There is nothing normal or good about tariffs.
The simple fact is – tariffs don’t work.
Retailers are asking if some Biden administration democrats are picking up cues from where Trump republicans left their mark – given President Biden’s recent comments about placing additional tariffs on Chinese steel and aluminum.
Is it possible that former President Trump’s advisors have been floating new ideas about devaluing the U.S. dollar (to boost exports) and that has sparked Team Biden to throw out their latest mantra: ‘Stop the steel?’
Tariffs absolutely failed for President George W. Bush when he targeted steel in 2002. They failed for President Obama when he targeted Chinese tires in 2009. They failed spectacularly in 1930, when Smoot-Hawley introduced massive tariffs to target protectionism – and America sunk into a severe economic depression.
Now, President Biden has announced that he wants to add additional tariffs on Chinese steel and aluminum to curry favor with his rust-belt electorate and shore up support for at-risk democrats. Given most economic logic, this is a bad move and has significant trade consequences for the metal communities and also for the retail economy. There are other ways to deal with this problem, but Biden has chosen tariffs and that has pushed trade uncertainty up in the air. The fact is that the United States Trade Representative was supposed to do a thorough review after four years of the original Trump tariffs but, by next month, they will be two years into their preparation of the (yet unpublished) four year review!
As everyone knows, inflation is a national problem and recent data supports the notion that we are clearly headed in the wrong economic direction. This past week the Commerce Department’s Personal Consumption Expenditures Index (PCE) came in at 2.7% for March, which is UP from 2.5% in February and, earlier this month, the Labor Department’s Consumer Price Index (CPI) came in at 3.5% for March, which is up from 3.2% in February. None of this is good.
A few years ago, retail thought there would be significant changes in American trade policy as President Biden took the reins from President Trump. Candidate Biden, in an August 2020 interview with NPR’s Lulu Garcia-Navarro was asked about tariffs: “President Trump is not the first president to say China is ripping off the United States. President Obama made similar complaints. Some have said Trump’s stance is a good one to counter China’s influence. Would you (candidate Biden) keep the tariffs?”
Biden responded: “NO. Hey, look, who said Trump’s idea was a good one?” He also said: “Manufacturing has gone into a recession. Agriculture lost billions of dollars that taxpayers had to pay. We’re going after China in the wrong way.”
When President Trump was in office, retailers spoke up and warned of a coming consumer apocalypse if the proposed tariff policies were to continue. At the time, progressive retailers had an empathetic ear with Trump’s minion of Globalists, but these same retailers were completely ignored by the in-house Nationalists. Eventually, given the duration of the tariffs, shades of the dire retail predictions actually materialized, and Trump’s tariff policies caused consumer prices to rise, retail sales to drop, and retail jobs were lost as America observed rampant inflation since the implementation of the tax. Of course, one can also argue that a much of the retail-price irrationality transpired during COVID time, so exact cause and effect are equally hard to identify but, that being said – supply chains were clearly disrupted and multiple retail bankruptcies ensued. For sure, it was former President Trump who created the original tariff policies, but President Biden shares culpability – because he continued then and now is on the cusp of an enhancement to the program.
At least with former President Trump (much to his credit) he had a beginning, a middle, and almost an end to the tariff program – when he attempted the China Phase One Trade Agreement. President Biden, in his 3 years and 4 months in office, has repeatedly said is that he was going to review Trump’s trade policies (which, as previously stated, is now two years delayed). Now, as President Biden is running for re-election and looking at the Pennsylvania steel industry squarely in the eye, he is proposing more tariffs which defy reality and set a dangerous precedent for the future.
In Adam Smith’s 1776 “The Wealth of Nations” the economist wrote about ‘absolute advantage’ explaining that: “when one nation is more efficient than another in producing a product, while the other nation is more efficient at producing another product, then both nations could benefit through trade.”
Adam Smith would be absolutely appalled that tariffs are being weaponized for political advantage. Former President Trump had already tariffed steel and aluminum back in 2018 and now President Biden is planning to do it again by targeting China at three times the current tariff of 7.5%. This potential maneuver feeds directly into the political trade -war syndrome – which, if allowed to continue, will not have a happy ending.
Earlier this year, the Wall Street Journal Editorial Board published an article titled: Trump’s Tariffs and the Common Man. The article states that: “Trade wars invite painful retaliation, prop up politically favored industries at the expense of others, and raise prices on consumers like an invisible tax. They hurt the average worker.”
Retailers have consistently tried to remind the administration that consumer spending still accounts for 66% of America’s GDP and more tariffs means more stress on the economy and even more inflation.
While it is true that former President Trump once tweeted that “Trade Wars are good, and easy to win.” Now, if re-elected, the former President wants to add a 10% tariff on imports from every country and perhaps 60% on China.
Clearly, trade wars are almost impossible to win, but it is also true that President Biden was opposed to tariffs when he first ran for office. It needs to be noted that the Biden administration has not been generally helpful to the retail consumer or to those who trade products internationally. If Team Biden really does re-enter the tariff game, this certainly doesn’t bode well for the future of the retail community.
Fully understanding that it is election season and that anything could still happen, “Saturday Night Live” comedian Colin Jost hosted the White House Correspondents Dinner last night – where he made remarks after an excellent speech from President Biden. At one point in Colin Jost’s monologue he said: “I have to admit, it’s not easy following President Biden, I mean, it’s not always easy following what’s he’s saying.”
Caveat Emptor (let the buyer beware)
