As expected by anyone who didn't flunk Econ 101, Trump's "trade war" cost American consumers and businesses $4.4 billion a month in 2018 as a result of the excise taxes known as "tariffs."
And if it is a war, we're losing as the trade deficit reached record highs last year with China ($419.2bn), Mexico ($81.5bn) and the European Union ($169.3bn) as December’s trade imbalance worsened because US imports rose 2.1%, while exports to other countries fell 1.9%.
This isn't a surprise as explained last year in the post here Tariffs: Trump's excise tax to be collected soon from his deplorably unknowing fans: "A tariff is a tax on what you buy, not a war against China, Mexico, Canada, and the European Union. The use of the word tariff is a good way to hide a tax."
In a paper prepared by economists Mary Amiti of the Federal Reserve Bank of New York, Stephen J. Redding of Princeton University, and David Weinstein of Columbia University and published by the Centre for Economic Policy Research we learn:
...Import tariffs were costing U.S. consumers and the firms that import foreign goods an additional
$3 billion per month in added tax costs and another $1.4 billion dollars per month in deadweight welfare (efficiency) losses [a reduction in U.S. real income]. Tariffs have also changed the pricing behavior of U.S. producers by protecting them from foreign competition and enabling them to raise prices and markups.
This is an early "Discussion Paper" as economic data for 2018 will be refined over the coming months and other economic factors in addition to the tariffs will have to be refined. But as we noted here in the post No, it is a "tax" not a "war": How supposed anti-tax Trumpists confuse the ignorant by calling it "a trade war with China" "it is unclear where to even start to calculate how much of his personal income tax cut will be recovered from consumers through increased tariffs"
The tariff impact on home appliances is fairly accurately measured. The most recent Conference Board survey of consumer intentions reported that the intent to purchase a major home appliance is at a four year low. The problem is, of course, prices as can be seen from this chart in the study:
In fact, the people most damaged by tariffs on appliances are American consumers who have been unable to acquire new ones or paid substantially more for them because of tariffs. Consider washing machines which were an "example" used by the Trump Administration to explain that they would reduce imports supposedly thereby benefiting American companies as explained by Forbes:
The available data on the global tariffs Trump levied on washing machines makes two compelling points. Imports will fall. Americans will pay the price.
In the three months after the United States imposed tariffs on washing machines to protect Whirlpool and other U.S. manufacturers, a decision at cross-currents and exacerbated by tariffs on imported steel and aluminum, prices for washing machines increased more rapidly than any three-month period in the 40 years data has been collected and those prices increased more than twice as fast as any of 300 other categories in the last two of those three months.
In the three months after the United States imposed tariffs on washing machines to protect Whirlpool and other U.S. manufacturers, a decision at cross-currents and exacerbated by tariffs on imported steel and aluminum, prices for washing machines increased more rapidly than any three-month period in the 40 years data has been collected and those prices increased more than twice as fast as any of 300 other categories in the last two of those three months.
In the three months after the United States imposed tariffs on washing machines to protect Whirlpool and other U.S. manufacturers, a decision at cross-currents and exacerbated by tariffs on imported steel and aluminum, prices for washing machines increased more rapidly than any three-month period in the 40 years data has been collected and those prices increased more than twice as fast as any of 300 other categories in the last two of those three months.
In the three months after the United States imposed tariffs on washing machines to protect Whirlpool and other U.S. manufacturers, a decision at cross-currents and exacerbated by tariffs on imported steel and aluminum, prices for washing machines increased more rapidly than any three-month period in the 40 years data has been collected and those prices increased more than twice as fast as any of 300 other categories in the last two of those three months.
In an article in the New York Times we learn more:
...A five-year stretch that started in 2013 was a pretty great time to buy a washing machine.
Inflation for home laundry equipment, as measured by the Labor Department, fell steadily during that time, which meant you could buy the same washer your neighbor bought last year for less money. Or you could buy a better one at the same price.
That stretch of laundry deflation ended last year, shortly after President Trump imposed tariffs, starting at 20 percent, on imported washers. The move was a response to a complaint filed by Whirlpool, a Michigan-based manufacturer.
The company has long dominated the washing machine business — many Americans have had Whirlpools in their laundry rooms for decades — but has recently faced stiffer competition from foreign manufacturers. Whirlpool claimed that foreign competitors like LG and Samsung were flooding the appliance market with washing machines from South Korea and Mexico at prices so low that they were hurting American makers.
