The Blazing Saddles Tariff Strategy

There’s a memorable scene (among many memorable scenes) in the Mel Brooks comedy-film classic, Blazing Saddles, in which Sheriff Bart (played by Cleavon Little) receives a hostile reception from the townsfolk of Rock Ridge, who he was sent to protect. Held at gunpoint and heavily outnumbered by citizens who are shocked and mortified by the fact that Bart is black, the sheriff decides he needs to build some quick leverage to negotiate his way out of the situation.

In a flash, he pulls his gun from his holster and holds the muzzle to his own jaw, absurdly threatening to shoot himself if his captors don’t let him go. In other words, he is taking himself hostage.

Even more bizarre is the response the unexpected move gets.

“Hold it, men,” says one of the citizens, nervously lowering his gun. “He’s not bluffing.”

“Listen to him, men,” warns another. “He’s just crazy enough to do it!”

Bart begins switching back and forth between two separate personalities: the hostage and the hostage-taker. As the hostage, he pleads for his life. As the hostage-taker, he issues more threats to pull the trigger. And hysterically, it works. The townsfolk’s sudden regard for Bart’s life, and the perceived peril he’s in, compels them to back down and allow for his escape. He has, in effect, won the standoff.

It’s just the kind of over-the-top slapstick brilliance that one would expect from a Mel Brooks film. And unfortunately, it seems to be the same strategy that President Trump keeps using against foreign trade partners, as a negotiating plank.

The latest example came just yesterday with a presidential announcement on Twitter:

As just about everyone (except for the president) knows by now, the tariffs we impose on other countries aren’t actually paid by those countries. They are instead paid by Americans — specifically the Americans who import goods from those countries. These tariffs are new taxes on U.S. citizens. The Americans who either resell those goods or use them in the production of American-made products (most products made in the U.S. use components from other countries) then have to raise their prices, on American consumers, too make up for the increase in costs.

Reaction to the president’s announcement (from across the political spectrum) came as swiftly as Gene Wilder’s revolvers…

These people are right, of course. Trade wars, by their very nature, cause damage to the countries that wage them. And with Mexico as one of our primary trade partners, there would be an extraordinary number of American hostages taken by this American president, should this wholesale plan of his be enforced.

As Justin Lahart pointed out in the Wall Street Journal this morning, U.S. auto-makers (who are already struggling with the effects of Trump’s trade war with China) would be among the hardest hit.

Now, to be fair, the tariffs would also hurt Mexico’s economy, because fewer American companies would purchase Mexican goods. And in that sense, Trump’s strategy (from a leverage standpoint) is marginally sounder that Sheriff Bart’s. But the belief that their implementation would motivate and equip the often dysfunctional Mexican government to stop illegal immigration over its borders isn’t any less cartoonish than Alex Karras punching out a horse.

In fact, as Scott Lincicome of the Cato Institute suggested, damaging Mexico’s economy would be… well, counter-productive:

While running for office, President Trump regularly billed himself as a master negotiator, but we have yet to see these alleged skills since he has taken office. What we have seen is the president using the power of the federal government to artificially dry up trade markets (at the expense of U.S. producers and tax-payers) while driving up costs for U.S. consumers… all for the purpose of a perceived bargaining chip in a game Mr. Trump doesn’t really seem to understand.

Effective deal-makers don’t repeatedly throw their greatest assets under the bus. At minimum, they perform a cost-benefit analysis before opening any kind of negotiation. With stuff like this, Trump seems more interested in just blowing up the news cycle and letting the chips fall where they may.

If this were a Mel Brooks movie, it would be funny. But this is reality, and these are people’s livelihoods. We have an otherwise hot U.S. economy… It would be great if President Trump could just let everyone enjoy it.

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Farming for a Sane Trade Policy

Those who’ve read my columns over the past few months know that I’m no fan of President Trump’s trade war. I view the ill-advised venture as a costly and self-defeating economic strategy, and I have little confidence that any deals that may eventually come from it will make up for the pain it has caused to our country (including our relationships with other countries).

Of course, it doesn’t help when the president keeps changing his explanation for why he imposed tariffs in the first place, while demonstrating little understanding of how international trade even works:

It goes without saying (though I’ll say it again) that the self-described conservatives who’ve been largely passive on this issue would have deemed such violations of the free market to be unacceptable and even un-American under the previous administration. And as multiple U.S. industries announce mass layoffs and domestic plant closures (due to the sharp rise in material costs), and the stock market continues to react adversely to the latest tweets from “Tariff Man”, the casualties that stick out to me the most — as a conservative — are U.S. farmers.

