perpetrated by bad actors foreign and domestic to demolish our democracy.
4
The Accident of the Deal.
3
Trump is randomly reseting the controls of a complex economic reactor without any comprehension of fission (trade policy). The only question is whether the political fallout of a possible economic meltdown will at all impact the support of his base?
4
Homer Simpson in the Whitehouse.
3
Yes, Trump is a puffed-up dogmatic ninny who chooses to ignore scads of smart people advising against tariffs.
But in this case, he's doing tariffs because Canada and Mexico won't play ball on NAFTA and negotiations are running out of time for Congress, Pennsylvania is going badly for the Republicans, and I just think he likes other nations asking for exemptions. The tariffs are a lie.
They will be quietly abandoned when Canada and Mexico either drag out NAFTA or walk away from it, when voters in Pennsylvania reject his obvious ploy, and when nations form their own trading blocs without the U.S.
Classic Trump though. Remember the Trump Steaks? Greasy shoe leather. I'm told.
5
I appreciate your earnest, and admittedly wonkish efforts to explain the negative implications of the tariff order. However, aside from the obvious weekly diversion from the substantive problems Trump has been trying to hide of his likely financial connections to Russia, the knee jerk tariff announcement late last week was another political pandering message to his "base." The photo opportunity on Thursday when he signed the order surrounded by men in t-shirts with bulging biceps, who were supposedly steel workers, was laughable. His announcement was also timed to help the Republican congressional candidate in the special election near Pittsburgh. Of course, now we find that the tariffs are a negotiating ploy with trading partners, as Trump scrambles to back away from the tariffs. Nobody likes to be threatened and putting a 30 day suspension of tariffs on Canada and Mexico to arm wrestle them for less free trade with the US will excite Trumps "base" whoever they are and whatever economic interests they believe he serves, but are more likely to be met with retaliatory measures from Canada and Mexico.
This week's diversion was the announcement that he agreed to meet with NK with no coordination with his administration. Yes, negotiations are far better than his bellicose threats against NK and detente is welcome.
2
There are no wonks in the tRump administration. Together they would make a wit.
Who knew that international trade was so complicated?
5
Some day, when all of the dust settles, someone will read the RICO (Racketeer Influenced Crime Organization) statutes and notice how well they apply to the way in which Trump and his family have converted the federal government into their own cash cow.
In that context, "negative protection racket," while relevant, is such small ball.
1
Tariffs, Korea, Capitol in Jerusalem, etc. will not stop Mueller.
1
If a number of porn stars were to become first-rate economists, would *they* be able to command Trump's undivided attention for a few minutes?
2
Who knew that Peter Navarro, ostensibly a highly trained and credentialed economist would cast his gaze to Joseph Goebbels or to some Stalinist propagandist to inspire his job description?
We shouldn't be surprised. Navarro's professional integrity is scarcely different from how the critical mass of GOP (and even some Democratic) behavior has emerged in Congress.
Is it any wonder that morbid cynicism rules the Land?
3
The economist Trump should have listened to is The Economist magazine. This week's issue, with Trump's scowling visage on a hand grenade, calls his tariffs "an act of senseless self-harm" and "a potential disaster, both for America and the world economy."
1
Your second graph needs some work. MC or AVC curves...a demand curve certainly would have been helpful. Yikes. Well written article otherwise.
Trump's rhetoric over steel tariffs is theatrics for the PA elections coming up. The steel execs were behind him because -- hey! higher prices = higher profits, what's not to love? Trump supporters love it for the faux populist reasons projected onto it (America First! and associated whatnot). Trump expects to be "balanced" out on this by his advisors and congressional support-party (even as he struggles against just that), so it doesn't matter what he says (his trademark approach to everything).
Beyond that, it's not hard to get the basic principles behind why steel tariffs are a bad idea for the U.S. economy (even without wonkish analytics). If anti-intellectualism hadn't infected our culture for decades -- many more would get it than do (and care). As commenters on this thread attest, it's easy to do a little online research (*still). Anybody can know more about anything and everything than Donald Trump does (and usually do).
There may be people who willingly choose to be ignorant -- but, at least they still have the ability to learn the truth and change (some actually do). Do progressives and resisters to the degradation of our form of government have the wherewithal to at least keep us from losing the ability to learn facts and important principles?
There is a war of cultures going on. It's just that it's not East/West. It's one that seems to be: Those Who Want Ignorance And Magical Thinking To Prevail versus Those Who Want Knowledge And Reason To Prevail.
2
This has absolutely nothing to do with economics and everything to do with a relatively obscure congressional race in Pennsylvania.
Isn't there a much simpler explanation? Trump, or someone close to him, owns a lot of steel and will personally profit from the rising cost of steel.
Without seeing his tax returns, it is much too generous to trust that public welfare even factored into Trump's "intuition".
Quite difficult to understand. I guess that's what trump is counting on generally in his shoot from the hip policies -- that they'll go over because of the general misunderstanding of details and go for them on his phony general description of them. Thus he doesn't care about results, which are sure to be counterproductive, but like the grandstander he is, will win him applause from his "base". This points out the main fault in those on the Times who oppose trump, including Mr. Krugman, that focus at length on his faults but do not stress the agenda that will win votes away from him and his crew in the next elections: a 15$ minimum wage, gov sponsored health care, free tuition in state colleges, and control of the crooked practices of banks, which brought on the last recession and damaged so many lives.
Paul’s statement…
“…For the purposes of this post, I’m going to treat the U.S. as a small open economy facing given world prices…”
Corresponds to my assumption:
“…Assuming US demand for steel will not decrease after the tariff (which it will, by an amount depending on the elasticity of demand), and the world price of steel does not drop (which it will, by an amount depending on the elasticity of supply)…”
In Economics, this is known as “the small country assumption.”
Paul also states:
“…And there are further complications once, for example, you take into account possible effects on the exchange rate…”
Which corresponds to my:
“…However, because of the tax cut the dollar will become stronger, and in a year or so the cost of importing that same amount of steel will be back down to $1,000…”
If you are a manufacturer with multiple plants you just move the line out to Europe, down to Mexico, or up to Canada, maintaining a cost advantage and market share.
Domestic workers, too bad. Ford, GM, Fiat-Chrysler, Caterpillar, Boeing and a host of others have this ability.
Again, I ask who are the 60 million plus voters who voted for the Donald. What kind of people are these. I mean there are 60 million voters who think this experiment was needed for the country. Where is the country I knew growing up and growing old? A disastrous mistake and one I hope does not lead to dystopian futures.
1
China is the problem. Ignoring that fact won't make it get better with age. We need to have a President both informed enough and determined enough to face this challenge. Trump is neither. We missed our chance and should have nominated and elected Jim Webb to be our President.
How about this? Trump's call for tariffs is an election ploy to help the Pennsylvania congressional candidate in the steal belt elected. Once the election is over this will disappear. No tariffs
Dr. Krugman,
Also worth considering in this analysis is the technological disadvantage of US steel manufacturing:
https://www.bloomberg.com/view/articles/2018-03-05/steel-history-shows-h...
It's hard to see how propping up inefficient, obsolete steel factories is a winning strategy in the long run in any case. Years ago, Enzo Ferrari (the Italian sports car scion) stated, "Competition improves the breed." What the US has right now is a plethora of open-hearth mongrels in the steel business not worth protecting.
2
"What the US has right now is a plethora of open-hearth mongrels in the steel business not worth protecting."
I said the same thing about Chrysler and GM in 1980. Back then the Democratic Party was still whipping up their labor wing chanting "Buy American!" and "Out o a job yet? Keep buying foreign." . And also calling organized labor "the Americans who built this country."
Sound at all familiar?
How could anyone (Peter Navarro, candidate for chief economic adviser) say (credibly) that Trump's "intuition is always right in these matters" -- before he has heard whatever is the next wacky thing Trump may intuit?
1
It would be interesting to see Krugman's take on the targetted tariffs on steel over the past several years. China's share of US steel imports has been vastly reduced in the past year due to 400%+ tariffs on certain finished steel products, many instituted near the end of the Obama administration. Instead, that Chinese steel now comes to the US from Vietnam, South Korea, and many other countries, even Canada, largely negating those huge tariffs on Chinese steel. The 25% blanket tariff on steel imports comes as a recommendation from the Department of Commerce's year long 232 investigation, with the intent to stop the circumvention of targetted tariffs.
Dear Professor Krugman, you should use your wonkish talents, not to bash Trump's effort to save American jobs, but to produce a comprehensive economic policy to reduce our trade deficits.
1
"but to produce a comprehensive economic policy to reduce our trade deficits."
Krugman doesn't think trade deficits are bad. After all, the East and West Coasts are thriving so how could they be bad?
“…a comprehensive economic policy to reduce our trade deficits…”
The trade deficit is a direct result of our public sector deficit (Google “twin deficits”).
Comprehensive policy:
1. Eliminate the recent tax cut
2. “Foreign based” American corporations should pay their taxes every quarter, like everybody else. No more deferment waiting for a tax holiday.
3. Increase taxes to generate a (half trillion dollar) yearly surplus, which is what we should have at 4.1% unemployment)
4. Go for free trade, i.e., no tariffs or quotas of any kind. No negotiating trade agreements. Let comparative advantage do its magic.
Trade is not a two-country affair, a wrestling match where I win you lose.
It is a multi-country affair where we all win.
What is “fair” for producers is usually very harmful to the middle class.
I don't understand why this is a big deal, cause if you look at the math, the tariff is tiny compared to the us economy
The Tariff is roughly 10 billion dollars
The US economy (GDP) is roughly 19,000 billion dollars (19 trillion)
Clearly 10 is a very small part of 19,000
why on earth is this such a big deal ?
can someone explain that ?
Outsourcing/ offshoring jobs is driven by one thing: cheaper labor in poorer economies.
The impending surge of artificially intelligent robotics will simulate the outsourcing/ offshoring of jobs, and it too is driven by the same thing: cheap labor.
We pay American workers more than many places in the US. Technology, generally speaking, is the same around the world world, although there are some notable exceptions, however, there isn't much variation in the cost of manufacturing compared to labor prices, so labor is the more significant variable.
I say let's all drop our labor prices to be like the other nations in the world so we can compete with them. Get rid of the minimum wage to undercut the costs of bringing robotics to market and to bring back manufacturing jobs to America. A very large lower class will work just as hard if not harder than a fat middle class.
Krugman is wrong again as usual because he fails to understand the tactics that Trump uses. He always states a policy that seems arbitrary and severe which causes a reaction by others. He then offers a negotiation to mitigate his action which ends up with a better deal for the US. Krugman , as usual, just doesn't understand business and capitalism.
Wilbur Ross was interviewed on Morning Edition last week and, though it wasn't a totally clear phone connection, he was pooh-poohing the cost increases of steel & aluminum by saying the increased cost to consumers would be less than a tiny fraction of a penny per can of soda or beer, or some similar minuscule amount to the cost of a car.
Nowhere did he mention the potential for lay-offs in industries requiring steel & aluminum, etc. His whole argument centered on consumer prices and how they wouldn't be raised enough to even make a dent Joe & Jill Sixpack's weekly budget.
1
Does this Administration know how to add and subtract. Navarro is some advisor. I like to share with him some of my intuitions and see what he comes up with once he does the underlying analytics. For instance, my intuition tells me it is a good idea be to remove Trump, Pence, McConnell, Ryan and all of the Republicans and Democrats and Congress and start all over again. Also, get rid of the Cabinet members and all Presidential advisors.
I wonder what his analytics would confirm. Would he back my intuition or would he provide me with evidence to counter my intuition.
I bet he would counter my intuition. After all, I am not the President, so my intuition is of little significance to Navarro.
1
The most persistent tariff-like policy of the federal government has been what is now sold as the "War on Drugs". Despite the stated intentions of reducing drug abuse, the only actual accomplishment of that legal prohibition has been maintaining inflated market prices for products sourced from relatively low-cost botanicals. Decades of "enforcement" have made little, if any, dent in overall availability or usage. The artificially inflated prices also support many ancillary "legitimate" enterprises such as money laundering and the corporate prison industry and all the spin-off rackets they generate.
1
In my years in management and strategy, I never thought I always had the right answer. I had instincts, of course. But I would always consult experts, either on my staff or from the field, before staking out a major position. Big changes like these need to be studied carefully. We can't afford political experiments. But that's what have with Trump. Literally everything he does is pure politics, and most of the time it's to prop up his own image with the people. He cares not for his country.
2
Having overplayed his hand, Trump now believes his exemptions for Canada and Mexico are going to force them to cave on NAFTA. Both countries will produce the robots and automated equipment needed to raise productivity. Trumps calendar reads 1958, and so does his tariffs.
Dr. Krugman:
I am glad that you put that question mark in "economists?"; specifically Peter Navarro, whom I have criticized in the sense "And this guy call himself "professor of Economics?"
Tariffs are totally are the wrong move in the international trade: every time the government -or misgovernment of Trump?- pokes a system that is working well produce deformations in the economy of everyone in the globe.
“…a comprehensive economic policy to reduce our trade deficits…”
The trade deficit is a direct result of our public sector deficit (Google “twin deficits”).
Comprehensive policy:
1. Eliminate the recent tax cut
2. “Foreign based” American corporations should pay their taxes every quarter, like everybody else. No more deferment waiting for a tax holiday. Use the funds for infrastructure, training displaced workers, etc.
