Protectionists are on the cusp of a “Pyrrhic victory” over China.
No one will like the results when it happens.
A huge global trade war is on the horizon, regardless of whether Hillary or Trump wins the election.
The die is cast: US Steel Given Green Light to Seek China Import Ban.
The US has given the go-ahead for the country’s largest steel producer to seek a ban on imports from Chinese rivals, in the first known case in which trade sanctions could be used in retaliation for alleged China government-backed hacking of commercial secrets.
In a decision last week the US International Trade Commission gave the go-ahead for the case to proceed, setting the stage for a legal battle that experts say will probably take more than a year for an administrative judge to decide.
This timeframe could lead to a decision related to arguably the US’s most important commercial relationship early in the next president’s first term. Under the law, US presidents are given 60 days to block ITC decisions on Section 337 cases, although according to the ITC “such disapprovals are rare”.
“We strongly believe that Chinese steel producers have engaged in illegal unfair methods of competition, which have created a force with which no market economy can compete,” Mario Longhi, the company’s president and CEO, said in a statement welcoming the ITC decision. “We remain confident that the evidence will prove the Chinese steel producers engaged in collusion, theft and fraud and we will aggressively seek to stop those responsible for these illegal trade actions.”
Trade experts say that the case also represents the potential escalation of what has been a creeping protectionism in recent years with steel a growing target of anti-dumping cases.
But a wholesale ban on US imports of Chinese steel would be materially different and could set a protectionist tone for the next US presidency, said Simon Evenett, a professor of international trade at the University of St Gallen in Switzerland, who oversees the Global Trade Alert, a monitoring service for protectionist measures.
“The big thing is really the potential scale of this case versus the pin pricks that we have seen unleashed over the past nine months,” Mr Evenett said.
“This should be setting off alarm bells,” he said. “It is really a nuclear option.”
Nuclear Option
Stacked Deck
A total ban would indeed be a nuclear option. Trump would embrace it. Hillary would support it.
The US even greased the wheels in advance. On May 30, the US refused to accept the reappointment of a South Korean judge who the US fears may rule in favor of China in trade disputes.
I wrote about greased wheels in Stacked Deck: US Bullies WTO, TPP Revisited.
European Trade Mess
The EU is still coming to grips with inane sanctions on Russia that did more harm to the EU than Russia. Austria, France, Italy, Hungary, Greece, and Portugal have had enough of sanctions that have backfired due to a collapse in exports.
For details, please see Merkel Ready to Kiss and Make Up with Putin?
Stunning Idiocy
Also see Pater Tenebrarum’s exceptional post on the Stunning Idiocy of Steel Tariffs.
Candlemakers Petition
The statement by Mario Longhi, US Steel CEO “We strongly believe that Chinese steel producers have engaged in illegal unfair methods of competition, which have created a force with which no market economy can compete,” is nothing but a self-serving lie for the benefit of US Steel and the detriment of everyone else, especially consumers and the US auto industry.
If China is “dumping” steel at cheap prices we should be thankful. Free steel would be even better. Everyone’s standard of living would immediately rise.
Trade protectionists are just like candle makers bitching and moaning about free energy from the sun.
“The Candlemakers’ petition is a well-known satire of protectionism written and published in 1845 by the French economist Frédéric Bastiat as part of his Economic Sophisms. In the Candlemakers’ petition, the candlemakers and industrialists from other parts of the lighting industry petition the Chamber of Deputies of the French July Monarchy (1830–1848) to protect their trade from the unfair competition of a foreign power: the Sun.”
The entire debate over “fair trade” is intellectually dishonest. Fair trade is free trade. Period.
Election Campaign Flashback
In 2011, the US put huge tariffs on Chinese-made tires (to the detriment of consumers and the auto industry). China responded with anti-dumping tariffs on GM.
I wrote about that in Proposal to Stop “Free Sunlight” Gains Support From Mitt Romney.
