Trump’s tariff tirade – POLITICO
TRUMP’S TARIFF TIRADE — President Donald Trump has driven some of his economic advisers crazy — Gary Cohn most of all — with his insistence that tariffs are smart policy and hurt adversaries much more than the United States. He was at it again on Sunday with a pair of tweets about the nature of tariffs and who pays them.
Number one: “Tariffs are working big time. Every country on earth wants to take wealth out of the U.S., always to our detriment. I say, as they come, Tax them. If they don’t want to be taxed, let them make or build the product in the U.S. In either event, it means jobs and great wealth.”
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The facts: Tariffs are not taxes on foreign governments or foreign companies. They are taxes paid once goods enter the U.S. by those buying them. Those taxes are often passed on to U.S. consumers. They can indirectly harm foreign companies or governments by making foreign products more expensive and thus less attractive to U.S. consumers. But they are in the first instance taxes on Americans.
Number two: “Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people. At minimum, we will make much better Trade Deals for our country!”
The facts: Hard to know where to start on this one. In part, see above. This is like saying we raise taxes in order to reduce taxes. It doesn’t make much sense. And the amount the government will collect in these new taxes on Americans — somewhere around $20 billion at the moment — would not make a dent in the annual $1 trillion-plus deficits the U.S. is currently expected to run for many years, never mind the current $21 trillion national debt.
Trump appears impervious to Cohn or Larry Kudlow or Steven Mnuchin or anyone else arguing to him that the mercantilist approach — which went out of fashion when the U.S. established an income tax to collect revenue in the early 20th century — has never proven effective when employed in fits and starts over the last 100 years.
The 3-D chess view: MM doesn’t buy into this. But there are those who think Trump knows very well that his descriptions of what tariffs are and what they do bears little relation to reality but that he needs to make adversaries like China THINK he believes it. That it’s all part of the tariffs as a bluffing strategy to get better deals. It’s comforting at times to believe this.
But Trump has spent a lifetime extolling mercantilism and tariffs. It does not seem like an act. WP’s Heather Long has more here on how the math doesn’t add up on Trump’s tariff tweets.
ARE WE IN A MANUFACTURING RENAISSANCE? — Trump loves to tout the number of manufacturing jobs created under his watch. And indeed the numbers are rising, so it’s a perfectly legit thing to boast about. But it’s probably too soon to say they are really breaking out of the recent trend lines. MM asked a couple of economists to interpret the latest figures, which included 37,000 in the July jobs report.
Manulife’s Megan Greene: “Nearly all the gains in manufacturing were in durable goods. 13,100 in transportation equipment, of which 5,900 were motor vehicles and parts. This may have been tariff related as Trump started his tweeting about Germany and auto tariffs in late June. 5,100 were in fabricated metal products, which are probably tariff pull-aheads (avoiding the tariffs).
Moody’s Mark Zandi: “This is simply a cyclical rebound in manufacturing employment, unrelated to Trump’s economic or regulatory policies. Fueling the rebound is a pick-up in the global economy and trade over the past two years, and the somewhat softer value of the U.S. dollar. The increase in energy and other global commodity prices during this period has also supported the stronger manufacturing activity. …
“It is also worth noting that manufacturing productivity growth has flat-lined during the economic expansion, which has supported employment gains despite weaker gains in manufacturing output.”
“Prospects for manufacturing employment look noticeably darker by early in the next decade, once the stimulus fades and the economy is adjusting to higher interest rates. The escalating trade war also poses a serious threat. … I wouldn’t be surprised if when Trump’s term is over manufacturing employment is about where it was when he took the oath of office.”
THE BIG IDEA: IS THE MARKET REALLY THAT CONCENTRATED? — The NYT wrote last week that Apple and other tech giants are now dominating corporate earnings in ways rarely seen before.
Goldman Sachs sees it differently in their latest Weekly Kickstart note: “Unlike past episodes of narrow market breadth, the earnings environment today appears healthy and broad-based. The top 10 S&P 500 stocks currently account for 20 percent of index earnings, roughly the same as in each of the last few years, and slightly below the 30-year average of 21 percent. In 2019, consensus expects the median S&P 500 stock to grow EPS by 10 percent, slightly faster than the 9 percent growth expected for the index.
GOOD MONDAY MORNING — Happy Monday, everyone. Congress is gone and Trump is (mostly) on vacation. Should be kind of quiet but probably won’t be. Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.
DRIVING THE WEEK — Trump is mainly on “executive time” at his golf club in Bedminster, NJ, which probably means plenty of tweets … House and Senate are both out … Producer Prices at 8:30 a.m. Thursday expected to rise 0.2 percent headline and 0.3 percent core … Consumer Prices at 8:30 a.m. Friday expected to rise 0.2 percent headline and core …
ALSO THIS WEEK: BIG SPECIAL ELECTION — POLITICO’s Alex Isenstadt in Westerville, Ohio: “The entire Republican Party machinery has converged on this suburban Columbus district for a furious 11th hour campaign aimed at saving a conservative House seat and averting another special election disaster. But in the final days of ahead of Tuesday’s election, signs were everywhere that Democrats are surging — from recent polling to the private and public statements of many Republicans, including the GOP candidate himself.
“The district has been reliably red for more than three decades, but the sheer size of the Republican cavalry made clear how worried the party is about losing it. … At a Saturday evening rally … Trump tried to juice conservative excitement for mild-mannered Republican candidate Troy Balderson while foisting a Trumpian nickname upon 31-year-old Democratic hopeful Danny O’Connor: ‘Danny boy.’” Read more.
PEIRCE PUSHBACK — Better Markets’ Dennis Kelleher emails on last week’s POLITICO interview with SEC Commissioner Hester Peirce: “SEC Commissioner Peirce’s view that the SEC should allow corporations to take away the rights of ripped off shareholders to recover their money in court and force them into unfair, biased and expensive arbitration violates the SEC’s primary mandate to protect investors.
“It also fails to punish lawbreakers and actually enriches them because corporations will be able to keep the tens of billions of dollars wrongfully taken from their investors, rather than being forced by class actions to return those ill-gotten gains to investors.”
INVESTORS DRINKING FROM THE FIRE HOSE — Mohamed A. El-Erian on Bloomberg View: “For at least two weeks now, traders and investors could be forgiven for feeling like they have been trying to drink from a fire hose, and a multi-flavor one at that. Virtually every day, they have been confronted by some combination of market-moving corporate earnings and economic news, supplemented by competing policy signals and volatile technical influences.