3. Increase taxes to generate a (half trillion dollar) yearly surplus, which is what we should have at 4.1% unemployment)
4. Go for free trade, i.e., no tariffs or quotas of any kind. No negotiating trade agreements. Let comparative advantage do its magic.
Trade is not a two-country affair, a wrestling match where I win you lose.
It is a multi-country affair where they all win. Country A buys from county B but country B does not buy from country A. Country B buys from country C. Country C buys from country A.
What is “fair” for producers is usually very harmful to the middle class.
I hope we all understand that we're talking about a political issue and that no amount of economics wonkery will have the slightest effect on the voters at whom it's aimed. If a couple of aluminum smelters reopen Trump can boast of jobs created. Who's going to notice a $45 increase in the cost of an SUV?
Anyway, the average blue collar worker is a natural autarchist.
Finally, there will be no trade war. America "claims" the tariffs are being imposed to protect industries necessary for national defense. That argument requires objectors such as the EU to go to the WTO for a contrary ruling before they can impose their own tariffs. Talk about wasting time and effort.
This is all about jobs, not GNP.
This is why competence matters. Even if you like Trump's politics and priorities, he's not competent to put policies in place that will actually do what he wants them to do.
How many Trump supporters think about the fact that, when
some of our jobs went abroad, taken there by "our" corporates
to increase profits via cheap labor, that the US was also creating an Asian, Mexican middle class that would buy our products? The global economy has helped with life conditions and income equality worldwide, though not nearly enough, given revolutions begin in poverty or the threat thereof.
Trump's whim (not policy) is regressive to say the least,
but then again, reality has never been his forte.
“…a comprehensive economic policy to reduce our trade deficits…”
The trade deficit is a direct result of our public sector deficit (Google “twin deficits”).
Comprehensive policy:
1. Eliminate the recent tax cut
2. “Foreign based” American corporations should pay their taxes every quarter, like everybody else. No more deferment waiting for a tax holiday. Use the funds for infrastructure, training displaced workers, etc.
3. Increase taxes to generate a (half trillion dollar) yearly surplus, which is what we should have at 4.1% unemployment)
4. Go for free trade, i.e., no tariffs or quotas of any kind. No negotiating trade agreements. Let comparative advantage do its magic.
Trade is not a two-country affair, a wrestling match where I win you lose.
It is a multi-country affair where they all win. Country A buys from county B but country B does not buy from country A. Country B buys from country C. Country C buys from country A.
What is “fair” for producers is usually very harmful to the middle class.
Comparative advantage is the best “negotiator.”
Assuming US demand for steel will not decrease after the tariff (which it will, by an amount depending on the elasticity of demand), and the world price of steel does not drop (which it will, by an amount depending on the elasticity of supply) just after the tariff, $1,000 worth of foreign steel (one metric ton or so?) will cost $1,200.
However, because of the tax cut the dollar will become stronger, and in a year or so the cost of importing that same amount of steel will be back down to $1,000.
Something similar will take place with aluminum.
The problem is the strong US dollar because of the federal budget deficit.
1
OK, tariffs on imported steel to win an election. Downstream though, in spite of Trump's claims, domestic producers of cars will suffer an increase in their costs. Relative to imported cars, from the EU, as someone pointed, there steel costs will remain constant.
The truth so seems elusive. Many what are called 'foreign' cars are actually produce in the US employing many. Now, how do we equalize all this and come out whole? OK, maybe a tariff on imported cars, not produced in the US as Trump has suggested, on top of the steel tariffs. Will that cause a reflexive response from the EU with a tariff on all US car being sold in the EU?
God, I am confused. " Steven Mnuchin, Treasury secretary; Wilbur Ross, secretary of commerce; Robert Lighthizer, the United States trade representative; and Peter Navarro, an adviser on trade." Does anyone there know anything?
3
Boy that made me have a good laugh!
Yipes, Navarro actually said, to Bloomberg News, that on economic policy Trump's "intuition is always right in these matters." But, didn't he also go through those many bankruptcies? More seriously, how are higher steel prices going to provide more jobs when producers don't give raises any more, and what happens when they don't?
8
So an import tariff on steel amounts to a government-mandated, consumer-funded subsidy for the steel industry. That won't enrich steel workers whose high salaries of a previous generation are NOT coming back even if the industry does. Most of that money filched from the pockets of underpaid Americans will flow unabated to the Top 1%. A higher standard of living is not an issue an import tariff fixes.
Free trade overall benefits the United States more than it hobbles us. A world of too many tariffs reduces what a dollar can buy. Ironically, in the end tariffs may lead to more competition as a result of overproduction when every industrializing nation protects its fledgling industries. That's a strategy that allowed Japan, China and South Korea to flourish. (Indeed hope some middle-income African country learns from their examples.) However, when an industrial base matures, as ours, leadership prefer "free trade" for obvious reasons. What if every country protected its steel mill, leading to overproduction and pollution, perhaps spinning the world into an economic depression or a hot war.
Our issue isn't about tariffs. Simply, about the need to develop new theories that justify the proper apportioning of wealth. If workers had a greater share of profits, everybody would be benefiting from cheaper labor in China and elsewhere.
Late capitalism.
11
The question in the minds of Trump's supporters in western Pennsylvania's steel country is how to generate more good paying jobs. It certainly sounds right that if you increase the demand for steel from American producers, you will increase the number of jobs needed to produce more steel. Right?
Well sort of until you ask one very important additional question. First you must understand that the loss of steel producing jobs are also related to automation not just overseas production. Then ask how many more jobs are need to increase steel production? A lot, a few or none at all. Does it require hiring more workers or increasing the speed or time automated machines do the work. The answer is probably a little bit of both, which will certainly not bring back workers to levels seen in the 50's before automation.
So, who is fooling who? That's a question whose answer we know.
26
I greatly admire Mr. Krugman's thoughts and writing, but I think he has missed some points in regards to this issue. Mr. Krugman deals more in the theoretical rather than the practical on these issues. What he has missed is that this action is more about inflationary issues than supply and demand. The supply curve for products utilizing steel or aluminum are not going to be reduced (nor is employment in related businesses) based on 25% and 10% tariffs. The CEO of U.S. Steel has pointed out that there is about a ton of steel in a car, and that sells roughly for about $800 a ton. Even if steel prices rise the full 25% reflected by the tariff (which is very doubtful), that translates at the most to about $200 extra on a $30,000 average priced car. In many cases that is financed over six years which makes the cost increase about $35 a year to the consumer. There is even less aluminum in a car than steel and the tariff is much lower at 10%, so overall, these figures are not going to move the supply curve or effect output production. I don't think we should get lost in the theoretical aspects of tariffs and overlook the practical results. I am somewhat of a globalist, and have lived many years in Asia. I oppose most of what Trump says and does, but from a practical perspective, I would pay $200, or $35 a year, more on a car to have a U.S. steel and aluminum manufacturing base in the U.S., which I think is important to our future than $35 a year in cost savings.
6
An important point. The price of a final good subject to intense global competition is not determined by the cost of basic materials that go into its production. The price of autos sold in the US is not going to go up as a result of the increased cost of steel and aluminum but the profit margins of US auto manufacturers will decline slightly. And don't forget about substitution of other materials such as plastics that can mitigate the increased costs of these two materials subjected to the tariffs.
Now if the costs of domestic auto production go up enough due to increases in the cost of basic materials this will over the long term cause domestic auto production to migrate to other countries, say Mexico, where the tariffs don't apply. That is, the world price of steel and aluminum won't be affected by the US imposed tariffs and will be lower everywhere outside the US. This encourages US companies that use thes materials to move production to other countries, which reduces domestic employment in them over the long term.
6
This is a valid point, but misses the problem that the import supply chains are now set in place after many years of work. So the difficulty is in changing the source of parts. This is especially true for autos, where small differences make for large problems. Otherwise, the firms will pay more, but mostly for changing paperwork, or searching for other suppliers.
2
The last American maker of Beer Kegs thinks that a cost hike of $15 - $25 per keg is going to make his business less competitive. Geriatric money launderer Wilbur Ross is making his case for tariffs with soup cans and one cent's worth of steel, you're talking $200 a car. PK has dealt with actual (vs theoretical) changes in economies related to wages, trade, commodity prices, tariffs etc., for decades. Do you read? Maybe our surplus of exported tax subsidized farm products will tank. Individual grain brokers are complaining about the 20% tax gift to farmers selling to cooperatives, and REIT's holders are clamoring for yet another gimme. The entire Trump Tax and Tariff Plan is a mess. Not a theoretical mess. An actual mess.
2
Sort of wonkish. Yeah. But Stormy already told us this about Trump. Guy declines to don latex prophylactic offering a high effective rate of protection. He chooses/gets negative protection. Ends up with a $130K deficit. Other negative effects to be determined. Is there a curve for this? D curve? Has this dog flunked econ 202? Or did Tacky Trump? Eliz Warren is also trying to explain the tariff 'thing' to farmers who would never vote for her. Too elite.
As for Pete Navarro. Perfect example of the Peter Principle.
21
Automotive is likely to swing more rapidly toward aluminum content, due to the 15% difference in tariffs. The transformation is already in progress. This will slightly mitigate the negatives.
2
Maybe the tariffs are more about 2018 congressional races than trade, Trump needs to maintain his power base in congress to preempt any attempts to impeach or contain him. He may just be playing to his rust belt voters to turn out for his chosen candidates.
15
Instead of imposing tariffs on steel and aluminum, why don't we remove the subsidies from Oil or the recent tax incentives given the rich, and give them to the manufacturers of steel and aluminum on the condition that they modernize their plants? It would indeed promote Made in America, help the small cities tax base, etc.
15
What a great idea!
"His intuition is always right"? That sure sounds like the Dear Leader to me. Is there any better example of a sycophant that this?
27
"His intuition is always right". This sounds like something translated from a statement from North Korea. No, there's no better example of a sycophant than this. That such a statement could even be uttered by an employee of the US government, much less a high level advisor shows just how far the US has fallen.
This will not end well for the US. Trump's right, "they're" laughing at us; but they're laughing because of him.
He's an idiot. End of story.
18
How's your 401K doing? How are US employment numbers? How is US foreign policy? Compared to Obama, this president is wonderful.
Foreign policy? Everyone hates him, and us because of him. And as far as the market, wait until the first recession+ inflation. The market is relative and not an indicator of much of anything, especially since it’s a grand Ponzi scheme. Employment is good, but not better than going from catastrophic unemployment numbers of 10% in 2009 to 4.7% in 2016 BEFORE the Groper was elected. Again, he’s just riding the wave of President Obama’s policies. And bragging about how great he is...NOT!
1
Dr k, I am shocked by this article. It shows that you failed to read the times earlier article which explained how trump would help the middle class by shrinking the GNP through tariffs. Your failure to grasp voodoo economics is “a disappointment. “ <grin>
9
Fools led by a fool-in-chief. Navvaro's quote is the most telling.
21
Trump has no logical reason for imposing tariffs beyond the reasoning of a dog. Why does the dog lick himself? Because he can. Why does Trump impose tariffs? Because he can. Stop trying to rationalize stupidity.
17
Peter Navarro: "And his intuition is always right in these matters."
Good lord, what a toadying groupie. We are truly in a time of "Dear Leader cannot fail, he can only be failed."
21
The irony here is that Trump's major for his undergraduate degree from Penn's Wharton School (he likes people to think he has an MBA when he mentions Wharton, for which they are famous, but he has just a regular college degree) is in ECONOMICS (with a specialty in real estate). This man with an economics degree shows time and again that he has less understanding of economics than the average high school junior.
During General Mike Flynn's brief stint in the White House, Trump actually called him at 3:00 AM to ask him whether a strong dollar or a weak dollar is better for the U.S. economy. Flynn''s response was that he didn't know & that TRUMP SHOULD ASK AN ECONOMIST! That's like a guy with a physics degree asking whether it is the proton or electron that carries the positive charge! And, just what is this neutron thingie, anyway?
One can only wonder what Donald's father, Fred, had to contribute to Penn to buy him a degree. Rumor has it that it was donations in the $25 million range.
The American people have put a man in control of our & the world's destiny whose only qualifications r that he is a showman/snake oil salesman, has a malignantly towering ego (Narcissistic Personality Disorder), & appears to suffer from a classic case of Dunning-Kruger Effect, a syndrome where u have such poor cognitive abilities that u r literally too stupid to recognize u r stupid. D-K sufferers often convince themselves they r, in fact, smart than everyone else.
May the gods help us!
19
Yes and his Wharton Prof apparently stated repeatedly that Trump was the dumbest student he ever had.
https://www.alternet.org/news-amp-politics/former-wharton-professor-trum...
13
The common theme in tariffs, daylight savings time and parades is:
America loosing its values and identity and mimicing other nations. Protectionism is an old communist idea. Daylight savings time was introduced by germany in world war 1 and conquered america. Parades were for anointing hitler and stalin’s ego. America has done well to say ‘no, we are different. We dont want or need to show off our military might and patriotism in parades. We prefer substance to style. We will not allow an unstable person with a big ego to give himself a parade.it is the end of democracy’.
Tariffs are ‘trump trying to manipulate the workers in the steel plant in pennsylvania owned by putin’s oligarchs. He is putin’s pet poodle.
6
Good analysis. But Doofus Don lacks the brainpower to do that analysis, so he will just go with his gut.
6
When rigorous thought is ignored or poo-pooed as out of touch elitist shenanigans, our future will be chaos and dystopian. The Republicans have surely lost their way, and the evil genius Putin is eating caviar and drinking champagne with his pinky in the air...watching enlightenment and global sanity get flushed down the toilet.