Farmers (most heavily in the soybean industry) have been losing billions of dollars due to China’s retaliatory response to Trump’s tariffs. This has contributed to the nearly one-hundred family farms that have filed for bankruptcy this year. And in an attempt to compensate the farmers who’ve hung in there, Trump has directed two rounds of tax-payer funded “emergency” bailouts their way.

In other words, Trump’s big-government intervention is removing billions from the U.S. private sector, and the administration is plugging the hole with billions more, paid for by you and me. And if that isn’t enough of a slap in the face of the free-market system, the president is publicly referring to these bailouts as “market facilitation payments.”

You can’t make this stuff up, folks.

To reiterate what all of us on the right would have understood and shouted from the hilltops during the Obama era, this isn’t market facilitation. It’s political facilitation.

But wait. There’s more…

As if the U.S. farmers caught up in the trade war needed more drama and uncertainty in their lives, those “market facilitation payments” — upon which President Trump has made them dependent — are at risk of drying up until after the government shutdown (which has no end in sight). Without a spending bill deal, the bailout funding can’t be authorized.

It’s a perfect storm of big-government overreach and dysfunction that was completely avoidable, brought to farmers by the leader of what is supposed to be the free-market, pro-business party.

Again, you can’t make this stuff up.




Trade Wars Are Stupid, and Hard to Win

I was fortunate enough last year to attend what I believe was the last political forum participated in by the late, great Charles Krauthammer. It was at a Weekly Standard event in Colorado Springs, where he was interviewed on stage by Bill Kristol. As the first question, Kristol asked Dr. Krauthammer for his general thoughts on President Trump (who at that time had only been in office a few months). Krauthammer didn’t mince words in his response.

It shouldn’t have come as a surprise to anyone in the audience that Krauthammer was not a fan of the president. It had been crystal clear from his commentary on television and in his writing throughout the 2016 election and beyond. But at this particular event, Krauthammer described his critical assessment in a far more detailed and comprehensive manner. Among the big points he hit on was his belief that Trump was a completely unprincipled individual, including on public policy and political philosophy… except for in one specific area: U.S. trade deficits.

Krauthammer, based on Trump’s rhetoric over the years, suspected that this was perhaps the one political issue that our president — for whatever reason — genuinely believed in and viewed as a legitimate threat to the United States. On this issue, Krauthammer himself was aligned with the vast majority of economists, fiscal conservatives, and free-market proponents who view trade-inequality as an arbitrary measure of economic strength, and protectionism as a hindrance to economic growth.

Still, if Krauthammer was right about Trump (and I suspect he was), it would explain why the president has been so determined to stick with his unilateral trade war against other nations — a venture that has thus far resulted in little more than higher costs for U.S. companies and consumers, and a widening (not a reduction) of our trade deficits.

Earlier this month, the Commerce Department reported that the U.S. trade deficit increased to $54 billion in September (the fourth straight month of increase and a seven month high). Other numbers from the report: Imports hit a record high ($218 billion). Imports specifically from China (Trump’s primary opponent in the trade war) increased, pushing the trade gap up by 4.3% to $40.2 billion (the highest on record).

Meanwhile, the latest casualty at home (among a growing list of American companies) has been GM. The automobile manufacturer recently revealed that Trump’s steel and aluminum tariffs have cost them roughly $1 billion. They just announced layoffs of 14,000 employees and the shut-downs of five North American manufacturing plants. Predictably, the announcement and decisions have compelled our president to attack and threaten the company on Twitter (like he’s done in the past with others including Harley-Davidson).

In other words, the president is again upset with an American company for having the gall to take measures it didn’t want to have to, in order to deal with losses incurred by the president’s ill-advised policy.

Now, to be fair, there are other factors contributing to GM’s woes, including the volatile nature of the automobile industry, but when a government policy forces a company to lose a billion dollars, big job losses are the inevitable result.

On the agricultural front, farmers are taking a beating too, particularly in the Upper Midwest.

According to the Minneapolis Federal Reserve, lower commodity prices have led to at least 84 family farms filing for bankruptcy this year. Diminished foreign markets from the trade war (U.S. soybean sales to China are down 94%) are a clear contributor, and despite President Trump pledging $12 billion in taxpayer-funded subsidies to farmers adversely affected by retaliatory tariffs (a move conservatives assuredly would have flipped out over under Obama), the president’s massive government bailout has reportedly been of little help.