Here we go again, this time with Donald Trump, Hillary Clinton, and President Obama all waving protectionist flags.
Should the US carry through with the plan, expect a “Pyrrhic victory” over China.
Mike “Mish” Shedlock
“In 2011, the US put huge tariffs on Chinese-made tires……”
I was wondering why tires have gotten so expensive lately. I always try to buy American made tires from American companies (not many left), but of course all the prices go up together. If the Chinese tires have tariffs then the other tire companies can charge more.
Buy US Steel Stocks?
There is a VAST GLOBAL AND US OVERSUPPLY OF STEEL and that situation will not improve anytime soon, so, no, do not buy US steel stocks which are an extremely volatile sector of commodities stocks.
Oh, I don’t know
China might give free steel to the US when it conducts freedom of navigation near the Spratly Isands.
And the US might return some free steel – in the form of cruise missile / B-52 strike on China’s steel producing region.
Over production problem solved.
So, buy defense stocks?
Yes, there is a global oversupply of steel, but the tariff takes U.S. Steel out of the steel-making business and into the more profitable tax-farming business. U.S. Steel, as the filer of the tariff lawsuit, becomes the recipient of most of the tariff money collected by USA.gov. Tax-farming will make U.S. Steel stock a winner, possibly, depending on how it all plays out. I think this is the idea behind all the secret trade treaties.
Filing trade lawsuits is more profitable than most other businesses. Everything else is noise and hoopla. With the international trade treaties, USA companies will make their living as international predators without having to sell goods. They will have to sell some goods as a pretext for filing trade lawsuits.
If you want to talk about steel tariffs and jobs, there is a great documented history out there. Bush II used the steel tariff ahead of the presidential race against John Kerry to win votes in key states like Ohio. The negative job effects were documented after the fact. But if it wins an election, who cares about negative jobs from tariffs? They say collective amnesia becomes total after 6 years, which is why no one knows/remembers the Bush II steel tariff job results (negative). This argument should be a no-brainer, as it is backed by abundant facts.
Practicalities of getting elected will necessitate both candidates not oppose it. Post-election, Trump will be practical. As to Hilary, she will have bigger neo-Con War Party agendas.
“Filing trade lawsuits is more profitable than most other businesses. Everything else is noise and hoopla.”
And that, is the reason the US is at least 2/3rds on it’s way to being nothing more than a Venezuela grade failed state. So called “steel makers”, are little more than tax and regulation feeders. The banking and financial “industry” is literally, within a percent or two, nothing more than tax and regulation feeders, and haven’t been for decades. The once high flying tech industry, priced out of contention by money pumped into the finance sector, is becoming little more than a cultural exporter; which, while occasionally profitable, is very shaky and fickle ground to stand on compared to the fundamental technical advantages US based companies and workforces used to hold. The Auto industry, more of the same. Heck, even wunderkind Tesla, is largely propped up by petty tax feeding and regulatory advantages vis-a-vis competitors.
While young people have for generations take the hint. Instead of pursuing anything productive, they have largely obtained advanced degrees in applied uselessness. Bending over into ever deeper subservience to the banksters and apparatchiks in the process. Pretty much the same way Venezuela went under Chavez. And now, just like in Latin tinpot states, the idiots think that some strongman is going to make everything great again. Because he said so on TV and stuff………….
The World’s Most Extreme Speculative Mania Unravels in China
From the Dutch tulip craze of 1637 to America’s dot-com bubble at the turn of the century, history is littered with speculative frenzies that ended badly for investors.
But rarely has a mania escalated so rapidly, and spurred such fevered trading, as the great China commodities boom of 2016. Over the span of just two wild months, daily turnover on the nation’s futures markets has jumped by the equivalent of $183 billion, outpacing the headiest days of last year’s Chinese stock bubble and making volumes on the Nasdaq exchange in 2000 look tame.
