Monday Reads: Trump Breaks the Economy

Good Morning Sky Dancers!

Well, he finally broke the economy.  It was just a matter of time for those tarriffs to do their thing and now it appears we have a full out tit for tat trade war with China.  I guarantee you that China will win.  Even Lousy Larry Kudlow knows that it’s American households that will pay the full brunt of this tax on goods because that’s exactly what a tariff does.  The price increases are already showing up in so-called “intermediate goods” and will very shortly show up at the cash register.  

I’m going to get wonky on you but I will send you to the nontechnical briefing from this stellar NBER study that already shows the losses from 2018 from Trump’s Tariffs. That is the link to the full study.  Here’s the part that’s important and easier to read from NBER’s May Digest.

In 2018, the United States imposed tariffs on a variety of imported goods, and other countries responded with tariffs on imports from America. Two new NBER working papers analyze how this “trade war” has affected U.S. households and firms.

The recent tariffs, which represent the most comprehensive protectionist U.S. trade policy since the 1930 Smoot-Hawley Act and 1971 tariff actions, ranged from 10 to 50 percent on about $300 billion of U.S. imports — about 13 percent of the total. Other countries responded with similar tariffs on about $100 billion worth of U.S. exports.

In The Impact of the 2018 Trade War on U.S. Prices and Welfare (NBER Working Paper No. 25672), Mary Amiti, Stephen J. Redding, and David Weinstein find that the costs of the new tariff structure were largely passed through as increases in U.S. prices, affecting domestic consumers and producers who buy imported goods rather than foreign exporters. The researchers estimate that the tariffs reduced real incomes by about $1.4 billion per month. Due to reduced foreign competition, domestic producer prices also increased. The prices of manufactured goods rose by one percentage point relative to a no-trade-war scenario. The reduction in real incomes represents the welfare cost of higher consumer prices, less the government revenue collected by the tariffs and the additional income of domestic producers who were able to sell their products at higher prices.

The researchers note that continuation of the tariff policy could be especially costly for multinational companies that have made substantial sunk-cost investments in supply chains in other countries, for example by relying on facilities in China or other impacted countries. The study estimates that around $165 billion worth of trade has been rerouted to avoid them.

Pablo D. Fajgelbaum, Pinelopi K. Goldberg, Patrick J. Kennedy, and Amit K. Khandelwal adopt a different methodological approach to address the welfare effect of recent tariffs. They also find complete pass-through of U.S. tariffs to import prices. In The Return to Protectionism (NBER Working Paper No. 25638), they estimate that the new tariff regime reduced U.S. imports by 32 percent, and that retaliatory tariffs from other countries resulted in an 11 percent decline of U.S. exports. They use these responses to estimate import demand and export supply elasticities, and then apply these estimates to calibrate a general equilibrium model of the U.S. economy with detailed input-output linkages. They estimate that higher prices facing U.S. consumers and firms who purchased imported goods generated a welfare loss of $68.8 billion, which was substantially offset by the income gains to U.S. producers who were able to charge higher prices ($61 billion). The researchers estimate the resulting real income decline at about $7.8 billion per year, a value broadly comparable to the net income decline estimated in the previous study.

Well, China is retaliating. This isn’t going to be pretty at all.

China announced that it will increase tariffs imposed on about $60 billion of U.S. goods in retaliation for President Donald Trump’s latest escalation of the trade war.

The tariffs will take effect on June 1, according to a statement on the Ministry of Finance’s website on Monday. The charges will thereby be raised on most of the goods listed on a previous retaliation list effective last September.

The yearlong trade frictions between the world’s two biggest economies worsened last week when the Trump administration announced an extra 25% tariff on thousands of Chinese products worth about $200 billion. The U.S. is set to release a plan to levy a 25% additional tariff on all remaining imports from China later on Monday.

 

So, of course, we saw equity markets respond with big down in all the indices and a big sell off this morning. Say bye bye to your retirement funds.

The rapid-fire succession of stark economic news spooked financial markets. The Dow Jones industrial average and the Standard & Poor’s 500 index are both down sharply in morning trading. While many business executives and investors had hoped that tensions between the United States and China would be resolved easily, the recent developments show how much each country is digging in for a long fight.

“Over the past week, hopes for at least a partial and temporary cease-fire between the two sides have given way to the prospect of a rapidly escalating and broadening economic conflict between the two countries,” said Eswar Prasad, senior professor of trade policy at Cornell University

Amid signs that investors were questioning his adversarial approach, Trump attempted to assuage the public in a series of Twitter posts. But some of his tweets contained typos and misspellings, suggesting that his comments had not been thoroughly vetted by White House officials and might not represent fully planned-out policy initiatives.