It seems pretty clear that President Trump hadn’t a clue what he was getting himself into when he tweeted this statement last March:

Easy, huh?

And today, in another revealing tweet, Trump unwittingly bragged about how he has increased taxes on American consumers:

It’s not China, after all, that added that money to the “coffers.” It was Americans. And more government revenue doesn’t “make our Country richer.” It reduces private wealth.

One has to wonder what it will take for reflexive Trump defenders to stop repeating the tired old narrative that this is a killer negotiating tactic by our president, and that the industries currently being hurt by it will soon flourish beyond everyone’s wildest expectations, thanks to his master deal-making skills. How many lost jobs will it take? How many factory closures and relocations to other countries? How many more tax-payer billions spent on farm subsidies? How high will the costs of goods need to get?

It’s easy to say “look at the long-game” when the long game isn’t really understood, even by our president who seems to qualify his tariffs differently each time he’s asked about them. It’s also easy to preach about “fairness” (as Obama often did, and just as subjectively) in pursuit of political agendas, when it’s not your company and livelihood that are being needlessly brutalized by what is clearly an ego-driven war of choice.

While I have to believe that the U.S. will eventually get some small concessions from certain nations, like those we saw with the NAFTA negotiations, it’s difficult to see how the outcome will justify or make up for the pain caused to Americans and American businesses within multiple sectors of our economy. Of course, Trump and his supporters will frame literally any foreign adjustment in trade policy — no matter how minuscule — as an epic and historic triumph for America, but at what price will it have come? And how badly will we have needlessly strained relationships with other countries (including key allies)?

But as of now, the Trump faithful continues to lend the president their blessing, like they have with larger federal deficits (set to rise back above $1 trillion in the near future). And if Krauthammer was right, and Trump’s ego is more closely tied to this issue than any other, I can’t imagine there could ever be a failure so deep, and a free-market intrusion so vast, that it would compel the president to rethink the wisdom of this escapade.

As National Review’s Charles Cooke has pointed out many times, Congress has the power to take back some the executive powers that have allowed Trump to conduct this trade war.  For the sake of American companies and consumers, they should do just that.

Will they? I won’t hold my breath.




Bailing Out the Trade War

“Tariffs are the greatest!” President Trump tweeted early Tuesday morning. “Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that – and everybody’s talking! Remember, we are the ‘piggy bank’ that’s being robbed. All will be Great!”

Only, things haven’t been all that “simple” or “great” in this ill-advised trade war. The administration announced that same morning that up to $12 billion in federal emergency aid would be dispersed to U.S. farmers who are suffering from the effects of Trump’s trade policies. These farmers’ exports have been penalized with levies from multiple countries in response to the president’s new tariffs on steel and aluminum imports.

In other words, we’re talking about a bailout, and yet another expansion of the agricultural sector’s dependency on government. But unlike the traditional government bailouts we’ve seen for key industries in times of deep economic downturns, this one is being used — in the midst of a strong economy — to repair (or at least place duct tape over) an “emergency” situation brought on directly by a U.S. president’s executive order.

One can only imagine the fire and fury from Republicans and conservatives if Obama had been the architect of this big-government taxpayer-funded fiasco.

Unfortunately, farming isn’t the only American industry already being hurt by Trump’s trade war. A new Bloomberg report shows that the savings U.S. automakers have enjoyed as a result of the corporate tax-rate cut have already been erased (and then some) by the hit they’ve taken from the president’s steel and aluminum tariffs.

“For example, Ford saved about $208.4 million in taxes in the first quarter under a 21 percent corporate rate applied to its profit, compared to if the old rate of 35 percent had been applied to the same profit,” the report states. “The steel and aluminum tariffs will cost the automaker about $509 million in 2018, according to Nomura estimates.”

We found out last month that Harley-Davidson’s having a hard time adjusting to the trade war. According to the company, retaliatory tariffs have driven up the cost of each exported motorcycle by an average of $2,200. This prompted the company to announce that it will be moving some of its production overseas — a business decision that brought on attacks (some would say threats) from Trump himself.

Here was just one of them:

How dare an American company choose not to sit back and lose money for the sake of bad government policy and a politician’s ego!

One can only imagine the fire and fury from Republicans and conservatives if Obama had attacked a private company in such fashion. Only, no imagination is required because he actually did it, to companies like Staples and Boeing, and the reaction on the right was far from dismissive.