What started as a logical bet — that China’s economic stimulus and industrial reforms would lead to shortages of construction materials — quickly morphed into a full-blown commodities frenzy with little bearing on reality. As the nation’s army of individual investors piled in, they traded enough cotton in a single day last month to make one pair of jeans for everyone on Earth and shuffled around enough soybeans for 56 billion servings of tofu.
Now, as Chinese authorities introduce trading curbs to prevent surging commodities from fueling inflation and undermining plans to shut down inefficient producers, speculators are retreating as fast as they poured in. It’s the latest in a series of boom-bust market cycles that critics say are becoming more extreme as China’s policy makers flood the financial system with cash to stave off an economic hard landing.
http://www.bloomberg.com/news/articles/2016-05-09/world-s-most-extreme-speculative-mania-is-unraveling-in-china
The Cold, Hard Facts Raining on China’s Commodity Parade
There’s nothing like facts to get in the way of a good yarn.
Prices of everything from steel rebar to cotton are extending losses in China as a slew of bearish data hastens the reversal of a rally last month triggered by speculation that economic stimulus and industrial reforms would drive up demand and curb supplies.
http://www.bloomberg.com/news/articles/2016-05-09/the-cold-hard-facts-raining-on-china-s-commodity-parade
US slaps Chinese steelmakers with 522% tax to protect home production: Commerce Department moves to stop Beijing ‘dumping’ cheap steel abroad
The Commerce Department said the duties effectively will increase by more than five-fold the import prices on Chinese-made cold-rolled flat steel products, which totaled $272.3 million in 2015.
http://www.dailymail.co.uk/news/article-3596742/US-slaps-Chinese-steelmakers-522-tax-protect-home-production-Commerce-Department-moves-stop-Beijing-dumping-cheap-steel-abroad.html
We are certainly learning a lot about steel, so this has educational value. What the article does not mention is what happens to these hundreds of million of dollars in steel tariffs flowing to USA.gov. USA.gov collects the money and remits most of it to the steel companies filing the lawsuits. If the steel workers or their union pension funds own stock in US Steel and the other lawsuit partners, they may benefit. A monetary windfall for US Steel, which is already inflating their stock (BTW, I am not betting on it; but the Wall Street casino is no doubt happy).
This issue just shows how brain-dead is the media and public. Jobs is a big false story. The big money and jobs are related to distributing tariff monies from USA.gov to the steel companies. Maybe some laid-off steelworkers have become tariff lawyers and revenue collectors, and benefit from those jobs.
Meanwhile, nothing happens in a vacuum, and China’s response will no doubt be very clever. Other USA industries feeling the Chinese retaliation will layoff more workers than are hired for steel. Net-net, the USA economy will contract, though US Steel stockholders may be too busy celebrating to care for now.
This is Bush II’s steel tariff redux. No coincidence that Obama waited for a key election year to “care” about steel workers. As with the Bush II steel tariffs, the steel industry windfall will likely be jettisoned after the election. Hilary’s War Party agenda or Trump’s practicality will see to that. Then the party will be over for US Steel. Déjà vu for those of us who paid attention to Bush versus Kerry in 2004.
Nothing quite like a steel TRADE WAR to heat things up between the US and China! Tariffs should be increased considerably on ALL CHINESE GOODS being imported into the US. The US should totally BAN all imports of Chinese steel into the USA. Let’s make America great again.
China has conducted a ‘war’, not trade, with steel: Experts
Overcapacity in the steel industry has caused China to declare a metals “war” that has had a “devastating” impact for the rest of the world’s industry.
http://www.moneycontrol.com/news/world-news/china-has-conductedwar-not-tradesteel-experts_6716301.html
Why stop there? Why not ban all goods from all countries? Make the USA totally self-sufficient.
If banning Chinese good will make the USA great, then banning all worldwide imports should make the USA even greater, should it not? Any possible flaws in that logic?
And why stop at the US border?
