Tariff Updates: Random Number Generation, Cronyism, and Premature Optimism
A few updates on Trump's continuing tariff saga:
RNG
I challenge any human being to decipher any sort of rational (even an irrational but consistent) algorithm behind Trump's tariffs. Every day it is another random number superseding the prior random number. It is economic policy by whim.
Cronyism
Today Trump slapped a 100% tariff (see RNG point above) on semiconductor imports. It is difficult to comprehend a worse policy for the American economy had the President been dedicated to crashing things here on purpose. Consistently he slaps huge tariffs on commodity manufacturing inputs (chips, steel, aluminum) that are critical for the high-value-added products that are made in this country.
But leave that aside, what particularly caught my eye is this:
Trump announced he would impose a 100% tariff on chip and semiconductor imports, but would exempt companies moving production back to the United States
Apple seems headed for the first exemption, which they also received in Trump's first term and his tariffs then. Why Apple? One could argue that Apple has some of the highest gross margins of any manufacturer in the US and is perhaps most able to bear the tariffs. But this has nothing to do with fairness, it has to do with cronyism and political pull. Say what you will about all of the companies one thinks of as political manipulators, but no one holds a candle to Apple. They have used their size and clout and money to manipulate dozens of state and local governments all the way up to things like international tax law. In this case, the are apparently going to get an exemption because of the "promise" to invest lots of money in US manufacturing:
With CEO Tim Cook standing next to him in the Oval Office as the president announced a fresh (and very laughable) $100 billion investment plan by Apple which it would then add to the $500 billion already pledged over the next 4 years (which is ridiculous since Apple spent $43 billion in capex in the past 4 years and generated less than $100 billion in net income in its best year)...
Apple had previously pledged to spend $500 billion in the US over the next four years, an acceleration over its prior investments and previously announced plans, adding about $39 billion in spending and an additional 1,000 jobs annually. The announcement will bring Apple’s cumulative commitment to $600 billion, and appears to be an ad hoc bundling of pretty much everything on the income and cash flow statements, including CoGS, SG&A, CapEx, buybacks and so on. The previously-planned $500 billion was said to include work on a new server manufacturing facility in Houston, a supplier academy in Michigan and additional spending with its existing suppliers in the country.
Why does this sound familiar? Oh yes, because Foxconn made the exact same promise 8 years ago to build a huge plant in Wisconsin in exchange for dodging the Trump tariff hammer:
The state legislature passed a $2.85 billion tax incentive package that required Foxconn to meet certain hiring and capital investment benchmarks during the next 10 years in order to receive the tax credits.
The company also received a $150 million break in sales taxes, bringing the total state package to $3 billion.
The village of Mount Pleasant and Racine County were put in charge of paying property owners for the land and upgrading the infrastructure.
How did this work out? Basically they bailed and terminated most of the project once Trump was out of office. Instead of 13,000 employees there were barely 1000 and less than a billion dollar was spent, a good portion of that government rather than private money. Elon Musk did pretty much the same thing in New York, abandoning most all of his job creation and investment promises.
The same thing has happened all the time -- corporation grabs current government regulatory benefits in exchange for promises of investment sometime in the future.
Absolutely no one should take this sort of thing credulously. This is a crony giveaway to a power corporation, and nothing else. It is Apple getting preferred treatment in exchange for giving Trump a nice press release item. I would be shocked if the final number is even 5% of these promises.
Premature Optimism
I see this sort of thing coming from a lot of (formerly) economics-rational Conservatives but it is really disappointing to see it from the WSJ news (not opinion) section:
Six months into the experiment, with more tariff announcements likely in the coming days, the economy hasn’t crashed. Inflation has ticked up but not soared. Consumers aren’t finding empty shelves.
This is an honest question and not meant as snarky. How is a tariff different than increasing taxes on corporations? I’ve never heard the argument that increased taxes are inflationary.
The underlying question is this: What measures (if any) should a government do to increase local (American) employment and/or reduce dependance on other countries?
Our manufacturing sector has been outsourced to foreign countries. Yes, chinese goods are usually cheaper, so consumers save $.
Some of those foreign countries may take advantage of our dependance and block exports. ie. China and rare-earth elements.
Yes, ultimately Tariffs cost consumers money... No different from adding taxes to an industry you don't like in order to change consumer preferences or make local product more competitive ;-(
At least if I decide to "Buy Canadian', it's my choice and I am deciding to spend more money for some other value considerations.
Looking at the St. Louis Federal Reserve's Industrial Production: Equipment: Business Equipment (IPBUSEQ) graph, it looks like that particular metric was at a three-year high in June. I think Trump's goal is two fold. One, Trump wants to keep the CCP from flicking a switch, shutting down our military and infrastructure. Two, he wants to stop the 70-year subsidy of Europe's, Canada's, Japan's, Taiwan's, etc. military. And he's using tariffs to do it. Higher inflation and reduced growth will be a short term result. Long term it's necessary. Adam Smith was no utopian pacifist. Free trade is great, but has no peace-fostering effects.
Long time reader, 1st comment.
1. I love reading about your projects, the latest being a pinball machine rebuild. I find they inspire me to be more of a crafter in my own home.
2. I find your economic arguments persuasive, but I can find almost nothing like them in national media. Sometimes there are similar presentations/arguments, but they lack rigor and are just not persuasive. It seems to me that some publication would do its reads a grand service and pick up your posts, with your permission of course, and publish them.
3 . I would learn a great deal if you participated in a Point/Counterpoint like format with an honest, informed economics minded author who would take the opposite side of an argument. Conversely, have you thought of doing the same, but like a shadow boxer where you present the best of both sides of an proposition?
Glad to see you back to the Coyote Blog. I read BMOC as soon as it was available and enjoyed it immensely. I remember a post you had where it was proposed a TV lawyer show pilot, but instead of heroic pro-bono work for a ridiculously oppressed parson, it featured a group of attorneys around a table Monday morning discussing who they could go sue for the most $$$ regardless of having a client or scruples.
Please keep sharing with the universe your many musings, in my humble opinion it helps make the world a better place. :)
It is now 2 weeks later, feel better?
Every single thing the economists claimed about them turned out to be wrong.
You guys keep trying to judge Trump and you keep turning to your playbooks and texts which, all of them, start out with these words, "We assume all State Actors to be rational." I swear, back in the 80s when I was living in Berkeley they all had that as the first words or in the introductions.
Just what about Trump made you presume he follows the script? I mean, has he ever followed the script?....unless he wrote it and even then, I'm guessing he did not.