12
Of many alarming things in Paul Krugman's column, the most is contained in the leading paragraph, which includes the quote from Peter Navarro. For Dear Leader, loyalty is all. And that's beyond alarming. Way beyond. (As is the accompanying photo.)
7
This president is impulsive his arbitrary diplomacy and policy is a dizzying distraction to deflect and prevent scrutiny of his past actions and present ineffectiveness. This president is the most morally corrupt, weak, ignorant, and reckless person ever to hold this office.
8
All this bluster to save a very temporary seat in Pennsylvania < another opportunity for the chief moron to brag about his "accomplishments.
Please DJT, go back to TV where you can do far less damage.
10
Shame on you, your second graph is atrocious; it shows that other manufacture’s output magically decline at a constant world steel price. You should be more perspicacious in your graph construction.
"... your second graph is atrocious; it shows that other manufacture’s output magically decline at a constant world steel price."
The graphs are based on Krugman's assumption that "the U.S. [is] a small open economy facing given world prices". IIUC, that means that Krugman is assuming that "steel" and "autos" are commodities.
If you want to rebut Krugman, you will need to read what he says next: "that’s not quite right, but I don’t think it would change the basic point to make it more realistic."
Basic economics elude this president because he is an emotionally driven toddler. I curse him and his enablers, who treat him like the absolute monarch he thinks he is. That includes the recently departed Hope Hicks and daily liar S. Huckabee Sanders.
8
well, dr Krugman, you might have attended MIT&yale, have a doctorate in economics, teach at an ivy league school and have a nobel prize for economic sciences, but trump went to Wharton for a degree in economics.
and he's really smaht.....
5
These are "flexible tariffs".
Translation: if you keep the Trump family or the donors happy, they will be waived for you.
Welcome to Cronyistan - cousin to Uruguay and Zimbabwe. It used to be called the USA.
6
I believe that on this topic trump is just insanely ignorant. No racket, no hidden motives, just plain old stupidity.
First of all, if smart countries want to protect their industries, they do it through government subsidies and other support of key industries or manipulation of currency. Tariffs are just too obvious.
Second, as Dr. Krugman points out, it's the total effect that matters. Difficult to predictably measure, for sure, but in this case basic math is all that is needed to demonstrate that the net effect stinks for the U.S.
For sure, it feels quite masculine to raise steel and aluminum tarifs and lets some of us think we are controlling our own destiny. But it is quite obviously emasculating to our economy.
Is it necessarily bad for the U.S. to protect key industries, especially to promote a level trade playing field? Of course not. But with Trump we get policy that is incredibly shallow and destructive to everyone else. Just like the man.
3
The picture that accompanies this article is striking. The only things missing are the little notebooks that Kim's lackeys use to write down his every word.
5
a good deal of our trade deficit is in the form of the money we're borrowing from other countries to finance our budget deficit. last month trump's budget proposed spending that would double the budget trade deficit. the month before, trump's side enacted a tax reform that reduced government revenues.
that's what scares me most about trump. the sheer inchoate crazy ignorance.
4
'My function, really, as an economist is to try to provide the underlying analytics that confirm his intuition. And his intuition is always right in these matters.'
This comment by Navarro on advising Trump, what have we come to that someone in a position of authority can even say this about a man like Trump who's leading our nation? We've become numb to even this? We're entering very dangerous territory at this point!
8
Perhaps they are just for Tuesday's Special Election, and will be rescinded on Wednesday.
What about irrational, but feel good counter tariffs from other countries on the US?
More than a few countries including our allies seem to have grown weary of being a punching bag for President Trump. Even if such a measure were self injurious it would hardly be surprising that other countries want to send a message of " hey we can play that game too"
Other countries do not have to put in counter tariffs to retaliate.
A couple of the countries that really matter can just stop buying US government debt and start selling the Treasuries they own. The resultant spike in US interest rates would get the message accros loud and clear.
1
It looks like Navarro's advice follows his convenience in serving his master. See these links also:
https://www.vox.com/2016/12/21/14044376/trump-navarro-ross
http://prasad.dyson.cornell.edu/doc/TheEconomist.21Jan17.pdf
1
Trump is imposing steel and aluminum tariffs and "almost surely doing it by accident, out of sheer ignorance (because his “advisers” aren’t in the business of, you know, giving advice).
That is certainly one explanation Prof. Krugman. But it is not the only one.
What if at least one of Trump's advisers (say Gary Cohn) actually gave Trump the same analysis of steel and aluminum tariffs that you have given readers in this column and Trump nevertheless chose to dismiss the advice, rely on his own instincts and impose the tariffs?
The effect of Trump's decision process of the supply of sound advice would look like the second figure (Auto production) left upward sloping line would be labeled "Supply after decision" and the parallel upward sloping line would be labeled "Supply after decision" and the blue arrow on the X-axis would mark the "Decline in advice".
Peter Navarro and Gary Cohn are telling us about the reality of being an advisor to someone like Donald Trump.
1
Interesting to see that Trump is all for protection when it comes to steel and aluminum but (according to Maureen Dowd reporting on Stormy Daniels) not so much when it comes to sex.
1
Why doesn't anyone discuss the biases of Wilbur Ross, a man who will either make money from the tariffs or is so deeply enmeshed in that mindset of steel manufacturers that his personal bias is being made policy?
3
Krugman: "Because steel and aluminum aren’t final goods – nobody directly consumes steel. Instead, they’re intermediate goods, basically used as inputs to other U.S. manufacturing sectors."
If you look at the Harmonized Tariff Schedule, it's possible to be more specific. For example, pipes and rails are subject to the tariffs. Thus, pipelines and railroads would be built using "steel articles" affected by the tariffs.
The details are in the "Presidential Proclamation on Adjusting Imports of Steel into the United States":
'(1) For the purposes of this proclamation, “steel articles” are defined at the Harmonized Tariff Schedule (HTS) 6‑digit level as: 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications.'
The "Harmonized Tariff Schedule" is here:
https://hts.usitc.gov/current
I really want to know if it is possible for the economy is too big, if we can ever get oversized, over fed, over stimulated, over housed, over medicated, over weight and too greedy.
Sometimes I think maybe I think maybe Trump is the Messiah and wonder how and why liberals even talk to me and welcome me as friend or family.
1
What a shock! Absolute shock! Another negative Trump column from Mr. Krugman.
I'm not sure how the claim is made--that no thought went into the decision to institute tariffs on certain imports. Trump talked about it at every campaign rally. He hit China for their subsidies--and currency manipulation. He excoriated politicians on both sides--for entering into trade agreements which put the U.S. at a disadvantage.
And true to form, Trump is keeping his campaign promises. He blocked out entrance into TPP--preferring to craft agreements with individual countries--to our advantage, instead of signing a blanket agreement with a group of countries. He is renegotiating NAFTA--as he also promised.
As usual, Krugman is wrong about Trump. It goes hand-in-hand with his election night prediction that a Trump victory would lead to a stock market crash. We're still waiting for that--and for Krugman to be right--about ANYTHING.
1
It's time for someone from Wharton to leak Trump's grades, or how much his father gave to Wharton to accept him.
He's not as bright as he says he is.
1
Wow, Peter Navarro stated in his own words that his advice to Trump is simply a formal regurgitation of Trump’s intuition!! That is so much a Marx bothers’ act. Can we laugh?
3
See yesterday's column by Gail Collins! Trump's deep thoughts on steel tariffs may be based on helping Rick Saccone win the 18th district in western Pennsylvania (to replace Tim "please get an abortion, honey" Murphy).
Worse and worse.
1
"he’s almost surely doing it by accident, out of sheer ignorance" Yes, as with everything else, the Trump nightmare continues!
1
Odd that you start by accusing another economist of doing nothing but providing spin to confirm a certain political slant . . . then proceed to use 1000 words to do the same yourself, though you "wouldn't put too much faith" in your own estimates.
1
We have learned one thing for sure: When Trump suggests anything, do the opposite.
In our high school classes, we really studied capitalism; not economics. Navarro is finding capitalist rationalization for Trump—that is what he’s supposed to do. However, economists are the ones who’s finding fault with the Trump/Navarro “analysis.”
Making America great “again” means that America will go back to producing “better” steel than the rest of the world’s steel producers. The T/N analysis assumes that US steel is “better” than the steel made by the rest of the world and thus will result in better steel-made products.
The “capitalist” assumption is that “better” is always preferred over “cheaper.” “Economic assumptions are the “cheaper” is always the preference.
But, in all Trump family dealings, “cheaper” is the by-word of production. Cheap products are made better simply by adding the “Trump” name—capitalism trumps economics.
37
Beyond the fact that this comment contradicts itself a couple of times, there is almost nothing in it that is correct. Capitalism is an ideology. Economics is a social science discipline. They are not mutually exclusive and I, and many others, studied both in school. Often they would overlap, but not always.
Why was this a Times pick?
1
'The T/N analysis assumes that US steel is “better” than the steel made by the rest of the world and thus will result in better steel-made products.'
No. Trump claims that the tariffs will protect jobs and encourage domestic production. You appear to be confusing that superficially plausible economic assertion with the rest of Trump's rhetoric.
'The “capitalist” assumption is that “better” is always preferred over “cheaper.”'
I don't know what they taught you in high school, but that is just plain wrong:
"capitalism: An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state." (Oxford online dictionary)
1
I think a better criticism would have been that I misinterpreted Dr. Krugman.
I thought he was saying that Peter Navarro had not acted like an economic advisor but more like a marketing specialist or perhaps even an advertising consultant.
My remark that high school economics and Econ. 101 were not real courses in economics but discus-of capitalism where the fourth and fifth factors of production are "entrepreneurship" and "advertising" may have been gratuitous, but I stick by that observation.
The real study of economics begins with the study of economic systems and would include the US, Russia, China and even the “s-hole” countries where the US trades strategic resources for arms (and where Tillerson was when Trump made announced his new tariff rules)
Trump did say in Pennsylvania that American steel “was better” and that imports were “junk steel.” To use “Made in the USA” is either an advertising claim or an appeal to patriotism and not necessarily guarantees of quality. (Steel quality is still measured by tensile-strength, ductility, malleability, the structure of its carbon content, etc. Aluminum is measured by “hardness.” Any purchaser in quantity from foreign suppliers would test before paying.
Law of Unintended Consequences, Exhibit 1:
In the 70's, overweight US auto companies pressured the US government to restrict the flow of very competitive Japanese imports. So, there was a cap on the number of Datsuns & Toyotas that came into the country. Nissan and Toyota of course filled that quota with top of the line models with power windows, leather, advanced sound systems, and even remote power mirrors.
US companies, meanwhile, flooded the market with bare bones Pintos and Vegas that were priced approximately the same as the fully equipped Corollas and 510s. Within a few years, customers had a clear idea of the choices: a stripped down US compact that rusted out in two years or a fully equipped import that never seemed to wear out.
Sometimes trade policies need to look a bit further than the textbooks. A tiny bit of common sense goes a long, long way.
6
He thought up these tariffs in order to help win a seat in the house for the GOP, nothing more, nothing less.
2
Many who voted Trump into office fervently believed in having a "business" leader in charge of the country. The idea being that such leadership would bring savvy business-like decisions to enhance our economy. The reality is here, surrounded by the proverbial "yes-men" such as Navarro, our Corporate Titan advances misguided strategies while his enriching his executive comrades. Definitely sounds like some of the CEO's I worked for!
1
I'm not an economist, but it would also seem that by restricting Product A or S importation into Market U, that the external supply of PA or S goes up, which should result in the external price of PA or S going down. The knock-on effect would then seem to be for those manufacturers using less costly PA or S that they could then charge lower prices for their manufactured good, which are now exempt from the tariff. Hence non-USA producers of cars will be able to charge less for their products. Seems like the full analysis of this silly move were not visible even to the self-proclaimed genius in the WH--but if you read this column, you knew that already.
Who cares about the "net effect" of anything? The esoterica is not helpful. The Administration has put the economics profession on trial, and frankly the examination is long overdue. Take the professional pathology around credentials and titles alluded to with the comment: "("economist"?)". There are professional economists, consulting economists, research economists, academic economists, business economists; this list goes on and on. Greenspan was an economist and gave us the 'moonbeam' of self-regulating markets. Enough with econmists. Profit, power and production, please
1
Translated: "Enough with you god-darn books. My feelings are what really matters!"
Great use of old school economic charts for the analysis. Even a dotard like Trump should be able to follow the chain of events. Like the good Doc says, putting them together is the hard part. But the surface analysis remains clear. What is not so clear is why a supposed public intellectual like Navarro would degrade himself to such a degree. Guess it is the Little Boy Blue syndrome. Hey he needs the money.
2
"Trump is imposing negative protection on a lot of manufacturing. ..."
I scarcely imagine daring secondguessing a Nobel laureate on economics. I do recall however the eonomists (and The Economist) poo-poohing the supposed threat from China as they enthusiastically endorsed free trade as China was enforcing the barriers that protected its markets while hoovering foreign know how.
And here we are - the Chinese taking over the solar panel industry, steel, ship-building, let alone achieving total dominance gizmo and widget construction: a living eample that protectionism works much better than economists theorizing. In an ideal world Krugman could well be correct. In the real one, it's the Chinese that win, and krugmanists that don;t.
