Coyote Blog

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:

Initially, Foxconn was to build a Generation 10.5 facility that would manufacture large LCD screens. The project was to be an investment of up to $10 billion that would deliver up to 13,000 jobs.

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.

I have made no secret of my opposition to Trump's tariffs.  They are absolutely terrible economic policy, though that is a legislative and political issue and not one to be addressed by courts.  What was an issue for courts was whether the President actually had the authority to unilaterally issue such sweeping tariffs.  I and many others questioned that authority from day one:

The power to set tariff's is enshrined in the Constitution (that document Republicans used to care about) as a power of Congress. Weak-kneed and lazy Congresses have delegated some of this power to President's, but only very narrowly. The picture is complicated and illegal actions by the President can be hard to review in court. But looking at the 4-6 major delegations to the President of tariff authority, it is difficult to see that any of them apply simultaneously to every country on Earth and every single product manufactured anywhere. Certainly there is no precedent for them being enacted by the President on anything but a far far narrower basis (eg steel from China).

A three-judge panel from the US Court of International Trade (which I will confess I never heard of but apparently has jurisdiction over such issues) made up of two R-appointed judges and one D-appointed judge unanimously overturned the tariffs and issued a permanent injunction against them.

The Constitution assigns Congress the exclusive powers to "lay and collect Taxes, Duties, Imposts and Excises," and to "regulate Commerce with foreign Nations." U.S. Const. art. I, § 8, cls. 1, 3. The question in the two cases before the court is whether the International Emergency Economic Powers Act of 1977 ("IEEPA") delegates these powers to the President in the form of authority to impose unlimited tariffs on goods from nearly every country he court does not read IEEPA to confer such unbounded authority and sets aside the challenged tariffs imposed thereunder.

Good.  I believe that some of the various injunctions against Trump actions are weak and will likely get overturned -- they seem to be more legislative actions than legal ones -- but this one in my mind is rock solid.  I thought Biden's unilaterally forgiving a trillion dollars in student loans was pretty lawless but if anything Trump's "liberation day" tariffs may have been even less legally justified.

Many Republicans have gone all-in on publicly eschewing everything they previously believed in to support Trump on these tariffs, and many have got to be breathing a silent sigh of relief that the court did their work for them in shutting this down.  Though kudos to Rand Paul who is the only major Republican that stuck to his principals and attempted legislative overrides.

Speaking of Republican reactions, I have been particularly irritated at the reality defiance of those who claim that the recent rise in the stock market and consumer confidence are a vote of confidence in Trump.  Here is an example from the previously-willing-to-challenge-Trump folks at Powerline.

For the last four months, essentially every “news” outlet has devoted pretty much every news story to trying to undermine the Trump administration. Among other things, they have tried to persuade us that the economic sky is falling because of President Trump’s policies–whatever those policies may be, and whether or not they have even been implemented. This has made consumers a little nervous, but not nervous enough.

Thus, the May consumer confidence numbers came in today, and they are awesome....

That is why the stock markets are up sharply today.

This is absurd.  The stock market and consumer confidence both crashed - hard - with the imposition of Trump's tariff's.  They have risen each time Trump has backed off, delayed, or scaled back these tariffs.  The market will almost certainly rise again today on the news of the court case.  I guess that is a political strategy of sorts -- announce economy-stomping actions early, watch the market and public confidence tumble, and then take credit for the improvement when you roll back the terrible actions.  This is the equivalent to banging your head on the wall because it feels good when you stop.