The irony of Trump's tariffs is that by not exempting tariffs on intermediate goods in the manufacturing process (which raises the cost of US manufacturing compared to the rest of the world), he is discouraging the revival in American manufacturing that would've been inevitable due to automation and cheap US energy.
We’ve been adding manufacturing jobs since 2010 when fracking was proven economical. We will never get back the manufacturing jobs we hemorrhaged to China from 2002-2009 in the aftermath of China into the WTO.
With automation and cheap energy, the US could be one of the best places in the world to manufacture. The US is the world's largest consumer market, and it's an advantage for manufacturers to be near the consumer.
Low-skilled manufacturing jobs aren't coming back to the US, but high-skilled jobs overseeing automation certainly could. There's no reason why the US can't have a dark factory like this one: https://substack.com/@exponentialview/note/c-96110410
From what I understand vehicle manufacturers prefer to have factories in the markets they sell the vehicles. So a big reason we hemorrhaged manufacturing jobs to China from 2002-2009 was because North America had an energy crisis and China was willing to poison their citizens with coal and diesel pollution along with displacing millions with hydro dams.
So at first fracking just seemed too good to be true but around 2014 I started noticing new auto factories within a several hundred mile radius of Atlanta. And Boeing was diversifying supply chains and so a little earlier Charleston won the Dreamliner factory and then came the auto factories because Charleston and Savannah have ports that will rival LA/Long Beach by 2040 and ATL is the auto executives preferred airport and metro for HQs.
Energy isn't the lifeblood of the economy; it is the economy. You can't have a manufacturing superpower without cheap, abundant energy. The US has recognized this, and its economy has benefited as a result.
Where do you stand on LNG exports to China? I supported Biden’s LNG terminal certification pause because China stands to benefit from a global LNG spot market because they are building huge natural gas storage capacity and their huge hydro dams also act as storage. So China will always be able to buy LNG at the lowest price while everyone else is forced to buy at high prices. I would prefer to keep natural gas in the ground in America instead of exporting it to China. America’s natural gas should be for North America and our strong allies.
This trade war has already failed!! The Fed has delayed rate cuts and the only way to reduce the deficit is by decreasing the amount we pay on interest and the only way to do that is rate cuts!! So no way this will raise $200 billion in revenue which is a conservative estimate of how much the the prolonged elevated interest rates will cost us.
Btw, the best way to raise more revenue to get us to 3% deficit as a percentage of GDP is to raise the top tax rate to 39.6% which is how Obama achieved 3% deficits while having the same GDP growth as Trump’s first 3 years.
Why has Russia escaped these tariffs? Aren’t they allowed to shop? Come on Putin! Oh, I get it. Another dirty under the table deal for Putin from his Asset, Trump.
Great piece Joseph Politono deconstructing the brewing tariff wars. I have many thoughts on this and they align with yours.
Firstly, Trump's broad-based tariff actions are, illegal. The Constitution is clear that Congress alone has the power to levy taxes. It's Congress and the court's responsibility to not stand by and allow the Constitution to be trampled.
Second, it's what happens when partisan hacks have your ear....looking at you Navarro. This man cites himself under a pseudonym to support his conclusions. His ideas are so wrong that he literally has to make up a source that backs him up...and it's himself.
Third, there is no strategy at all. It's scattershot. On one hand, there is a call for reciprocity, but on the other, a call to tariff specific industries. How do we reconcile 25 percent tariffs on steel, alum, cars, pharma, copper with reciprocity? I suppose all other nations can tax these products at 25 percent going forward, yes?
Appending to this is an Orwellian lie: They claim that tariffs are not taxes (or at least not paid by Americans) but VAT is a tariff. Both are patently absurd, but it's difficult to tell whether Trump's advisors actually believe what they are saying or if they think we are.
Fourth, everyone seems to miss the irony of Trump's steel and aluminum tariffs. These are a repeat of his actions in 2018. But if the tariffs worked so well then....why do we need to impose them again? This leaves aside that such tariffs hurt American manufacturing by making inputs more expensive.
Fifth, how do we reconcile Trump's Mexico/Canada tariffs, aimed at countering an "unfair" trade relationship, with the fact that Trump himself negotiated the trade pact they operate under? Indeed, he called it the best deal ever signed. Why would anyone desire to negotiate with a country that blows up its own deals on a whim?