Why not ban all goods manufactured outside Peoria from entering?
Or better yet, all goods not made in your apartment, from entering?
That should ensure all those kids still loitering around their parents’ place at 35, will have some work to do, instead of being counted as unemployed.
Well Stated
Don’t buy Wisconsin cheese or butter (unless you live in Wisconsin)
I think that would be a self-sufficient family unit, Stuki moi. Very virtuous. Gandhi would’ve approved.
How China Fell Off the Miracle Path
The seeds of China’s current problems were planted in the months after the global economic crisis of 2008.
In late Fall 2008, demand collapsed across the world, crushing export growth in China. The leadership in Beijing panicked, apparently fearing that if the recession reached its shores, social unrest would follow. Mr. Wen reversed course and doubled down on the old industrial model — fueling investment in factories with trillions in state lending and spending.
At first, the bet appeared to work. In 2009, China managed once again to beat its longstanding growth target of 8 percent, as the West struggled to recover from its deep recession. The rapid spending unleashed by Beijing contrasted sharply with the relative gridlock in Washington and the global elite, gathering for their annual confab in Davos, Switzerland, in 2011, marveled at the benefits of state capitalism. China, they said, was proving that unchecked autocracies had an advantage in managing the economy, particularly in a crisis.
But looking back, we can see that this was the moment China began to fall off the miracle path.
As its debt mania progressed, more of the lending was diverted into wasteful speculation. Normally, frenzied borrowing occurs amid excitement about a new innovation like the internet. But this spree spread on conviction that Beijing, obsessed with hitting its growth target, would not let lenders or borrowers fail. More and more unqualified players got in the game. The state banks soon had to compete with “shadow banks,” including crowdfunding websites that offered ordinary people a chance to invest in debt for as little as one renminbi (15 cents), promising fantastic returns.
Try as the Chinese authorities might to steer the money into industry, they could never fully commit to stopping shadow banks from financing an increasingly questionable array of borrowers speculating in real estate.
China’s mania is now the largest ever in the postwar emerging world. After holding steady at around 150 percent of G.D.P. for much of the boom, China’s public and private debts surged after Mr. Wen’s about face in 2008, rising to 230 percent of G.D.P. by 2014. That 80-percentage-point increase is also more than three times the increase in the United States before its bubble collapsed in 2008. Since then, United States debt has held steady as a share of its economy. Though many Americans still think the nation is drowning in debt, its burden is much less worrisome than China’s because it is not growing.
In the postwar period, every previous global recession started with a downturn in the United States, but the next one is likely to begin with a shock in China. Through heavy stimulus, China was the largest contributor to global growth this decade, but it is fragile. China’s miracle growth period is over, and it now faces the curse of debt.
http://www.nytimes.com/2016/06/05/opinion/sunday/how-china-fell-off-the-miracle-path.html?_r=1
China defualt chain reaction threatens products worth 35% of GDP
http://www.bloomberg.com/news/articles/2016-05-29/china-default-chain-reaction-threatens-products-worth-35-of-gdp
Donald has some wonderful ideas to make America great again!
‘Who the hell cares if there’s a trade war?’ – Donald Trump blasts China at raucous event with Chris Christie in New Jersey and hints Henry Kissinger told him the Chinese are ‘very concerned’ about him getting elected
Donald Trump says he retired New Jersey Governor Chris Christie’s campaign debt – then made cracks about his GOP rivals and said he’s willing to start a trade war with China.
http://www.dailymail.co.uk/news/article-3600103/Who-cares-trade-war-Donald-Trump-blasts-China-raucus-event-Chris-Christie-New-Jersey-hints-Henry-Kissinger-told-Chinese-concerned-getting-elected.html
As to China, it is the MOST FISCALLY IRRESPONSIBLE COUNTRY IN THE WORLD AND IS DROWNING IN UNPRECEDENTED PRINTED MONEY AND DEBT with debt presently at over 350% of Chinese GDP.