As an effort to help domestic producers, the tariffs worked — very briefly. Whirlpool added 200 jobs at its factory in Clyde, Ohio. Its stock price jumped $20 per share in the first few days after the tariffs took effect.
Then things went bad.
A basic rule of economics is that when the price of something goes up, people buy less of it. That’s just what happened to washing machines.
Data from the Association of Home Appliance Manufacturers shows that shipments of washing machines increased by an average of 5 percent a year from 2015 to 2017. Last year, shipments fell 3 percent.
Retailers saw that reaction in real time. “We have seen, as you mentioned, tariffs’ impact in laundry,” Craig Menear, the chairman and chief executive of the Home Depot, told analysts on an earnings call in November.
Washing machines make up a small slice of Home Depot’s business. They’re more important for Whirlpool, Samsung and other manufacturers — and the stocks of those businesses have been hammered this year. Laundry appliances made up nearly 30 percent of Whirlpool’s sales in 2017. The company’s shares gave up their initial gains after the tariffs were announced, and then fell some more.
Through the third quarter, Whirlpool’s unit sales were down 2.5 percent in North America, compared with the same period in its previous fiscal year. The company’s executives said in an October earnings call that they expected to be hit by an additional $300 million in cost increases, largely driven by the steel tariff, in the year to come.
Inflation for home laundry equipment, as measured by the Labor Department, fell steadily during that time, which meant you could buy the same washer your neighbor bought last year for less money. Or you could buy a better one at the same price.
That stretch of laundry deflation ended last year, shortly after President Trump imposed tariffs, starting at 20 percent, on imported washers. The move was a response to a complaint filed by Whirlpool, a Michigan-based manufacturer.
The company has long dominated the washing machine business — many Americans have had Whirlpools in their laundry rooms for decades — but has recently faced stiffer competition from foreign manufacturers. Whirlpool claimed that foreign competitors like LG and Samsung were flooding the appliance market with washing machines from South Korea and Mexico at prices so low that they were hurting American makers.
As an effort to help domestic producers, the tariffs worked — very briefly. Whirlpool added 200 jobs at its factory in Clyde, Ohio. Its stock price jumped $20 per share in the first few days after the tariffs took effect.
Then things went bad.
A basic rule of economics is that when the price of something goes up, people buy less of it. That’s just what happened to washing machines.
Data from the Association of Home Appliance Manufacturers shows that shipments of washing machines increased by an average of 5 percent a year from 2015 to 2017. Last year, shipments fell 3 percent.
Retailers saw that reaction in real time. “We have seen, as you mentioned, tariffs’ impact in laundry,” Craig Menear, the chairman and chief executive of the Home Depot, told analysts on an earnings call in November.
Washing machines make up a small slice of Home Depot’s business. They’re more important for Whirlpool, Samsung and other manufacturers — and the stocks of those businesses have been hammered this year. Laundry appliances made up nearly 30 percent of Whirlpool’s sales in 2017. The company’s shares gave up their initial gains after the tariffs were announced, and then fell some more.
Through the third quarter, Whirlpool’s unit sales were down 2.5 percent in North America, compared with the same period in its previous fiscal year. The company’s executives said in an October earnings call that they expected to be hit by an additional $300 million in cost increases, largely driven by the steel tariff, in the year to come.
And so as we explained in a previous post, according to Wikipedia, tariffs "were the greatest (approaching 95% at times) source of federal revenue until the Federal income tax began after 1913." That simply cannot be true today. Trump's income tax cut led to a loss of $83 billion while his tariff taxes on Americans have only generated a percentage of that.
While I'm sure some billionaires who got the bulk of the tax cuts have purchased appliances thereby incurring the excise tax known as a tariff. But my guess is that most washing machines purchased in the past year were purchased by folks who didn't get much of a income tax cut. At best those folks could have broken even on that. But they also are paying tariffs on day-to-day items imported such as clothing. They lost out from day 1.
And, of course, today we learned: "President Trump has decided to strip India of a special status that exempts billions of dollars worth of Indian exports from American tariffs, raising new trade tensions with the world’s second most populous country." So we're taking on the worlds two most populous countries - China and Indian - which combined have 35.6% of the total population of the world.
No comments:
Post a Comment