The dramatic escalation came last week after Trump imposed a 25 percent tariff on $200 billionof Chinese imports to the United States. He also told aides to begin plans to hit more than $300 billion in other Chinese goods. Trump has alleged that the Chinese government is ripping off American consumers and businesses by unfairly subsidizing Chinese companies, stealing intellectual property from U.S. firms and flooding global markets with cheap goods to put other companies out of business.

All of those issues were actually adressed in the TPP that Trump walked away from nearly immediately upon entering the White House.   I really don’t see how we’re going to get out of this given Trump’s doubling down continually on losing deals.

You may want to read this article in the Atlantic “An Oral History of Trump’s Bigotry. His racism and intolerance have always been in evidence; only slowly did he begin to understand how to use them to his advantage.”

In the years since then, Trump has assembled a long record of comment on issues involving African Americans as well as Mexicans, Hispanics more broadly, Native Americans, Muslims, Jews, immigrants, women, and people with disabilities. His statements have been reflected in his behavior—from public acts (placing ads calling for the execution of five young black and Latino men accused of rape, who were later shown to be innocent) to private preferences (“When Donald and Ivana came to the casino, the bosses would order all the black people off the floor,” a former employee of Trump’s Castle, in Atlantic City, New Jersey, told a writer for The New Yorker). Trump emerged as a political force owing to his full-throated embrace of “birtherism,” the false charge that the nation’s first black president, Barack Obama, was not born in the United States. His presidential campaign was fueled by nativist sentiment directed at nonwhite immigrants, and he proposed barring Muslims from entering the country. In 2016, Trump described himself to The Washington Post as “the least racist person that you’ve ever encountered.”

Instances of bigotry involving Donald Trump span more than four decades. The Atlantic interviewed a range of people with knowledge of several of those episodes. Their recollections have been edited for concision and clarity.

It’s pretty horrifying but I think it’s necessary to document just how racist this man is on top of all the other hateful things he brings to the table.

So, I wonder exactly how this is going to go: “House GOP focusing on women, minorities for 2020 challengers”

Finding women and minority candidates is an imperative for an overwhelmingly white GOP openly embarrassed that just 13 of its 197 House members are women. By contrast, 89 of the 235 House Democrats are women and nearly 90 are black or Hispanic.

But Republicans want challengers with other qualities too, following a 2018 election that saw the GOP lose 31 districts that President Donald Trump had won just two years earlier, many in moderate suburbs.

Desirable attributes include an ability to woo moderate GOP voters who’ve turned against Trump, whose name will be atop the ballot. In some districts they want political outsiders without voting records to attack, in others it’s political veterans with a proven ability to win votes. Enticing personal stories and an aptitude for raising money also help.

“You will see a party that’s reflective of the entire nation. That would mean from gender to race to others, but it will also show that we can compete in every single district,” said House Minority Leader Kevin McCarthy, R-Calif.

 

So, we’ll see but there seems to be a lot of emphasis right now on killing the rights of every one but white men and basically making the rest of us in servitude and “less than” human compared to them.

Finally, I’m really sorry to have to announce that we’ve lost Doris Day.  She lived a long full life and was one of the most important advocate for animals that I know.  She was also an important advocate for HIV/AIDS during a time when it was hard to get any one’s attention.

Actress and singer Doris Day made nearly three dozen films and more than 600 recordings. At the height of her career, she topped both the billboard and the box office charts. Day died of pneumonia on Monday at the age of 97.

Day remains one of the most successful female movie stars of all time. She embodied the “girl next door” even in her 40s, which is probably why her films with Rock Hudson were so successful. A scene from 1959’s Pillow Talk shows a split screen with Day and Hudson in their separate bathtubs, only it looks like they’re in the same one — with their feet touching. Kind of risqué for 1959.

That was Day at the height of her film success, but her career began as a big band “girl singer,” and with Les Brown’s big band she had one of the biggest hits of World War II: “A Sentimental Journey.” For many GIs, Doris Day represented the kind of girl you’d want to fight for and come home to.

The end of the war brought the end of the big band era and the beginning of Day’s film career. Alfred Hitchcock used Day’s voice as a plot device in The Man Who Knew Too Much, in which a distraught Day sings a distress signal, “Que Sera, Sera,” to her kidnapped son. It became her signature tune and went to the No. 2 spot on the charts.

So, what’s on your reading and blogging list today?