1
There is little doubt in my mind that the timing of this was entirely political: to affect the election happening in western Pennsylvania. While Trump has always felt that the US is the loser in any trade, he doesn’t seem to apply this thinking in his own businesses. Many of the products he or his daughter sold come from outside the US even though they could be made in the US and he is unapologetic about this. He doesn’t seem to think holistically and because of this, he seems to tap into people for his administration that are much like him. A good fraction of Americans voted for him because he oversimplifies and tries to ascribe deficiencies to one simple root cause. He is enabled by people like Navarro, Ross, Cohn, Hatch, and Ryan who play to his ego in exchange for their own gains. This used to happen behind closed doors - now it is on full display.
1
With all due respect to PK, it seems the most important element hasn't been discussed: demand. Are we saying U.S. producers will sell more steel if they raise their prices. No. Face it, cars production is going down, as well as beer drinkers. Doesn't add up, another example of a false economy due to involvement of the government. These tariffs serve only one purpose, to increase revenue for mfgs. Of course there is always one more reason: end product price goes up,meaning less discretionary money to the working man.
1
Today a front page story in our local paper announced that the promised expansion of a company which make containers for trucks will not take place because steel suppliers have notified of a 28% increase in cost of steel. The owner also cited tax increases resulting from the new tax law as part of the problem. This company is located in a pro-Trump area...at least for now.
1
The tariffs were about the special election in Pennsylvania, Nothing else.
1
We would not be much of a country if we did not ensure that we had the capacity to produce everything necessary for survival be it GPS, our strategic oil reserves, or a critical manufacturing base. After Pearl Harbor, one Admiral remarked that God was indeed kind to us because if the Japanese had destroyed the dry dock at Pearl and the fuel depot, our situation would be much more serious than it seemed because " our capacity to produce what was required" was undamaged. That manufacturing base (capacity) is what won WWII,
The US has nukes. We're self sufficient in everything it takes to make and deliver them. We also have an extraordinarily expensive and high tech military which has repeatedly demonstrated the ability to utterly obliterate adversaries with very small forces and negligible expenditure of physical resources.
Unless the US plans on going back to mass conscription with a draft, and mass low tech weaponry, the US military will never consume large amounts of tangible resources, except money. We produce everything the military needs. What the US doesn't produce is enough infrastructure, education, and skilled workers, to compete in the very competitive international marketplace.
Oh look, another American who's views of the world economy and geopolitics is stuck in the 1950's.
Please Jay, read up on the last 60-70 years.
Tariffs are political showmanship as all of Trump's moves mostly are. He has a rabid base and he is unabashedly unashamed and unafraid to fed/use it. These tariffs are on the table to swing the PA special election. As always Trump playing his base.
While he is our most unfit (I don't even have to qualify that) President he is perhaps the best conman we've ever had in that Office not that "best"'s a good thing for our Country.
He is also I think the best imitation of a sociopath Mafia Boss in Office we've ever had not that "best"'s a good thing for our Country.
We do need insights (pro and con) from true honest economists, or ecologists, etc. to test in scientific fashion our perceptions and opinions, and keep the technical facts of the matter honest.
But all we need is a modicum of real knowledge, upright life experience, and intellectual honesty to judge Trump's/GOP's actions - highly political or weighted toward Plutocracy.
Proficient conmen/Iagos make you believe your most honest trustworthy caring friends/advisors/family are not to be trusted.
Proficient demagogues and dictators know how to scapegoat and gaslight.
We own a third of the World's net wealth and we are 4% of its population. If we cannot take care of our People's needs/betterment whose fault is it?
If some of us are really hurting it is NOT because we make bad deals with other Countries but because we make bad deals internally for our People. And that blood is mostly on the head of the GOP.
Navarro seems to have forgotten the two main roles of an economist. First that of a social scientist, developing theories to explain economic behavior and then testing these theories. Secondly, to act as a economic advisor based on these theories. He seems to be doing nothing more the providing "economic" propaganda for Trump's trade concepts.
Not only do elections have consequences they have unintended consequences. If you want to raise the price of steel put a put a tariff, tax, duty, on plastic.
Trump and his economic advisors do not understand the complexity of the modern intertwined economy.
Raising tariffs on steel and aluminum are not likely to produce more high paying jobs and boost the economy.
It may actually cost jobs eventually by raising the price of finished products such as motor vehicles and leading to trade wars and retaliation against American food such
farm products. Its main purpose is political-to appeal to his base's perceived economic nationalism and stoke their anger and pride. Yes it's America First and great again. Trump's traditional Republican economic plan of tax cuts for the rich and corporations will not help them at all and will eventually exacerbate income equality, hurt infrastructure investment, and deplete the embattled safety net. But his voters are beguiled by his rhetoric and slogans and are full of anger and resentment. They are being conned by an amoral snake oil salesman.
2
Trump has effectively raised the price of beer. I wonder what his supporters think of that?
1
I haven't won any Nobel prizes in economics lately, but wouldn't we also see US steel makers having a problem selling their wares? If it needs the tariffs to be competitive with international prices, then it won't sell abroad. And we just reduced domestic demand by raising prices. So we're somewhat balancing the bigger share of the pie going to US steelmakers by shrinking the pie.
4
Exactly correct!
2
Great, helpful post. My translation into Trumpspeak (in which I admit utter lack of fluency) - "Who knew (fill-in-the-blank) could be so complicated?" Tragically, the answer is just over half of us, which, even more tragically, is now clearly not quite enough in our "democracy". And the rest is history, or fast becoming so. As is our nation if we don't wise up, starting in November.
11
The almost religious belief that free trade is always good is similar to the belief that the free market always solves all problems.
The idea that free trade is good and protectionism is bad goes back to 19th century England with the corn laws. David Ricardo and Victorian England opposed the corn laws and agreed that free trade was in the interest of the British Empire. Victorian England made the free trade principle take on moral tones.
In reality free trade benefits some groups and harms some groups. Free trade is neither an absolute good or an absolute bad; the world is not that simple.
3
Free trade benefits capital. Labor always lose even with protectionism. What free trade does is accelerate the the circulation of surpluses and the accumulation of capital.
3
The only argument that makes sense is the one for national security. There is a need to protect our ability to guarantee availability of certain grades of steel and aluminum needed for aerospace and armament. But this is just a small part of metal production and needs to be spelled out. There are a few companies that also need protection, those are specialty metal companies that have traditionally provide the research for new qualities of metals. The leader in this area is ATI.
4
Not so hard to estimate. Calculate the percentage cost of the steel or aluminum of the raw material to determine its impact on final cost (a bit oversimplified) to get you in the ballpark. Add in a variable labor value component and you get real close.
As someone who spent a lot of time turning steel and aluminum into widgets (many for re-export) this is obviously all true as basic economic theory. As applied to Trump's idiotic tariffs who knows since he's already granted two huge exemptions and there will probably be more. My suspicion is that ultimately the main loss of US jobs will come from covert action by countries who don't gain exemptions or even if they do will be less well disposed to the US. Put simply Boeing is going to lose out to Airbus. Much of the cost, opportunity or otherwise, will be barely visible at least in the short term.
14
The idea of a “National economy” is a nice abstraction as opposed to the empirical reality of nation states with their designated representatives. The latter may impede or accelerate the movement of the real economy (which is global in nature as capital really does not recognize borders, national identities, gender, race, or ethnicity).
The competition of various capitals, which now is facilitated by rapid transactions, turnover, and the general finacialization of capital (for instance 401ks invested in derivatives operating in value creating emerging economies), overcomes the obstacles put in its way by the always partial and one sided subjectivity of presidents or dictators who believe the objective world changes according to their ideas. Sooner or later the latter imposes by necessity its universal and stubborn essence on the temporal phenomena that people usually base their calculations on and who assume is the real thing.
But don’t expect people’s livelihoods are going to improve because King Canute wants to stop the ocean tide.
2
As most (macro) economists, Mr. Krugman once again negelects the time and engineering issue that's in most cases connected with an augmentation of output. It is easy to draw a line in a diagram, but in the real world, producing steel requires production capacity i.e. maybe an extra prodcution line, or even a new plant i.e. investment. Setting up such extra production lines/plants takes easily two, three years, and a several ten million Dollars a piece. So, will American steel producers (a) invest, stet up new plants, hire new workforce, and produce steel up to the market equilibrium, or (b) just push their existing production facilities to the output limit, maybe hire an overall negligible number of extra workers to do so, bag the extra profit, and leave it to the steel consumers to source the remaining demand elsewhere? By the way: One problem of American steel production is the average age of it's machinery. Quite a bit dates back to the 1940s i.e. the wartime investment.
17
Krugman's article says that it is simple, and that there are many other aspects to the problem. He writes to communicate with the general public. Neunstein does not.
Political economy--the proper term for an "economy," esp. what we are seeing under Trump--has three parts: an economy of supply and demand, a set of narratives about how an economy works, and the fixtures of regulations and institutions that have authority and power over public and private assets and exchanges.
For decades, Republicans have distorted economic narratives--their projections have failed, their promises have proved empty, their blame-claims have misdirected public thinking on inflation, job creators, stimulus, debt, safety nets, and now taxes and tariffs.
Republicans have also used the power of regulation, legislation, and executive decrees to serve a small set of political/special interests. They use the balance sheet to scatter the statistics of harm, so the damage is not readily apparent.
An analogy is cancer. Its presence is not readily apparent; it begins with a small cluster of cells. As it grows, its damage becomes harder to reverse. Improper treatment makes it worse! Trump is a bad doctor of economics: he thinks of winning and losing when economics depends on supply and demand. But he is good at selling snake oil!
Thinking in one dimension, he is manipulating a mature economy to facilitate a concentration of power and wealth by appealing to anger, ignorance, and macho politics: if I hit you, it must be good--the theme of violence runs throughout his policies and ideas. In the case of tariffs, as Paul describes, no! It saves no jobs or factories.
22
I was considering a Subaru Impreza as my next vehicle, after they work out the 2018 first-model-year defects. But they are made in Lafayette, IN. If they import components, Subaru America will not be affected by these proposed tariffs. If they use raw domestic steel and aluminum, the cost must inevitably go up.
Harley Davidson makes everything "from scratch" in Wisconsin. They could move frame and engine manufacturing to Mexico and import those components with no tariff damage. Of course some Wisconsin workers would lose their jobs.
This tariff thing has not been thought through at all. Peter Navarro, who has Trump's ear in favor of these tariffs, is a "fluffer." (Google the term.)
42
"If they import components, Subaru America will not be affected by these proposed tariffs."
After some web sleuthing, I found an article about Subaru's Indiana plant. Here are two sentences that suggest tariffs will affect that plant:
"It’s pretty amazing to think that in one end of the plant giant coils of precious metals roll in, and on the other side fresh cars come out, with countless stages and hands joining the two together."
"It’s this uncompromising interest in being as green as possible that tickles your curiosity, as you meander between massive stacks of metal die-casts and metal stampings."
What Makes a Subaru a Subaru? Spectacular Plants Like This
by Micah Wright
August 01, 2016
Web site: cheatsheet.com
Yeah, he's right up there with Stormy Daniels.
I don't understand why trade war is a big deal? U.S. is one of the largest countries in the world and is self-sufficient (except maybe for some rare metals).
3
Maybe because millions of U.S. jobs depends on U.S. exports? Besides, around half of the S&P 500 revenue come from overseas earnings, and the real value of the dollar and inflation can also be affected badly with a trade war. In fact, if you are saving for your pension, you can remember what happened with those savings the last time that there was a global recession. So, reasons to be concerned are not exactly what is missing in all this story. PS: The U.S. cannot be self-sufficient without drastically change its way of life. Right now, it would take 4.4 Earths to sustain the planet if everyone else consumed as much resources as the average U.S. citizen.
37
Self sufficient? Hardly. If we were, these tariffs would be pointless. Our production is interwoven with our trading partners. Material, parts and finished products flow back and forth. Things we rely on imports for include food, clothing and electronics. These tariffs are not a well thought out adjustment to industrial or trade policy. There another political gimmick from a gang that doesn’t really care about the impact on people’s jobs.
1
@AG: And yet just about everyone laments the passing of the age when one generation would do better in terms of material goods than the previous generation. That is not sustainable.
Imposing steel and aluminum tariffs in 2018 could likely end up as a contemporary case study validating Joseph Schumpeter's theories of "creative destruction."
But then, Schumpeter didn't care at all about Pennsylvania elections.
17
Will not domestic steel producers raise prices to just under World Price Plus Tariff in order to maximize profits?
10
Overall, free trade clearly maximizes economic activity. However, the process of opening up free trade internationally has created both winners and losers.
In the aggregate we are all better off, but there are many individuals who are worse off. In our winner-take-all system many fortunes have been made by opening up trade while those that ended up with the short end of the stick suffer the entire burden of their losses alone.
If we are serious about maintaining a system of relatively free trade we must be prepared to spread the benefits more evenly. Failure to do so will jeopardize the free trade system as populist messages resonate and angry "gut instincts" end up driving our economic policy.
14
This is a fact touted by H. Ross Perot at the inception of NAFTA. Global free trade is, arguably, more just than more insular, protectionist, modes of being.
That justice, however, in increasing the monetary well-being of the poorer groups, inevitably comes at the pain of those (USA, aka "us") who have, for so long, enjoyed an artificially high standard (in material measure) of living at he expense of the rest of the world.
Are we prepared to accept that justice will, as predicted by H.R.P. more than two decades ago, continue to give advantage to the less well off?
In the aggregate Americans have adequate housing and healthcare. In the aggredgate we have enough to eat. We could cut back on government assistance to the poor and in the aggregate we weould no starve or even go hungry. in the aggregate the odds of getting shot by a cop are miniscule.