According to Whirlpool CEO Marc Bitzer, his company is slated to have to pay $350 million more for raw materials this year, thanks to tariffs. Other major companies have reported similar leaps in tariff-related costs, including Alcoa, Coca-Cola, 3M, GE, and United Technologies (just to name a few).

And of course, it’s consumers who will ultimately flip the dime to help make up for these increased costs being levied on American businesses. Tariffs are essentially taxes, and in the case of government bailouts of industries hurt by the trade war (today it’s just farming, but who knows what tomorrow will bring?), we’re talking about a wealth-redistributing double-tax.

One can only imagine the fire and fury from Republicans and conservatives if… Well, I think you get the point.

None of this makes any sense, of course. Our president has gotten us into a trade conflict that was totally unnecessary, due to a long obsessed over (but completely arbitrary) measure of “fairness” — in the context of trade deficits — that seemingly only he and his most devoted supporters subscribe to.

It would be one thing if the thesis was backed by economic or historical data, but it’s not. It’s propped up almost entirely by feelings.

“But this is about national security and intellectual property!” some of the people reading this column will undoubtedly argue.

Is it really? Because we haven’t heard the administration make this argument in quite a while. Instead, the messaging has been focused on “better trade deals” and “fair trade” which is a much different (and even less compelling) argument. And if the goal truly were related to U.S. protectionism, imposing tariffs is a terrible, self-defeating way of going about it (as the CATO Institute’s Scott Lincicome points out).

One has to wonder how much damage and government intervention into our economy conservatives are willing to accept from President Trump. After all, it really is just about Trump, being that Congress hasn’t been involved in either of these decisions. Trump unilaterally started this trade war, and now he’s unilaterally trying to cover up the damage it’s causing (with taxpayers flipping the dime).

I guess the answer will be revealed by whether or not the Republican-led Congress decides to actually do something about it. Members of the U.S. Congress have it within their power to amend or repeal a small number of Constitutional statues that would put trade-related decisions back in their hands, and put a swift end to this mess. A number of DC representatives from both sides of the aisle have been outspoken in their opposition to the trade war. They should put their money where their mouths are.

Will they? Unfortunately, probably not, as Charles Cooke explains in a recent piece in the Los Angeles Times:

…the incentives for impotence remain strong. Allowing the president to take tough decisions inoculates representatives and senators from having to put on the record a difficult and divisive vote, and spares them from doing the elementary research that their job requires. Besides, at any given point both Democrats and Republicans can use the executive’s Caesarism to their political advantage. If their guy is in power, there exists little motivation to reduce his capabilities. And if the other guy is in, well, then his conduct makes the case for his replacement! Upon these craven theories of self-interest has Congress abdicated its role for 80-odd years.

Additionally, one has to consider the increasingly tribal political environment that now exists within this country’s major political parties. This is especially true of the GOP, where the top political issue (as evidenced by the rhetoric thrown around during election primaries) seems to be whether or not Republicans are sufficiently loyal to President Trump. In which case, the trade-war pains will have to hurt a larger number of constituents directly before backbones in Washington may possibly take shape.

Until then, we can look forward to higher prices and more government subsidizing. But it’s all okay because “trade wars are good, and easy to win.”

Right?




Trump’s Ego Is Bad for Consumers

Since taking office, President Trump has enjoyed some very good numbers on the economy. Unemployment has been low. GDP growth has been strong. And up until just recently, the stock market had been on fire. The president hasn’t missed many opportunities to tout these successes, and who can blame him?

While some would argue that the policies of the previous administration should receive at least some of the credit, it’s hard to deny that Trump and the Republicans in Congress have been good for the economy. The lifting of regulations and the tax-reform bill from last year have removed constraints on businesses, and many Americans (not just corporate CEOs) have enjoyed the benefits. Millions of workers are receiving larger paychecks, and the number of companies that have announced bonuses to their employees (as a result of the tax-reform bill) just surpassed 500.

Not exactly the economic “Armageddon” Nancy Pelosi had promised.

But one can’t ignore the recent volatility of the U.S. stock market. While 2017 gave us the calmest year for markets in over 50 years, 2018 has been a different story.

Just over three months into the new year, we’ve seen the S&P 500 change by 2% a half-dozen times. 400-plus market swings have suddenly become the new normal, and it’s not due to really anything that’s going on in the private sector, or even as a result of passed DC legislation.