Sixth, the markets don't seem to reacting much to the tariff threats, which suggests some interesting possibilities. First, it raises the possibility of the tariffs being implemented (at which point the markets will react), but it also means the smart money is betting most won't be implemented.
This also suggests that tariff threats, as a negotiation tactic, won't achieve much either. You can only cry wolf so many times before people stop listening. Even so, this leads to my broader concern that, even if these tariffs are not implemented, the uncertainty they cast depresses investment in the US and its allies.
Seventh, we cannot tariff our way to prosperity. Look at any list of high-tariff nations and you find a common thread among them: they are almost always poor. The way to promote prosperity is to sound (and low) tax policy and light regulation. Tariffs do not achieve either.
Duty drawback mentioned 🔥🔥🔥 I’m a long time reader (I think some of my questions were in your AMA collab with Kyla a long time ago), and in the time I’ve been reading I’ve graduated and started to work for a duty drawback company.
I didn’t really understand why Trump was anti-drawback at first, after all, it’s refunds based on (usually) exporting the same goods or the same type of goods that you import. But then you realize it’s because industries like the auto industry are basically North American industries, hopping around both our Northern and Southern borders, and Trump wants to keep it all here for mercantilist reasons. That’s also why there’s a ton of duty drawback restrictions on the USMCA itself. Anti-drawback and pro-tariff views combined, like you said, exacerbates the effects of those tariffs.
Another thing is that even having to rely on drawback is bad. Realistically, only big companies have the export volume to make drawback worth it. Smaller companies just have to tank their import costs.
The irony of Trump's tariffs is that by not exempting tariffs on intermediate goods in the manufacturing process (which raises the cost of US manufacturing compared to the rest of the world), he is discouraging the revival in American manufacturing that would've been inevitable due to automation and cheap US energy.
We’ve been adding manufacturing jobs since 2010 when fracking was proven economical. We will never get back the manufacturing jobs we hemorrhaged to China from 2002-2009 in the aftermath of China into the WTO.
With automation and cheap energy, the US could be one of the best places in the world to manufacture. The US is the world's largest consumer market, and it's an advantage for manufacturers to be near the consumer.
Low-skilled manufacturing jobs aren't coming back to the US, but high-skilled jobs overseeing automation certainly could. There's no reason why the US can't have a dark factory like this one: https://substack.com/@exponentialview/note/c-96110410
From what I understand vehicle manufacturers prefer to have factories in the markets they sell the vehicles. So a big reason we hemorrhaged manufacturing jobs to China from 2002-2009 was because North America had an energy crisis and China was willing to poison their citizens with coal and diesel pollution along with displacing millions with hydro dams.
So at first fracking just seemed too good to be true but around 2014 I started noticing new auto factories within a several hundred mile radius of Atlanta. And Boeing was diversifying supply chains and so a little earlier Charleston won the Dreamliner factory and then came the auto factories because Charleston and Savannah have ports that will rival LA/Long Beach by 2040 and ATL is the auto executives preferred airport and metro for HQs.
Energy isn't the lifeblood of the economy; it is the economy. You can't have a manufacturing superpower without cheap, abundant energy. The US has recognized this, and its economy has benefited as a result.
China has significantly cleaned up its act in the past several years, even coming to dominate the production and adoption of clean energy tech like solar, batteries, and EVs: https://blog.inverteum.com/i/137832589/the-importance-of-industrial-monopolies-to-beijing
China's hydro dams, esp. Three Gorges Dam, have significantly improved ship navigability of its rivers, which were previously dangerous due to shallow depths and rapids. https://www.perplexity.ai/search/how-have-china-s-hydro-dams-he-0bv0om0rSamuWm7O9dxrGw
Where do you stand on LNG exports to China? I supported Biden’s LNG terminal certification pause because China stands to benefit from a global LNG spot market because they are building huge natural gas storage capacity and their huge hydro dams also act as storage. So China will always be able to buy LNG at the lowest price while everyone else is forced to buy at high prices. I would prefer to keep natural gas in the ground in America instead of exporting it to China. America’s natural gas should be for North America and our strong allies.
Well, I live in Hong Kong (https://blog.inverteum.com/p/why-hong-kong-is-the-best-place-to-live-and-invest-from) and use electricity generated by LNG.