So lets do away with tariffs, cut back on WIC payments and stop the DOJ from interfering with local police forces.
@Andy:"enjoyed an artificially high standard (in material measure) of living at he expense of the rest of the world."
How many folks have stated this in the past but also decry the "death of the American dream"? In this case the American dream referring to generation after generation improving their financial status and material well being.
Even with the real estate recovery there are still plenty of cottages for sale "up North" in Michigan.
1
PK asks "And this is how we risk a trade war?"
No, this is how we start a trade war because, we are told by the Ignoramus-in-charge, trade wars are good and easy to win.
And he is right. Asia, especially China, will probably win this trade war.
And then people will clamor for a set of North American trade agreements and Trans-Pacific trade agreements to stop the bleeding.
And Trump will take credit for the renegotiated trade agreements.
11
I fundamentally disagree that what we need is more manufacturing, we have in addition to far too many people far too much stuff.
I don't know what to say or do but Donald Trump is doing what liberal democracy cannot do and put us back on a road to sustainability. Maybe I am as selfish as Donald Trump but high tariff walls may be the Bretton Woods of 2018.
At the end of WWII the USA created Bretton Woods to give the recovering nations a chance to grow their economies when they couldn't compete with the wealth and power of the USA. When Nixon ended Bretton Woods the wealthy and powerful became more wealthy and more powerful. General Motors, Ford and Chrysler are not American companies they are owned everywhere and Goldman Sachs is not an American banking institution it runs the world.
I trust Trump to crash the world economy which may be what we really need. The Trump Presidency will require Canada and the other Western Democracies to reconsider our current system where the USA is leading us all over the cliff.
The economic philosophy of perpetual growth is scientific insanity, we need balance not growth and balance was a long time ago. We may as King Midas want to turn everything into gold but we cannot eat, drink and breathe gold.
Dr Krugman may be a great economist and Navarro may be a charlatan but in reality they both want the same thing and what they both want is the sugar diabetics crave and therein lies the rub.
9
If US based corporations don't provide that overabundance of stuff then someone else will.
You live in a very small world.
There were only 2 billion human beings on the planet when the world economy crashed on or about 1929.
Today we have 7.6 billion human beings. Crash the world economy today at your own peril. Add climate change to the mix and, well, you may find yourself with no economy at all.
Perpetual Growth may be inane, but the REAL problem is AMERICAN workers have lost (economic) ground for the past forty years;
If (when?) there is a crisis, and the .01% has the resources to scoop up (see "Shock Doctrine") any real resources (Farmland, Housing, etc) that is forced onto the market in an economic downturn.
And they have no compunction about using bulldozers, etc to displace the Trumpvilles under the bridges. Make "Those People" go somewhere else, not our problem.
We didn't have mass homeless encampments in the USA forty years ago.
2
Re: "Protection Racket"
The US had a "Protection Racket" for decades in agricultural products. US sugar is more than twice the world price, there is no sugarcane ethanol from Brazil in your gasoline. More than 3000 quotas and tariffs.
Has it hurt the US economy . NOPE, NOPE, NOPE
1. The only goods category in international trade in which the US has a positive balance is agricultural good. Repeat : The only one
2. Has it damaged the competitiveness of US farming. NOPE. US agriculture, by far, is the most efficient in the world.
3. Has it let to higher price for products such a sugar, and corn based ethanol . Yes
4. Has this been acceptable to US consumers. Yes. They do not
want to see farmers go out of business
What Mr. Krugman, a proponent of unrestricted free trade, and globalization, calls a protection racket has been a good thing for US agriculture.
He will wish away that the ONLY goods category in which the US has positive trade balance is the MOST PROTECTED one.
He is wrong. Facts are facts.
1
Woof, sugar is one, only one, repeat one agricultural product. In a list of all agricultural products of economic importance, how many are like sugar, and how many are like soybeans?
15
I bet US consumers of ethanol in their gas don't know or care where it came from, and don't give 2 hoots about protecting American farmers. In fact most ethanol made in the US for auto fuel is made from corn, NOT SUGAR. It ends up, when you add in the costs of pesticides, fertilizers, and petroleum to drive the machines that grow the crops, plus the cost of the petroleum used to fuel the plants that distill the ethanol from the fermented corn, US ethanol costs more to make that it can sold for; states where corn is grown have huge subsidies of their corn crops. Without this, the US ethanol business would have died a natural death long ago. Ethanol can be made from the bagass left from the production of sugar from raw sugar cane, but sugar only grows in warm climates. I lived in Louisiana for 35 years, and there was never a big push to make ethanol from the leftovers from squeezing sugar out of the cane. Too costly to to make it, when you have to compete with subsidized corn ethanol. So much for taking care of American farmers. Depends which farmers in which states, I guess.
12
what facts?
Interesting piece. But, read Gail Collins' column from yesterday (3/9). She explains that the only thing Trump is trying to protect with the tariffs is Republican control over Pennsylvania's 18th Congressional District and his reputation where the repudiation of the Republican candidate who says he wants to be Trumps' "wingman" would hurt his brand. That is Moon Township, PA -- steel country and the special election to fill the seat is next week. The timing of the tariffs, which everyone agrees came out of nowhere, could not be coincidence.
81
Here you go again, Mr. Krugman. Is there NOTHING this President can do that you would approve of? There are 2 reasons our country needs the tariffs: to protect fledgling domestic steel industry from foreign competition, and
to protect domestic producers from dumping by foreign companies or governments. Your "other" employer, the trade unions, are applauding this move by Our President, yet you once again are not happy. what gives?!
3
Yulia, you embarrass yourself in front of intelligent readers. "Your 'other' employer, the trade unions"? Ha ha. "Fledgling domestic steel industry"? What is "fledgling" about our century-plus-year-old domestic steel industry? No matter how little you understand Krugman or Trump (Your "President"), he thinks independently. When or if Trump does something meritorious, for instance if he gets an agreement with North Korea, Krugman will notice.
10
Krugman does a nice job of explaining why having the government pick winners and losers is a bad idea now that Republicans have apparently changed their minds on that subject. Remember when the GOP cried how government favoritism by Obama was destroying the free market because of subsidies for alternative energy and electric cars? Turns out that was all lies and hypocrisy now that good ol' coal and steel are the winners the government is picking. So while Krugman is consistent in his point of view, Republicans about-face once again, doing exactly the opposite of what they swore to do when a Democrat was president. And in this case the unions go along with it because they alone are the winners being picked by the government, as Krugman points out. The losing unions in other industries, assuming any are left after Republican purges, won't be nearly as happy. BTW, the US steel industry is a dinosaur, not a fledgling.
21
"what gives" is whatever degree of actual protection exists in drumpf's tariffs on Tuesday evening, when Saccone loses in PA. At that moment, and from then on, you'll be able to read all you need to know about the end of drumpf's "steel & aluminum tariffs" right through the tissue paper they're (not even) written on
9
If China is subsidizing steel and aluminium, better to buy it by multiple boatloads for infrastructure projects and drain their treasury.
15
chinese steel is inferior. check out the bay bridge in san francisco where using chinese steel led to a major expensive tie-consuming fiasco.
I think Prof. K and Steve Chapman correctly called the tariff another form of Trump corruption and cronyism. As Chapman said,
"The policy has two rationales, one official and one unofficial, which are alike in being either terribly misguided or consciously fraudulent. In reality, it is classic special-interest pandering, fleecing the many to enrich a favored few."
http://www.chicagotribune.com/news/opinion/chapman/ct-perspec-chapman-ta...
18
The correct wonkish formula:
Kim Jong-Un + Tariffs > Stormy + Mueller
34
"His instincts are always right?" Is that why the genius managed to go bankrupt in the casino business? That's got to be darn near impossible.
64
But Trump didn't go bankrupt. His businesses went bankrupt, ruining other people but not him. He's not hopelessly idiotic, or wasn't in the past.
7
Sophia, going bankrupt in the casino business even when casinos were booming is possible if you:
1. Over pay to build (even if you stiff half the contractors)
2. Over leverage the over priced assets
3. Over pay yourself management fees
4. Repeat with the Plaza Hotel
5. Inspire Kushner with the 666 building
So, Thomas is right. He's not an idiot he's just greedy and morally bankrupt.
1
From reading Gail Collins today I learned that Trump's protection racket is designed to win one lousy Congressional district in Pennsylvania. So forget the difficult to understand economics. It's really just the tactics of a simpleton who only cares about one thing: making himself (Trump) look good in the short term.
52
It works. His followers love it.
1
From my vantage point in Houston I can't help but think of one area the U.S. still leads the world--the manufacture of oil & gas pipe, drilling rigs & equipment. With his tariffs Trump has handicapped this world class industry, and he has also increased the cost of extracting oil and gas in the U.S. Maga!
58
I am pleased to see that someone made this point. I once supervised an outstanding thesis that looked at what states would be most damaged by the downstream effects of steel tariffs. It was interesting that Texas was the biggest loser because the petroleum industry is a major consumer of steel. There were, by the way, no big winners, because states that produce a lot of steel typically host industries that use a lot of steel,
Navarro's admission that he makes it up as he goes to justify the whims of his lord and master is hardly surprising. Let's not forget that Mr. Trump admires the present version of Russian authoritarianism, which in its repressive cult of personality is not so different from Stalinism. That leads us in a straight line to the demented pseudoscience of Trofim Lysenko, which found the approval of Stalin as justification for certain of his ruinous policies. Plus ça change....
20
Well done, Dr. Krugman. Along with your previous column on the history of tariffs, you have done a good job of broadly sketching the issue and concerns around Trump's tariffs.
17
I asked you, Dr. Krugman, a question along these lines, and this column addresses that. The real life supply and price curves, as you say, are much more complicated and extremely difficult to put into a model because so many economic elasticity factors (unknown) come in. No one in the Trump team possibly considered even the simplest version of these factors, as you described here.
The origin of these tariffs I believe is more at a gut level- that these items are symbolic of any large trading economy such as ours and that everyone recognizes them as such, yet hardly anyone is directly affected by these tariffs as not too many individuals buy steel or aluminum in raw form; we buy only the finished goods. If there were tariffs on manufactured goods such as cars, everyone who buys cars will likely see a higher price tag. This will hurt Trump politically even with his base, I might add, who also buy cars. So reason, if any, for these tariffs is more a political symbolism than economic pragmatism of any kind, even the protectionist kind.
15
This is true of the case Krugman offers. It is in particular true of targeted tariffs only only some goods, and those only intermediate, which is exactly what Trump is doing.
However, a cure could be a broader tariff, structured in the same way a value added tax can consider parts of the whole. Then finished goods made with cheaper steel could not sneak past the tariff and undercut those who pay more for higher priced steel procured here.
In the hypothesized small economy, this still would leave exports vulnerable. However, this proposed cure is different in a dominant economy such as the US. For the US economy, the main market is here, something like 95% of it. We are not like Germany or even smaller countries, with economies that are half exports.
My larger point is that there are ways to do protection. Trump is not doing that. But "We can't. Abandon all hope." is not the answer either. Krugman did not come out and say that, but it is implied.
4
I don't think that Krugman was quite that negative. I think his larger point is that economic protection is very complicated and can't be treated simplistically without probably doing more harm than good. "Abandon all hope" applies to the Trump administration, the ones in charge now. The best way to fix American trade is to get someone else into the White House. More realistic and effective protection schemes are pointless until that happens.
3
Ok, and I'm on your side but the economy added 313,000 jobs just now. If it had only added 276,000 (my makeup number), would everyone be wringing their hands?
No, there has been a steady decline in unemployment for about 9 years. This increase in jobs added is within those parameters. If this trend persists or increases, which is dubious, we would be driving unemployment below what economists refer to as the natural unemployment rate. It is a bit wonkish but doing so leads to an increase in inflation.
9
We added jobs but the unemployment rate did not decrease. People who were not in the labor market are now entering it. Before making any statements about this jobs report, many questions have to be answered:
First, is this a trend or a blip?
Are more young people now able to finally enter the labor markte they were shut out of?
Are people formerly in the labor market now coming back in" If so, are they doing so because they want to work again or because they have to work again?
Are the new workers and reactivated workers getting decent paying jobs with decent wages/salaries and working conditions or are American businesses just digging deeper into the pool of low-paid workers?
7
Suggest you look at a previous column Dr. Krugman published last week to see what the effects of these tariffs could be on inflation. Translation: the Fed will be active in pushing up interest rates and you should dump your fixed income securities
3
I love the graphs--very clear.
I just looked up the Corn Laws in Britain. In 1815 stiff tariffs on imported grain and food were imposed to help wealthy landowners by allowing the price of these domestic commodities to rise. The tariffs had two negative results: they caused hunger in cities among people who couldn't afford the more expensive grain, and it dampened consumer demand, because consumers had less money to spend on anything else. Dampened demand for British domestic manufactured goods resulted. The tariffs caused a crisis during the potato famine in Ireland, and in 1846, the Corn Laws were repealed in a political maneuver with the help of some members of the opposition party in Parliament.
Make this story a Mad Lib--plug in domestic steel producers for wealthy landowners and plug in manufacture of cars and trucks and airplanes for British manufactured goods. Consumers are still consumers.
The difference is that in 1846 Parliament was able to repeal the dastardly Corn Laws, but in 2018 in the US, with tariffs now a function of the Executive branch, there is no future remedy that does not depend on a President's policy goals (or whims). Congress ceded that power to raise tariffs to FDR during the Great Depression.