China has not “followed the US style of QE” at all, but rather has created more than $30 trillion in new money and credit over the past 10 years increasing their money supply to over $34 trillion despite their economy being about half the size of the $18 trillion US economy where the total M2 money supply is only about $13 trillion. China has blown the most unprecedented money/credit bubble in the world and has no competition at all in that regard from any other country and now that money/credit/debt bubble is imploding and is of such enormous size that the results will be quite adverse.
China’s holdings of US Treasuries remain BARELY CHANGED right around $1.3 trillion and they do keep buying US Treasuries to replace those that mature all the time in order to keep the total outstanding balance right around the same amount which they NEED TO SUPPORT LETTERS OF CREDIT FOR TRADE.
There will be no “gold backing” of the renminbi (RMB/Yuan) and that notion is totally IMPOSSIBLE as the total value of all of the gold ever mined in the world amounting to around 180,000 metric tonnes is less than $7 trillion and about 70% of that is privately owned in JEWELRY widely dispersed around the world, while the total global GDP is now in excess of $72 trillion and total global assets are approaching $800 billion and the total value of all of the gold in existence is less than 1% of global assets.
China’s remnimbi (RMB/Yuan) is the MOST EGREGIOUSLY OVERPRINTED CURRENCY IN THE WORLD and China has created more than $30 trillion of it over the past 10 years increasing their money supply from less than $3 trillion to now nearly $34 trillion despite the fact that their economy is only about half the size of the US economy of $18 trillion. The US money supply, by stark contrasts, consists of only $3 trillion in M1 with less about only $1.2 trillion in the form of printed currency, and about $13 trillion in M2. The renmimbi (RMB/Yuan) has become a preposterous joke of a currency as China has treated it just like fake monopoly money and that is precisely where its value and utility is headed.
“Also see Pater Tenebrarum’s exceptional post on the Stunning Idiocy of Steel Tariffs.”
That?!? … You’ll have to do better … much better.
Of course, the article has nary a word on workers. Not a word on what happens once China corners the steel market. You still think China will “dump” steel into the US once they put all US firms out of business? You really think manufacturers using steel will pass along the (bulk of) savings to consumers rather than pocketing (for shareholders)?
We’re in an economic war where jobs are the “spoils”.
Not offshoring where the Haves are enriched … at the expense of the Have Nots.
Tony I ask you to think not spew nonsense.
Please rebut what Pater Tenebrarum said.
As for “You really think manufacturers using steel will pass along the (bulk of) savings to consumers rather than pocketing (for shareholders)?”
Well – Yes – Global competition would ensure it. If GM did not pass it along then Toyota would. And US consumers would benefit and fools would then scream for tariffs on Toyotas.
And fools are not happy with low price of clothing. Instead fools want high price of clothes to save a few thousand clothes manufacturing jobs.
And to avoid paying high wages, Adidas now will manufacture a shoe totally by robots. This will cost 1,000,000 shoe making jobs in China (adidas alone). Nike, Converse etc up next.
None of these tariffs saves any jobs – it just drives up prices. If China gave us free steel we would be stupid not to take it.
The problem is not low wages, the problem is central banks are hell bent on driving up prices in a deflationary world.
You cannot intelligently rebut any of this.
Mish
“Please rebut what Pater Tenebrarum said”
Are you serious? What is to rebut? Reads like an 8th grader wrote it. Can’t see beyond next move.
“Well – Yes – Global competition would ensure it.”
Really?
The price of steel already has been going down … yet price of new vehicles keeps going up.
https://www.quandl.com/collections/markets/industrial-metals
“The problem is not low wages, the problem is central banks are hell bent on driving up prices in a deflationary world.”
This I wholeheartedly agree with … and why I don’t understand why you think vehicles will suddenly become cheap. With or without cheap steel new vehicle prices will go up – one way or the other (hedonics?).