Spectacular decomposition of the tariff wars.
Thanks Sam! Glad you enjoyed
This trade war has already failed!! The Fed has delayed rate cuts and the only way to reduce the deficit is by decreasing the amount we pay on interest and the only way to do that is rate cuts!! So no way this will raise $200 billion in revenue which is a conservative estimate of how much the the prolonged elevated interest rates will cost us.
Btw, the best way to raise more revenue to get us to 3% deficit as a percentage of GDP is to raise the top tax rate to 39.6% which is how Obama achieved 3% deficits while having the same GDP growth as Trump’s first 3 years.
Why has Russia escaped these tariffs? Aren’t they allowed to shop? Come on Putin! Oh, I get it. Another dirty under the table deal for Putin from his Asset, Trump.
Great piece Joseph Politono deconstructing the brewing tariff wars. I have many thoughts on this and they align with yours.
Firstly, Trump's broad-based tariff actions are, illegal. The Constitution is clear that Congress alone has the power to levy taxes. It's Congress and the court's responsibility to not stand by and allow the Constitution to be trampled.
Second, it's what happens when partisan hacks have your ear....looking at you Navarro. This man cites himself under a pseudonym to support his conclusions. His ideas are so wrong that he literally has to make up a source that backs him up...and it's himself.
Third, there is no strategy at all. It's scattershot. On one hand, there is a call for reciprocity, but on the other, a call to tariff specific industries. How do we reconcile 25 percent tariffs on steel, alum, cars, pharma, copper with reciprocity? I suppose all other nations can tax these products at 25 percent going forward, yes?
Appending to this is an Orwellian lie: They claim that tariffs are not taxes (or at least not paid by Americans) but VAT is a tariff. Both are patently absurd, but it's difficult to tell whether Trump's advisors actually believe what they are saying or if they think we are.
Fourth, everyone seems to miss the irony of Trump's steel and aluminum tariffs. These are a repeat of his actions in 2018. But if the tariffs worked so well then....why do we need to impose them again? This leaves aside that such tariffs hurt American manufacturing by making inputs more expensive.
Fifth, how do we reconcile Trump's Mexico/Canada tariffs, aimed at countering an "unfair" trade relationship, with the fact that Trump himself negotiated the trade pact they operate under? Indeed, he called it the best deal ever signed. Why would anyone desire to negotiate with a country that blows up its own deals on a whim?
Sixth, the markets don't seem to reacting much to the tariff threats, which suggests some interesting possibilities. First, it raises the possibility of the tariffs being implemented (at which point the markets will react), but it also means the smart money is betting most won't be implemented.
This also suggests that tariff threats, as a negotiation tactic, won't achieve much either. You can only cry wolf so many times before people stop listening. Even so, this leads to my broader concern that, even if these tariffs are not implemented, the uncertainty they cast depresses investment in the US and its allies.
Seventh, we cannot tariff our way to prosperity. Look at any list of high-tariff nations and you find a common thread among them: they are almost always poor. The way to promote prosperity is to sound (and low) tax policy and light regulation. Tariffs do not achieve either.
Trump views international trade as unnecessary for a continent-size economy like the US. The tariffs will reduce the significance of trade.
Biden was doing that and inflation was declining while GDP growth remained strong. Trump should just continue Biden’s policies.
We’re already as insular an economy as it really gets. Most of the stuff that is consumed is produced right here!
Duty drawback mentioned 🔥🔥🔥 I’m a long time reader (I think some of my questions were in your AMA collab with Kyla a long time ago), and in the time I’ve been reading I’ve graduated and started to work for a duty drawback company.
I didn’t really understand why Trump was anti-drawback at first, after all, it’s refunds based on (usually) exporting the same goods or the same type of goods that you import. But then you realize it’s because industries like the auto industry are basically North American industries, hopping around both our Northern and Southern borders, and Trump wants to keep it all here for mercantilist reasons. That’s also why there’s a ton of duty drawback restrictions on the USMCA itself. Anti-drawback and pro-tariff views combined, like you said, exacerbates the effects of those tariffs.
Another thing is that even having to rely on drawback is bad. Realistically, only big companies have the export volume to make drawback worth it. Smaller companies just have to tank their import costs.
WTF, actually, WTF. Does he want to see us crash & burn?