Maybe it is time for Congress to claw back that power or limit it when it threatens a trade war. The question is, "How?"
19
Or maybe the solution is for a reverse "potato famine". Maybe American workers should begin to think about emigrating to places with growing economies and opportunities?
Perhaps American workers should not seek solutions in America. After all, the leaders of America have been very clear about their intentions toward American workers.
4
Human,
Thank you for reading history I am afraid America has forgotten its most important lessons.
Peel's Tory caucus split and Russell became Prime Minister one million Irish peasants starved to death and two million Irish peasants were deported and the scenario Swift foresaw in 1729 came to pass.
There was no famine in Ireland there were no potatoes and Ireland's food export economy flourished 1845-1852. The Corn Laws that would have fed Ireland's starving were not repealed and ships bearing food for the starving were prevented from landing and ships laden with Irish meat, cheese and grain left Ireland to feed the world's elite.
History demands we understand how things really were. In 1846 the world was rural and cities served a rural population the industrial age did not treat urban populations very well and the squalor of working class cities needed Ireland's outcasts to build infrastructure.
In 1846 in Britain and everywhere else including the USA the government served the interest of the 10% that the dictionary defines as middle class. Liberal democracy and the values and ethics you believe in began decades later.
There was plenty of food in Ireland and the potato blight was an excuse for the economic genocide that Swift had envisioned 120 years before when he wrote
A Modest Proposal for Preventing the Children of Poor People from being a Burthen on Their Parents and Country and Making them Beneficial to the Publick.
2
"... with tariffs now a function of the Executive branch ..."
Congress can do anything it wants with tariffs, if there are enough votes to override a presidential veto.
683 Words to say "I do not know":
"So what is the net effect on manufacturing output and manufacturing jobs? It’s not obvious, because it all depends on the details."
The Upshot is more informative:
ttps://www.nytimes.com/2018/03/08/upshot/trumps-latest-tariff-strategy-less-trade-war-and-more-lets-make-a-deal.html
The US has fought trade wars for decades. And won, if you farmers. The US sugar price is twice the world price.
Remarkably, the ONLY trade category in which the US has a surplus are agricultural goods. Never mind all the tariffs, and quotas.
People ough to read Drucker to understand why the same approach is spreading to manufactured good.
https://www.economist.com/node/770819
2
Woof, sugar shugar shurer surer than fact. Sugar, readers, is only one commodity and it's the only one Woof has been able to cite as a "success" for protectionism.
Actually, domestic sugar price support is wreaking havoc with the Everglades. Florida sugar-cane business is eating up wetlands the Everglades need to survive.
3
woof, the us runs a trade surplus with most countries in services.
Sometimes the most profound truths are simply stated.
To admit that the problem is complex and to admit that you don't know all the answers means you are on the path to real knowledge not simply seeking to spout the buzz-phrases du jour.
See H.L. Mencken for simple answers.
1
I think that what you are missing Mr. Krugman is this: Donald Trump doesn't care about what happens to the average American or the average worker. He's never seen how the rest of us live and if he did he still wouldn't change what he's doing. It's not ignorance because that can be remedied. It's a complete inability to understand that the world does not revolve around him or, by extension, the United States. We are an important part of the global community but we are not the entire global community.
40
The time is long past when expecting any sane activity from Trump was reasonable. He hasn't even noticed that the steel industry in Western PA died decades ago. The survivors long for the great days of the 50s and so root for Trump but sooner or later even they will notice that nothing gets better by their standards. Meanwhile, across the river and a bit north, Pitttsburgh itself is now a digital hotbed.
55
You are the expert, and I thank you for keeping it all relatively simple as economy was not one of my studies, but I think I get the general idea.
Trump just shot himself in the foot, again, and somehow the ricochet from the bullet just impacted American trade with our allies adversely.
19
If this article is 'wonkish', we're all in trouble. The level of American intelligence has clearly declined.
13
I seek out anything he labels "wonkish." At least he's trying, within the limits of a newspaper column. And he does understand a lot about this stuff, genuine knowledge of the hard sort.
If you want more "intelligence," read a textbook. They still sell them. You could even get one on line. Krugman wrote one, titled "Economics." The Fifth Edition came out this year.
5
I think the "wonkish" simplicity comment is more a slap at the intelligence of the average reader rather than the author's explanation.
another trump like expert.
Mr. Krugman I have a very simple question: If inflation, as understood from high school economics class, is the purchasing power of a dollar reduced because there are more in the market due to higher employment, the money was originally in someone's coffers, why is it that once that money is available to the public (income) then it creates inflation?
Not money. Money supply. That is a different thing, including the critical factor of how fast things circulate, the speed of the economy.
Inflation increases with the speed of the economy, rather than just numbers in a ledger of printed pieces of paper (which are a small part of total money).
To understand the difference, consider that if you write a check, that check is "money." If the guy you give the check to cashes it that day and spends it that night, then it is more money supply than if he puts your check in his pocket and deposits it at the end of the week.
3
Did you not take Econ 101 in college? Inflation is caused by an increase in the money supply relative to (more simply greater than) the increase in output. Either your memory is bad or you had a misguided HS Econ teacher. If there is a rise in employment one would expect a corresponding rise in output.
@Elba Hinojosa
Part of the answer is: employment (ie availability of money per person) is not the only determining factor for the rate of inflation. Another determining factor is monetary policy: what is the value of that dollar relative to other currencies? That metric is dependent on the performance of the economy and the value of goods and services such performance represents. Which is why Inflation is so much talked about these days, under Trump: He remains clueless to the extra pressure he puts on the value of the dollar in an economic environment of relatively low unemployment with an additional policy of (potentially) reducing the ability of Americans to spend their money on goods and services not artificially inflated due to tariffs. Money spent on tariff-inflated imports is money not spent on (other) domestic goods. And if certain goods can ONLY be had by imports, the time needed to raise capital and build out domestic capacity to meet a domestic demand for that good has a negative effect on overall economic performance, also leading to inflationary pressure (ie a falling dollar relative to healthier economies abroad) that the Federal Reserve is currently ill-equipped to deal with since interest rates are already fairly close to zero. That's why we say Trump's tariffs are 'shooting oneself in the foot'. Tariffs are bad enough by themselves. Using them indiscriminately when inflation is already set to rise because of other, structural, factors is just more dumb.
1
And let's not forget the tariffs Trump slapped on imported solar panels. Talk about a negative protection racket! These tariffs will also have a detrimental effect overall. They will raise the price of domestic solar panels, so fewer Americans will buy them, thereby killing the jobs of tens of thousands of solar panel installers. The solar panel tariffs also come with the kicker that they will harm our country's progress on transitioning to cleaner alternative energy.
As if that weren't bad enough, today's NYT piece by Pagan Kennedy makes the point that broad-based public health improvements, like banning leaded gasoline, help our health much more than any individual, personal choices, like not eating gluten. The Trump administration really needs to get its priorities straight.
22
How will trump get his priorities straight if he can't figure out what they are?
The Trump administration does have its priorities straight, regrettably. Few of them are geared to the 21st century; few of them indicate concern for the general good of mankind; few of them, if any, have depth and breadth or a foundation deeper than the moment.
In fact, most of them promote cruelty, ignorance, selfishness.
This must fall within Trump's Law of Unintended Consequences. Hurt other industries to help steel and aluminum producers. Hurt allies to help a couple of U.S. industries. Hurt various state economies to help a Pennsylvania Republican congressman. The usual response when something backfires on Trump is for his spokespeople to say he didn't really mean it, it's a joke.
Alternatively Trump supporters insist that this was a campaign promise overlooking the many broken campaign promises such as the one about Mexico paying all costs for the Trump wall.
One commonality with everything Trump does though is that Americans and our allies are hurt. There are always victims of his policies, sometimes intentional, and sometimes unintentional. I notice that Reuters said the steel industry employs 147,000 workers (not all of whom would be helped), but industries that need steel have 6.5 million workers and the construction industry has 6.3 million. So a fraction of the U.S. workforce might be helped, and millions would be hurt.
The Trump Trade War will rank right up there with the Trump Wall and Trump Healthcare and Trump Steaks and Trump U, I suspect. Another 'win' for the very stable genius.
21
A tariff is a an additional tax and therefore, in essence is a tightening of money supply.
In order to calculate how tariffs will play out, you'd have to figure in the effects of the Fed raising rates and shrinking it's balance sheet along with the tax cuts and additional federal spending this year and next. And that's to say nothing about which countries will be exempt and all the other unpredictables regarding Trump.
A tall order indeed.
4
Why do politicians have to play with our lives as if we aren't real people who need to pay our bills and survive? Why can we not have evidence-based, knowledge-based, science-based, reason-based policy? Why do we have to watch politicians always make policy based on emotion and spectacle instead of reason and research?
17
@Diane
Trump, and those other 'politicians' weren't put here by some extraterrestrials, they were put here by fellow American voters. And too many American voters are no longer serious about what their vote means, for them, or for their country.
Politicians that cheat voters out of voter representation (ie gerrymandering, unnecessary VoterID laws) don't help.
Politicians that are allowed to appeal to our emotions instead of our heads doesn't help much either.
And politicians that have never been elected and held responsible for their performance in public office before becoming chief executive of a superpower are the worst.
We used to have more or less 'evidence-based' government, but too many voters didn't like what that did to their prejudices (which were never unlearned in US schools) and that opened the door to unscrupulous politicians that were allowed to prey on those prejudices to ill-effect.
Essentially, that's how we've become saddled with minority-government (the GOP, with a minority of total American votes) and the Trump administration (also with a minority of total American votes, thanks to the Electoral College contraption). We, the majority, are being dictated to by a radical minority. How long will we put up with that?
8
We can't have those fact-based things because we vote Republican.
1
Protectionism is in a way the inverse of free trade.
In free trade, the nation as a whole benefits, but some sectors are harmed. Importing cheap goods from China helps consumers, but hurts those whose factories have closed. The liberals' failure was not to do something in advance to protect those harmed (who then turned to Bernie and Donald).
With protectionist tariffs, the industry protected will benefit, but this will be in effect a tax on the rest of us. Call it by what it really is - "Socialism for Steel and Aluminum, Capitalism for Everyone Else."
8
I’m no economist. But I am retired and need fewer goods at this point in life.
What occurs to me is that I am highly unlikely to buy raw steel or aluminum. So the tariff on these intermediate items will not make me “buy American” or from any other source of these metals.
But.. if the price of a car or another type of big item that is made (somewhat) of metal goes up as a result of these tariffs, then there is one simple solution for me. And maybe for you too. Just postpone that purchase for the time being. Because, why pay more?
If lots of consumers postpone purchases, assuming that eventually these tariffs will disappear, that - clearly - will negatively affect the economy.
I hope I got this straight.
17
Trump's tariffs have nothing to do with anything other than the special election in Western Pennsylvania (steel production). The tariff along with Zinke's showboating of the $55 million for mine cleanup are nothing but buying votes for the Republicans.
10
Upcoming Pennsylvania election drives Trump tariff announcement. Proclamation signed. Press coverage large. Once the election is over the tariff talk will disappear into a fog of exceptions rendering it irrelevant. And so it goes.....
11
I think Dr. Krugman is looking through the wrong end of the telescope here. Trump doesn't understand economic theory, nor does he care about it. Trump sees the world through a corporate lens, not a government lens. To him, trade balance is equivalent to a corporate balance sheet. Exports are profit, imports are expenditures. We have more imports than exports so we're losing money. He's wrong, but that's his theory and he's sticking to it.
9
I'm going to agree with Gail Collins that these tariffs are more about an election in Pennsylvania than about anything else esp. given the timing.
9
Peter Navarro's comment is really not surprising though nonetheless shocking to hear such a honest admission of fraud (on doing "analysis"). It reminds me of a joke when we sometimes worked on government funded studies. That is: if I have not already made up my mind why would I spend my good money on you to do a feasibility study?
Does this mean we will have to endure another three years or so of damages by yes men?
4
Krugman: "So, let’s suppose we put a tariff on steel imports. What this does is raise the price steel producers can charge, and it should lead to a rise in steel output:"
Krugman needs to carefully distinguish domestic and foreign producers. In that quote, I believe he means "raise the price DOMESTIC steel producers can charge".
3
"But the rest of us don’t have to accept that Dear Leader is always right. And in fact, these tariffs are weirdly poorly considered even if all you want to do is create manufacturing jobs, leaving aside all the other ramifications."
Trump is pandering, just as the Democrats have done, to a certain group of manufacturing sector workers - steel and aluminum producers. Any hypothesized negative ripple effect can be addressed by solutions also provided by the Democrats - unionized burger flippers.
Any government trade actions favoring certain nations, as it the case with NAFTA, or encouraging a certain flow of goods, you purchase our iPhones and we'll purchase your BMWs, Spartantburg SC notwithstanding, will negatively impact some sector of the manufacturing base in this country.
The Democrats and Republicans have both shown skills in pandering to a certain base of voters. Except the Democrats seemed to think groups of voters who once heavily voted Democrat should always vote Democrat.
You want to get back to the New Deal spirit? Lose the identity politics. And no, it's not racist to say that, well it's no more racist than supporting a massively segregated public school system.
The Trump tariffs are Putin approved, which matters much more to Trump than what economists think. After all, these tariffs on steel and aluminum will have little effect on the Russian economy but will create discord among the western democracies. Put another way, there's good reason to suspect that Putin has veto power over Trump's policy actions. We recently learned of Russian officials gloating that it was Russian influence over Trump that resulted in Mitt Romney being rejected as Secretary of State because of previous anti-Putin statements made by Romney. In his place out of the blue came Rex Tillerson who turned out to be -- Putin approved!