Name an asset class that has gone down in price with plentiful easy credit?
Name an asset class that has gone down in price with plentiful easy credit?
Commodities
Computers
Flat panel TVs
in general many things where government influence is the least
“If China gave us free steel we would be stupid not to take it.”
Unless you did not need it and did not want your country turned into a dump, and unless it was of a quality worthy of use, and unless it were to close down your ability to make steel, and unless it gave a false impression of friendship, and unless you were not somehow made to feel endebted for that, and unless it were a secret political favour somewhere…
Think about it, if someone starts offering you anything of any supposed worth for free, it is very likely that they have an agenda… heck, just MY time taken to answer ‘no thank you’ is worth more, and I don’t appreciate the interruption from people I do not know, nor the feeling of having rejected them and possibly offending them in the process.
What do you think the average Chinese would think if The Party decided that prepared steel should be left on a dock for anyone who wants it, to turn up with a freighter and take?
Small issue of credibility there:
https://m.youtube.com/watch?v=u75XQdTxZRc
….should read ‘ not worthy of use ‘…
Seriously Mish, though most here agree with the principal, to just throw open the doors ( and that means allowing foreign direct purchase into the US also ) would be very unbalancing… impossibly so. I don’t think most Americans want to compete with Chinese values for now, they would rather maintain their own… or should want to at least.
Can’t see the forest for the trees.
Ninety-nine percent of the Jeanyusses in the world don’t understand the real problem presented here. Or the solution.
Thankfully, Mish does.
@ fingerhole
See you at Chinese steel worker 300$ a month full time … or are you going to say that the Y/dollar rate isn’t correct ? Where would you set it ?
Price fixing everywhere .
@Mish
Nice dodge on remainder of post.
Of course, you’re right. Should have specified asset class that a household typically HAS to have credit to purchase … ie: home, auto.
@ fingerhole
Riddle me thisy.
Where are the JOBS coming from after we Offshore everything not nailed down to the lowest cost producer*?
*to be clear – I’m not some left winger who wants to tariff everything to preserve jobs. Only to fight fire with fire. If another country’s government is EXPLICITLY supporting an industry for the sole purpose of hollowing out US manufacturing base, then yes, US should respond.
Mish, for his NUMEROUS posts on the subject never seems to talk about how it helps the US worker … just that it helps the consumer.
Doesn’t make a difference how cheap something is if you have no job (money).
@Tony Bennett
Post WWII the US chose a path of military and monetary dominance instead of economic preeminence in the world. For most of seventy years the US economy has been milked by control freaks concerned about stroking their own egos and not about promoting economic growth.
The US went from factory to the world to department store to the world because the government and most of the voters haven’t a clue about what works. The US isn’t competitive because it can’t be.
We’re in an economic war where jobs are the “spoils”.
If a lifetime of toiling in a scorching hot steel factory is the “spoils,” I’ll choose the losing side. US Steel stockholders will pocket the tariff money not used to automate the factories.
The robots will eventually reap the “spoils” anyway, if indeed that is what jobs are. Robotics will make America great again, not workers sweating it out in front of blast furnaces.
I wonder what the political response would be if it was not an election year?
Be careful what you wish for. When they do institute tariffs, they normally do them stupidly. Consider for example, the wire hanger industry. Wire hangers are made from steel wire, normally about .13 gauge. A decade or so the US imposed a significant tariff on steel wire. The result was that American Hanger manufacturers had to use domestic steel, however Chinese hanger makers were able to use much, much cheaper Chinese steel, and therefore could significantly under-price American makers. Within weeks all American manufacturers went broke. The Chinese quickly bought all the equipment from the American makers. The Federal government, realizing it’s mistake, put a tariff on Chinese Hangers as well. It was too late, as all the American makers were already gone. Thus, to this day American consumers pay the higher prices caused by the tariff, which protects no one, since the American hanger makers are gone.
