Friday March 2 2018
The Real Worry is not the Wall or Russia
Lawmakers have stressed caution regarding Trump’s dissatisfaction with NAFTA. This has also been the case with multiple Chambers of Commerce, Governors, and both Mexico and Canada. Senator John Thune R-S. D. remarked that “withdrawing form NAFTA would be a disaster.
This foolishness has a historical antecedent. By the spring of 1930, the stock market had recovered about half its losses from the fall of 1929. The Tariff Act of 1930 aka the Smoot-Hawley Tariff was signed June 17, 1930. These retaliatory tariffs cut both imports and exports by half during the Great Depression. In fact the Depression would not end until its repeal via GATT, the General Agreement on Trade and Tariffs signed In October, 1947.
The actual tariff on dutiable goods soared by 1932-33. to 59.1% in 1932. By 1933 imports decreased 66% and exports decreased 61%. Unempl0yment was 8% in 1930 but jumped to 25%. Roosevelt began lowering tariffs upon his election. But real reform waited until the Bretton Woods Agreement of 1944.
This past week brought more early warnings of Trump’s simplistic ‘us versus them’ view of trade.
Last year the President set this potential disaster in motion by instructing the Commerce Department to investigate if steel and aluminum imports threaten national security under Section 232 of the Trade expansion Act of 1962. As instructed, Commerce concluded they do.
This is in spite of the 164 anti-dumping duties on steel already in effect. There re two dozen tariffs on Chinese steel and more on aluminum. Canada accounts for 43% of our aluminum imports, but more on that later.
The tax reform act is brining money back to the US. But more tariffs will only increase the cost of doing business in all industries using steel and aluminum. Indeed more workers lost jobs (200,000 due to Bush’s 2002 steel tariff than were employed by the entire steel industry (187,500).
As we warned January 26, this ‘strategy’ plays right into the hands of China’s goal of becoming the new manufacturing super power in the world. Withdrawing from the Trans Pacific Trade Partnership puts China in that driver’s seat, free to make global arrangements. The Trump idea of a separate trade deal for each nation is foolish when so many products, like autos, are built from material imported from multiple nations.
One hopeful example is the creation of a pro-Nafta website by Mexico , no less. check out www.naftamexico.net. This English website allows one to click on each of our 50 states to see the NAFTA advantage. Columns and letters continue to sprout advocating the benefits of NAFTA. But I was discouraged again reading the latest in the US Canada trade talks.
The US runs a $12.5 billion dollar trade surplus with Canada. Apparently Canadian Prime Minister Justin Trudeau does not care for the politically incorrect President Trump. Nor does the Canadian Parliament. As a result Canada has done little to sell the trade deal Canada. We have not seen full page ads bulwarked by newspaper editorials demanding continuation of the 20 year NAFTA trade boom. Canada has been America’s closest ally and trading partner, well ever since there has been an America and Canada.
Meanwhile Trudeau has inked deals with the European Union and the Trans Pacific Partnership. Is this a literal snub, aiming to reach the same conclusion as Trump, better no deal than any perception of a flawed deal?
Then get serious about avoiding another Smoot Hawley fiasco.
Comments