Trump seems to be spoiling for a trade war with the EU which again is what Putin would approve. And the legal justification for the tariffs is fraudulent. National security is not being served by these tariffs but the opposite. Tarrifs for national security would be about ensuring the continuing domestic supply of something essential for some military purpose. But steel and aluminum don't qualify. Yet, the media glosses over the obvious fraudulent "national security" justification given by the administration for imposing these tariffs.
And let's not forget Trump still has not imposed the sanctions on Russia passed by the US Congress for meddling in the 2016 election and that the administration has done nothing so far to mitigate Russian meddling in the midterm elections. And that's all because of Putin's veto power.
6
"The Trump tariffs are Putin approved"
Give it a rest. Putin is not under your bed.
Russia is a major metals exporter, in particular aluminum. It is what they do besides oil and gas export, one of their major foreign exchange sources.
They don't want to encourage increased American production to compete with them. They don't want to reduce the total world export market into which they must sell.
Whatever this is, it isn't "Putin."
3
The discussion can seem dry (and wonkish) without examples to back up the analysis. Here is a segment from last night's local news about a trailer and dumpster manufacturer in Waterloo who was thinking of expanding, until the threat of protectionism doubled his steel prices: http://www.kwwl.com/story/37691702/2018/03/9/iowans-reeling-by-inflated-...
Now all his new orders have been cancelled.
Trump is Making America Great (for plutocrats) Again, one small business closure at a time.
7
The proposed tariff is not enough to "double" anything. It is 25% on just specific sources, a small fraction of total steel supply.
4
You don’t need complicated economic analysis to figure a non economic move. Just look at Trump bad week and his visit this weekend to western Pennsylvania for a interim elections political rally to realize that his decision was purely political move and have nothing to do with economics.
6
"My function, really, as an economist is to try to provide the underlying analytics that confirm his [Trump's] intuition. And his [Trump's] intuition is always right in these matters." Even after everything one has heard and read during the past fifteen months or so, that comment might have been the most jaw-droppingly scary. It seems to indicate that we have entered the realm of the "Leader State". And some of us - not enough, but some of us - know how that turns out.
12
U.S. manufacturing sector was larger than China's in 2017, and it's *competitiveness* will surpass China's soon. But our *exports* will not be larger. It is also true that the number of jobs is not going to go back to where once it was (and manufacturing jobs have been declining in China too).
http://fortune.com/2016/03/31/united-states-manufacturing-china/
3
What I don't understand is that the Asian countries that have achieve very high growth rates over the last 40-50 years all have had very high tarrifs. This includes Japan, South Korea, China, and I believe Taiwan. I also believe it was true of the US during the late 1800s. If the standard econ 101 analysis is correct how was this possible? Are the rules different for countries that are already wealthy compared to countries that are developing?
3
That's an interesting question. I don't know for sure, but I suspect that those countries protected their entire industry against foreign competitors, not just one commodity or two. That meant that the entire consumer economy in that country paid higher prices, making the businesses stronger and wealthier at the expense of the general public. I doubt such a policy would be popular enough in this country for the party imposing it to stay in office. South Korea, China and Taiwan were not democracies during their climb up the economic ladder.
4
Paul since 1990 we’ve imported $10 trillion more than we exported. We’ve been in a trade war and America lost. Specifically the American working class has lost. You are turning into the paradigm of a pointy-headed academic with graphs and equations without a clue of what’s happening in the real world. I read this and despair. Trump will be president for life. Just stop this and tell us what the Democratic proposals are for curing the imbalance to give hope to the untold millions whose lives have been shattered by the grotequelly manipulated “free trade” regime.
3
Why exactly is this a problem? Why aren't you more concerned with working class jobs that are disappearing in the retail sector due to technological changes? Why the nostalgia for manufacturing jobs which have not largely disappeared because of foreign trade but because of changes in technology leading to more efficient production? Think if you are not looking for an easy scapegoat to blame. Yes, I know a lot of people think this way, but these are largely emotional responses.
6
Democrats' plans to help working class:
Strengthen unions and collective bargaining, or at least don't continue to destroy them.
Raise the minimum wage to a living wage.
Have wealthy and corporations pay a larger share of the tax revenue.
Real spending on infrastructure to improve conditions for the public at large
Increase educational opportunities and training for those who have suffered work displacement.
Provide universal health insurance and access to healthcare so that no-one has to go without healthcare or suffer large expenses due to healthcare.
There are more...
40
The cure is for the U.S. to save more and for the rest of the world to save less. The flow of funds out of a country must equal the flow of funds back into it; that's an accounting identity. Because the U.S. has low savings, it requires foreign money to flow in to fund part of U.S. investment. The same amount of money that flows into the U.S. must flow out--in this case to purchase imported products.
Economists in the Obama administration knew this (and in Bush, and in Clinton, etc.). Try explaining it to Trump before he fires off another tweet. Or maybe Jared/Ivanka will get it.
1
Dr. Krugman, perhaps you (or somebody that remembers Econ. 101 better than I do) can explain why steel producers would not maintain their pre-tariff prices, undercutting the tariff-priced imports, and gain market share, and thereby earn more money by volume vs. price? Is that not a possibility?
And if they raise prices, how is it possible they could also increase production, as you claim, if they are still competing with imports, that presumably are more efficiently made to begin with?
Thanks.
3
Um, steel producers in the U.S. get to charge the new "World Price plus Tariff" but since they're not paying the tariff, they make more money. The rub is not for the steel producers. It's for other manufacturers that use steel. Now they have to pay the higher price for steel.
3
What would you do? You could increase your production of steel by paying time-and-a half overtime to run an extra shift, or by borrowing money to build a second steel-mill. Both of these plans cost you money up front. Both of these are somewhat risky if you can't sell the extra steel. What if the WTO or Congress or some arbitrariness in the White House puts and end to the tariff?
You've worked and spent and borrowed yourself into possible bankruptcy.
I think your stockholders are going to expect something in return for all this risk and cost, besides just the hope of making a little more profit on a bigger volume of sales.
You'd better raise the prices on your steel, and see if you can increase your profit right now. You'll get results immediately, and you can gauge whether the market will justify your extra expense and effort.
What would you do?
2
"... why steel producers would not maintain their pre-tariff prices, undercutting the tariff-priced imports ..."
You have to think like a steel consumer who had been using cheaper imported steel. That steel consumer would still be faced with using more expensive domestic steel, so the steel consumer's output falls anyway.
3
The effects of the 'Tariff Proclamation' are indeed predictable as Dr. K. describes, but let's not give too much credit to the Orange Jabberwock who has no enviable business track record or budgeting resume or economic seer credentials, but ignores actual American economists and the actual historical record of tariffs in the U.S.
Instead, to interpret actions of His Unhinged Unraveling Unfitness, we need only remember that any previously standing rule/norm where he was not involved, he will want to overturn - it is his nature, which is too often excused as disruption, when it's nothing but chaos and bedlam, since there is no logic or plan further than the point of 'change'.
And it is apparent that the only only thing driving the 'Tariff Proclamation' is throwing a sop to 'Reagan Democrats' - full stop. It is what djt promised in his campaign, and it does not matter that for each steel job 'saved', 50 other American jobs will be lost, including jobs in coal which djt has wanted to 'bring back'.
The motivation is also the 37 special election defeats GOP'ers have been handed by Dems since Jan. 20 2017, and that is also the vanity, since the Pa. special election of March 13 that djt is trying to help along, will have completely redrawn district lines by this November, making the Tariff Proclamation political payoff even more bizarre, since the best possible scenario for GOP'ers would last all of 8 months.
Agent Orange from KAOS is a clear and present danger to America.
54
this is spot on, the only thing that the president is worried about is the special election in PA. If he loses that it is just another brick out of his wall. He is desperate to change the narrattive to something other than being in over his head. This won't do that, it is just another ham fisted attempt to do anything to stop the bleeding.
There are a couple of points to mention. Aside from Navarro openly admitting he's nothing but a yes-man, all analysts face institutional pressure. I've lost jobs because I was unwilling to scrub numbers for the boss with a smile on my face. Propagandizing is a matter of degree in analytics. You're never fully free to just present the numbers. There's always a story to accompany your version of the "truth."
Krugman is not innocent here either. I'm not sure we're correct in assuming a shift in supply versus a response in quantity supplied. The sensitivity Krugman mentioned, properly termed elasticity for those who care, is absolutely essential to forming any conclusions. Also, timeline plays an important role. Shifts take longer to materialize. These numbers are hard to determine and they are rarely perfect as a world price normally assumes.
Where I will agree, however, is that steel and aluminum are intermediate goods. I'll also add they are generally homogeneous goods as well. Meaning, we can safely assume price elasticity is relatively elastic. They are more responsive to changes in price. Tariffs mean higher prices. Therefore we can safely assume lower consumption in some areas whether the supply curve shifts or not. The steel industry might win for now but someone is going to lose eventually.
5
Your middle paragraph is just wrong. Steel and aluminum are components of basically everything. Some things have little to no price elasticity, but most things have a fair bit to a lot, either by substitution (for things with less steel or aluminum, which may be less durable as well as cheaper) or by simply delaying or refusing purchase. Taken in aggregate, the result is obvious and straightforward.
3
Why do tariffs cause higher prices. The answer is a shift in supply. The shift in supply cause higher prices which leads to lower consumption. This is basic economics. The sizes of the effects depends on the relative supply and demand elasticities.
2
You say PK is not innocent here either.
Well, he did make clear that he was presenting a simplified picture, but that he thought making it more realistic would not change the basic point he was trying to make.
In other words, I think you are moving into the detail that he said would make the discussion more complicated and then perhaps the main point would be obscured. The point being, I think, that Trump does not even think much about the simplistic view much less the ramifications that make the whole thing a question of serious analysis, not simple intuition.
3
I am a lawyer and English teacher, not an economist. I haven’t taken a course in economics since college: i.e., a long time ago.
Having read this op-ed, I have nonetheless done more research into tariffs and their effects than Trump most likely did before imposing his tariffs on steel and aluminum, and I probably understand the effects of tariffs better than he does, too. That, my friends, is terrifying.
279
Agreed; the fact that an English teacher on the internet makes such a claim (that she could learn everything about the tariffs there is to know from the Web) makes me wonder about how effectively your students are taught. And the fact that this paper chooses to publish your comment, but will ban mine (undoubtedly) is simply sad. Without respecting plurality of opinions there will be no healing for our democracy.
Maybe you could do with taking some comprehension lessons from the English teacher. Nowhere does RCT claim that they know all there is to know about steel tariffs - only that they understand more than our esteemed leader.
Will you "eat your words" now, Y.B.? And the claim was not that they knew everything about the economics of tariffs, just probably more than Trump.
See Gail Collins' column. She's hit the nail on the head. The reason steel tariffs are an issue is because of the Special Election in the 18th Congressional District in Pennsylvania. It will be interesting to watch what happens to all this talk of tariffs and trade wars after Tuesday.
160
There is a very important special election happening in Pennsylvania.
America makes 70% of the steel it uses.
According to Dr. Krugman's chart, if I read it correctly, and taking in accounts from downstream manufacturers that depend on steel for their products, the price of all steel,whether produced in the U.S. or abroad, will rise. American downstream manufacturing (and there are many more of them than there are steel manufacturers) will be hurt much more than foreign steel manufacturers.
Who wins? Trump if Pennsylvania GOP if voters fall for the ruse - and they will, big steel - the 1%, and foreign steel and other goods who simply raise prices for US consumers and continue to sell at lower prices in other countries.
Who looses? American consumers and American downstream manufacturers. As supply of goods raises, demand decreases. Not good for economy in general.
I'm thinking Trump isn't or he's on some other side, maybe his own enrichment or?
28
Imposing tariffs is like throwing large stones into a flowing stream: It won't stop the flow, but is will change the flow. The problem is that the change is simply not predictable.
16
Seems you've missed the intent of Trump's tariffs on steel and aluminum. Increased costs of producing finished goods containing steel and aluminum are the price to be paid for supporting and ideally expanding domestic production of these two "strategic" metals. Unfortunately, protecting one industry with tariffs often hurts others. The question then is whether the "net good" has been served, and that depends on how one defines "net good". Cost and price are important, but they're not all the matters.
4
I agree with Krugman that the actual effects are too complex to predict. However, I can see companies that consume steel moving their production out of the US to take advantage of lower raw material prices. Less steel consumption here means less production here. All I see from this is jobs going away from the US, even steel production jobs.
85
"... I can see companies that consume steel moving their production out of the US to take advantage of lower raw material prices."
Off-shoring doesn't work for buildings, pipelines, and railroads.
1
I guess you’ve already forgotten the tax cuts.
VMR, off-shoring can work for I-beams, pipes, and rails.
2
This essay got me thinking about the raw materials that are upstream from steel: Iron ore, coal, and limestone. Coal, of course, is a centerpiece of Trump's political agenda, so we might wonder whether Trump's steel tariff has a secondary goal to aid the coal industry.
The question, then, is what would a shift from imported to domestic steel do to the production of metallurgical coal? While it would increase the domestic use of metallurgical coal, it could decrease coal exports (depending on where China and other steel exporters are getting their coal). Is there any data to resolve this question.