It’s happening in direct response to President Trump’s ego.

Contrary to the suggestions of some in the mainstream media that the GOP’s tax bill is to blame, the market is reacting to Trump’s ill-advised tariffs on foreign imports and his public tirades against American companies — most notably Amazon.

Last year, I attended an event in Colorado Springs, CO at which syndicated columnist Charles Krauthammer offered his political insights to an audience of questioners. When asked whether he thought that President Trump had any guiding ideological principles in regard to U.S. policy (that weren’t purely rhetorical or subject to whims), Krauthammer at first answered no. He then took a moment and added that Trump might actually believe that there was an inherent unfairness in U.S. trade deficits with other countries (something the president had talked about many times as a candidate) that required rectification.

It looks like Krauthammer was right.

While the president has waffled on a number of stances since taking office (and even before), he’s been remarkably consistent when it comes to his thesis that trade-deficits are bad for the United States, and a substantive threat to our national security.

Facts and history don’t support that narrative, but that doesn’t mean much in the mind of our president, whose pride-invested dedication to this perceived injustice has compelled him to impose ill-advised trade tariffs (indiscriminately at first, but later scaled back under pressure from foreign allies) on other countries.

Trump has been nearly alone on this, even within his own party. The president’s top economic advisor, Gary Cohn, quit over the reckless venture, and very few Republicans in the U.S. Congress have voiced support. In fact, many have voiced strong opposition, and for very good reason. Driving up the cost of imported goods is foolish. It’s bad for U.S. consumers, because they’re ultimately the ones who have to pay the difference. Not to mention that other countries are then inclined to place their own tariffs on goods exported from the United States. We’re currently seeing this with China.

This is more commonly known as a “trade war,” and despite President Trump’s painfully naive insistence last month that “trade wars are good, and easy to win,” they’re not. They’re not good for anyone — especially not consumers. And the only reason we’re engaged in this self-defeating exercise (which keeps sending the stock market into a tizzy) is because of Trump’s pride.

We’ve been seeing a similar situation with the president’s numerous threats to penalize Amazon.com Inc. (and its CEO Jeff Bezos) for…  Well, seemingly just for being super successful.

Taking a page out of President Obama’s “economic justice” playbook, Trump has decided that the largest Internet retailer in the world is unfairly getting away with something by legally negotiating deals with other companies (like the U.S. Post Office) to save money and provide cheaper goods to consumers. And thus, in his view, “something” must be done to “even the playing field.”

There’s no question that Amazon’s successful practices have put a lot of other companies out of business — especially brick and mortar retailers (which include many small businesses) that could no longer compete with Amazon’s prices and efficiencies.

But this is capitalism — an economic system by which Donald Trump himself flourished under to achieve billionaire status. Why should a President of the United States (especially a Republican one) concern himself with a privately-run company (which employs over a half-million people) that is achieving enormous success?

The correct answer is that he shouldn’t. But again, this is about ego.

As the Wall Street Journal recently reported, White House officials recognized early into the president’s term that he was fixated on the false notion that Amazon was dodging taxes and taking advantage of the U.S. Postal Service. It got to the point where Gary Cohn even put together PowerPoint presentations for the president, to debunk the phony accusations and educate the president so that he could understand what he was talking about, when commenting on the company.

It didn’t work. Trump has remained on the attack, and continues to repeat the same false statements while asserting that the company must somehow be penalized. And Amazon’s stock value has been all over the place as a result.

Why is Trump doing this? According to a source close to the White House (as referenced in the WSJ piece), it’s because Amazon CEO Jeff Bezos also owns the Washington Post, a publication that Trump believes has covered his presidency unfairly. It also probably doesn’t help that Bezos is a far more successful (and wealthy) businessman than Trump has ever been.

While those who contend that Trump won’t (or won’t be able to) subject Amazon to government retribution may well be right, the act of a president waging a personal vendetta against an American retailer (the largest in the world), whose success comes from offering affordable prices to consumers, should not be shrugged off.

We on the Right certainly had a problem with this kind of thing when the Democrats would vilify Walmart. We shouldn’t tolerate it from Trump either. We should want a consumer-friendly presidency, and right now, that’s not what we’re getting.

While many Americans have benefited from the economic policies of Trump and the Republicans in Washington, those gains can quickly disappear if the country’s consumers are needlessly subjected to having to pay more for what they purchase.

I don’t know about you, but I just don’t think the pacification of a president’s ego is worth my hard-earned money.

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