5
One big irony is that imported German (and other foreign) cars become more attractive to American consumers, since the steel price for German car manufacturers doesn't change, while American car manufacturers' steel prices go up.
165
I have read estimates that for a mid price car we are talking 200 dollars per car
I don't think 200 dollars per car is that big a deal, but maybe someone can provide data to correct me
I am in the steel business - actually fasteners. These tariffs mean that domestic steel manufacturers are going to raise their prices by 24% and 10%. This will effect about a 20% and 8% increase in the domestic fasteners made from steel and aluminum. This will result in nice profit taking for US steel mills and foreign fastener producers. Domestic manufacturers of anything made from steel or aluminum will get squeezed and lose ,market share. The Bush2 administration tried a similar gambit in 2002 - the automobile manufacturers raised cane and Bush2 backed off. I expect that we will soon be hearing Dear Leader claiming that nobody knew that randomly raising the duty on steel would be so complicated.
395
Domestic companies that consume steel and aluminum have 40X the number of employees than domestic companies that produce steel and aluminum.
5
A few years ago I manufactured brake rotors and did very well at it until the Chinese stopped manufacturing junk. At one point I carefully studied some other auto parts and found that they were already so competitive that for any new entrant to the market the line between profit and loss was determined by the price of your garbage, the metal clippings and shavings that you sold to the recycler.
I don't know about steel, nor what Trump's latest fumble-bumble means for pig-iron and scrap. I do know, though, that what BobbyBow says is emphatically true.
If Trump raises the price of iron for the American steelmaker selling it, he is greatly assisting the foreign manufacturers who compete with American manufacturers buying it.
8
BobbyBow -- "domestic steel manufacturers are going to raise their prices by 24% and 10%"
They may try for those increases, but they'll only get what their consumers will pay. There is more elasticity than that in the domestic supply. Many will doubtless get a bit more, but it won't be that sort of direct increase across the board. Those who get greedy will lose market to those who can fill it and are not so greedy. That includes those with idle plants who can bring on laid off workers without paying extra per hour.
2
Navarro is using the same tactic that George Tenet and the Neocons employed when justifying George W. Bush's illegal invasion of Iraq. The "intel" was made to fit Bush's gut feelings just as Navarro's advice is designed to gel with Trump's "intuition."
Generally speaking, economists have been used as propagandists at least since the founding of the Mont Pelerin Society, ushering in the birth of the neoliberal thought collective and the whittling away of social programs for the greater public good. Why else would economics be the highest paid of all the social science professions?
Even liberal economists have been known to fall into this propaganda trap from time to time. For example, there was that whole unfortunate bashing of the sexist "Bernie Bro" straw men in 2016, to use as a weapon against pie-in-the-sky Medicare for All. It seems that necessary "details" were lacking then, as well.
Meanwhile, a strike by one of the lowest-paid but most honorable professions (teaching) was wildly successful, despite economists' warnings that there simply wasn't enough money to pay them and other public workers a living wage. This - the resurgence of a nationwide labor movement - is another story that our experts and leaders don't seem to want to hear.
266
Unfortunately, the WV teacher strike resulted in the government picking winners and losers. The teachers got a well-deserved , overdue, and too-small raise, but the money came from other programs helping underprivileged citizens. Expect more of this nationwide after Trump's tax heist for the rich. Everyone suffers in Trumptopia but the investor class.
3
I don't want to see a wedge between labor and liberal democrats.
The "..sexist Bernie Bro's.." you mention will get over their "
bashing" by the next election cycle. A few year's experience of illiberal autocracy should make liberal democracy seem, to coin a phrase, "the lesser of two evils".
Stronger Together.
4
Thank you Karen, for your usual fact based, balanced narrative, something desperately missing in The Times and its commenters these days. The spin surrounding important issues is astounding, more importantly it’s dangerous, we seem to being pushed into another war, but this time not against a hapless enemy such as Iraq.
2
Trump is ignorant of the economic nuances and implications of these tariffs not only because of extreme ADHD but also because of a general lack of interest. His focus is entirely on polls and relative popularity, and if he can be seen as living up to campaign promises by rust belt voters because of these tariffs, that is all that matters to him.
Short attention span, short term interests, short sighted policies, short fingers, shortchanged Americans.
Eventually the truth will catch up to him, but it's way too late for that to happen soon enough.
73
I certainly agree with Dr. Krugman's fundamental economic analysis. However, economics have nothing to do with this trade action. The tariffs, and the North Korea stuff, is simply Trump waving his arms to distract everyone from the fact that Mueller advances ever closer to revealing Trump's full embrace of Russian oligarchs to prop up the Trump "empire". Do not let yourself lose sight of what is at the core of Donald Trump.
214
I continue to read - and be astounded, really - by very smart people like Dr. Krugman who try to apply logic to an act, statement, or tweet from the current occupant of the Oval Office.
He does what he does for theatrics and the love if his base, whether considered or not. Of course he has People to try to explain his words, but what they really are to do is strike Great Leader’s ego.
I know we won’t, but we really should stop giving publicity to these things. It is like oxygen to living creatures. Take it away. Let us see what happens.
108
Michael and others, I'm sure you can understand the difference between an objective analysis of economics and an objective analysis of politics.
2
If you take away the oxygen Krugman and other economists like Delong and Stieglitz and many others provide, all that would be left is the hot air of the likes of Fox News and Rush Limbaugh.
And that stuff is poisonous.
2
Take Canada which, surprisingly imports as much steel from the US as it sends the other way. They will, of course, match the Trump tariffs.
And this is intended to help US steel producers?
10
Hasn't Canada been given a pass on these tariffs? Announced a couple of days ago?
1
Actually in 2016 US exported 4.5 million MT of steel to Canada and Canada sold 4.0 million MT to the US - so US has a surplus in the steel trade with Canada. Info from US Dept of Commerce Global Steel Monitor May 2017.
4
Walker. It has been suspended, not cancelled. Blackmail to keep the Canucks in line during next NAFTA discussions.
It should be noted that much of that steel exported to Canada is used to build cars for the US market. So US steel is exported to Canada, the Canadians add a 25% tariff, build cars and then ship them to the US. Who suffers? US consumers.
1
I knew it! Navarro is a Laffer.
13
The Qatar blockade didn't work so now Trump is moving on to the Great American Tariff Shakedown. Another episode in the destruction of democracy.
21
Paul, by equivocating in your analysis to the degree that you did you essentially abandoned your position opposing Trump's action. Over analyzing a problem always results in such a blind alley, and I'd be willing to guess that you lost the majority of your readers before they got halfway through your article. The simple fact is that any tariffs the US imposes on imported foreign goods, whatever they may be will inevitably cause the injured nations to retaliate with their own protective tariffs, that the EU has already announced it plans to do, leading to an escalation of mutually damaging tariffs that ends in the decline of the GNP in all of the economies of the competing parties. This is a "Multi-Party Non-Zero Sum Game" in which damage caused by one party results in increasing losses by all the parties who try to counter the damage with damaging actions themselves. In other words, mass insanity. This could very well lead to a dampening of US economic growth, which would be painful for Americans, but even more so for Trump and the GOP that can't seem to reign him in. In the end, reality is much more powerful than any economic theory.
3
An economist doing economic analysis on his own blog. How dare he!
1
Go Canada Go!
20
I think what you are saying is that American cars will be more expensive in Europe because American manufacturers will have to pay more for steel, therefore Americans will sell less cars in Europe. Ergo, reverse tariff.
9
In case you're wondering which economist might have more to contribute to the discussion...
Peter Navarro:
All Since 2013
Citations 3117 992
h-index 27 13
i10-index 45 17
Paul Krugman:
All Since 2013
Citations 199577 56981
h-index 152 92
i10-index 751 383
27
air, I'm sorry to say that authority is not evidence. This despite the fact that I fully agree with the relative stature of (navarro) and KRUGMAN.
Peter Navarro:
All Since 2013
Citations 3,117 992
h-index 27 13
i10-index 45 17
Paul Krugman:
All Since 2013
Citations 199,577 56,981
h-index 152 92
i10-index 751 383
Isn't the idea that manufacturers of cars, etc. will find a way to use domestic steel and aluminum, thus avoiding the "tax"?
1
The dometic steel will cost more, because the stell makers will be able to charge more. The car manufacturers (and all manufacturers who use steel or aluminium) will be less competitive, and sell fewer goods abroad.
13
Only works if you believe that the domestic producers don't raise their prices. If you do believe that you have more confidence in them than me.
4
there is not sufficient steel production capacity in the Us to meet domestic demand. And, the steel that is produced is "specialty" steel intended for a different use than the imported steel. Increasing domestic steel production capacity of "raw steel" would take many years and billions of dollars.
Let's not forget the other unintended consequences. Steel prices 25% higher and aluminum only 10% higher drive auto manufacturers toward aluminum body panels. Which hurts the steel industry. Higher steel and aluminum prices drive various choices toward carbon fiber composites and titanium.
And BTW, Paul, your axes on the graphs in this post are about half a bubble off of plumb. How'd you do that?
2
You can rotate graphics with design software like Corel.
1
As a preposition, "off" does not require a preposition ("of"). Readers may ignore this fact if they wish.
"... drive auto manufacturers toward aluminum body panels."
That was being done before these tariffs were enacted:
Ford Bet on Aluminum Trucks, but Is Still Looking for Payoff
By NEAL E. BOUDETTE
MARCH 1, 2018
https://www.nytimes.com/2018/03/01/business/ford-f150-aluminum-trucks.html
If the economics of it dont make sense (and they dont - thanks Paul!), then there has to be a real reason he is doing it. I nominate:
a) Distraction from porn star allegations; or
b) The perception of "doing something" is more important than the result, when the issue is spun through the prism of Fox News.
My money is on "b" - What do you think?
13
No reason why it can't be both. In fact, I would add a third: pleasing his base, this time specifically in key districts in Pennsylvania and Ohio.
I would go so far as to suggest that this is what motivates almost everything he does. He probably thinks of it as "improving his ratings".
28
Or being constantly humiliated in the press, he wanted to do something manly, to show who is boss.
2
PA congressional district 18.
Economists have largely forgotten this sort of analysis since the 1980's discussions of industrial policy. It is a significant step up from the "trade makes everything" wonderful denialism or the last 30 years.
10
Even if (huge if) legitimate and coherent argument (not to be found with #45) could be made for steel tariffs, would it not make more sense to phase it in incrementally over time. Say 5%, wait a few quarters, measure the impact, if beneficial, repeat etc until you reach the 25% target.
Trump now has a post inaugural track record in the manufacturing domain.
Carrier - bust
Coal - bust
Now steel, oy vey. Are the west PA voters going to fall for this?
44
Well, the west Pa voters may fall for it for a week, which is probably enough for Trump. He really doesn't want to lose that special election.
45
Of course! In a country where one in five adults STILL believes that the Sun orbits the Earth, and in which there are more people who believe in Astrology than Evolution & Cosmology, the common voter's attitude is that "My ignorance is at least as good as your knowledge!"
George Bernard Shaw once commented "Democracy substitutes election by the incompetent many for appointment by the corrupt few."
1
Since posting my original comment, I have read a few comments which are real eye openers.
Foreign produced products using steel imported to America will gain a competitive advantage due to availability of cheaper steel.
American produced products using steel will move their operations to foreign countries because steel is cheaper their.
In the photo we see 5 old whites guys. We already #45 is dumber than a fence post, now we know 4 more other either racketeers or dumbbells.
1
Well to be fair, they did sort of address that, saying that the negative protection effect would be negligible: e.g. higher steel prices would cause a 35K car to cost just $100 more.
What percent of the car company’s profit does $100/car represent? I think you’ll find that this will be an incentive to avoid the tariffs by making more parts in other countries.
It may sound relatively small, but I’ve heard analysts have a panic attack over far less, so don’t be surprised if some adjustments to production are made in response.
3
"... higher steel prices would cause a 35K car to cost just $100 more."
That's very bad for producers: "The margin on cars is often only a few hundred dollars, or less."
Ford Bet on Aluminum Trucks, but Is Still Looking for Payoff
By NEAL E. BOUDETTE
MARCH 1, 2018
https://www.nytimes.com/2018/03/01/business/ford-f150-aluminum-trucks.html
3
Steel is irrelevant. The US does finance.. and the big story of the week is deregulation of the US financial sector.
226
It is true that the deregulation of the financial sector will do much more damage, and may lead us back to a world wide recession that Obama pulled us out of. Still, steel is important only less so.
4
This is just WRONG; how on earth did it become a readers pick ?
To take one example, the auto industry, which uses a lot of steel and aluminum
employs roughly 1,000,000 people in the us
subways, RRs, ships..Steel is a large part of our economy
1
Totally on point. I'm glad to see Paul beginning to couch Trump's motives in terms of larceny and rackets. His behavior and that of his family and other hangers-on has been mafia-like, with all the official actions taken having the sole purpose of putting on the squeeze on a particular sector, industry, or, in the case of Water, a nation. Such is the nature of oligarchies.
---
www.rimaregas.com
116
Sorry for the typo... Qatar auto-corrected to Water...
On the nature of oligarchy: https://www.rimaregas.com/tag/oligarchy/
7
Funny: a desert nation converted to water.
1
Google's AI has a sense of irony?
2
I am not an economist, but what happens when you grant exemptions? Doesn't that mean buyers will buy from Canada instead of China? Would Canada then have enough market power to create barriers of entry to US investment in steel production and more ability to meet demand? Would Canada gain as much or more from US tariffs, at the expense of US producers?
29