Wire clothes hangers? How quant! So who makes the plastic hangers in my closet?
I would guess that the plastic ones come from China as well. The points of this story wasn’t the hangers themselves. It never was a significant, large industry. The point was that every time they start into a trade war, there are ramifications of their actions that have not been well thought out, and as a result, negative consequences. In this case a few steelmaker jobs may have been protected, but jobs in other businesses were wiped out, and consumers end up paying the price in higher costs.
Funny you mentioned the plastic clothes hangers, as I was out buying hangers today. Plastic ones sag with too much weight, so I am getting rid of them. All the hangers I have seen are indeed made in China, including wood and various hybrids of wood, metal and plastic. Those with metal hooks for hanging inserted into wood or plastic tend to break under repeated heavy loads at the junction of the metal and wood or plastic.
Today I settled on corded hangers, a design with cord wrapped around the metal wire. The corded design is really ingenious; just the old wire hanger wrapped in very strong colorful cords (so you can even color code). It is made in China, though it may have been designed in the USA (hard to know if the New York company on the label had a role in the design, and just subcontracted the manufacture to China). It may be that the manufacturing part of the product chain has fewer jobs than the design, sales and other support jobs in the USA. Something to consider.
Obviously, with all the uncertainties in steel prices from periodic USA tariffs, anyone manufacturing steel products would want to locate outside the USA to keep costs more certain and knowable. So, that old adage about “unseen economic effects,” the jobs never created, may be the most important part of the equation (much larger than the number of steel jobs). If that is so, then tariffs may also have a “hidden” net negative economic impact by contracting the economy by preventing new job creation. So, Mish may be right on tariffs and trade for more reasons than he enumerates.
Agree. Chinese pull these games out of the closet when they want to destroy an industry, and since the government subsidizes the play, the manufacturer can operate until the company/industry dies here in the US. Shortly after, they start charging American prices for substandard quality. Georgia Pacific did that years ago in the lumber industry to which the US stopped the predatory practice by law. What difference does it make if it’s a foreign company doing the same? In this instance, it really becomes a matter of national security. Look into it deeper when it comes to rare earth mining and production… China has us in a position that they produce neodymium and other products critical to our national security in their hands only. Missile laser guidance systems, ect, ect.
PS: The White House will not discuss the rare earth elements problem. It is in many instances, Eyes Only documentation.
We saw something similar years back when the green influence in America decided that we would put heavy tariffs on mahogany, with the thoughts that it would somehow stop deforestation of exporting countries. What happened instead is that due to decreased American demand, mahogany prices worlldwide fell, and China and other countries were able to buy the wood and manufacture their products for less than what Americans could buy the wood for.
I support the notion of protectionist tariffs and do not agree with Mish AT ALL in this regard, but I do hesitate in giving our government this ADDITIONAL power as I fear they will use it to further corruption and ideological agendas or simply crush us with idiocy.
My preference would be for our government to promote protectionist actions by our citizens. Educating them as to the cause of our industry and job losses. But this will never happen and even those who DO KNOW still do nothing but insist on buying the cheapest thing.
In 1900 we were able to fund almost our entire federal government with import tariffs and we taxed our incomes, business and personal, very little. Today we tax our jobs, our businesses, our retirement income…everything…at some of the highest rates in the world and it’s still not enough, while taxing imports virtually NOTHING.
Is this math really that hard for everyone?
And the continual comparison of Smoot Hawley as the doom machine that was imposed when we had significant positive trade balances at the time, as compared to DECADES of huge trade deficits is just WRONG. I ask again and again, how do we lose in a trade war where we have already been defeated? Is anyone counting? Are trade deficits as irrelevant as spending deficits. Can we simply buy all we want with no way to pay other than print money and threaten them with our military? Do we really think that all the broke nations of the world will simply continue to buy our debt at near zero interest rates? This is a very pitiful world in which we live where the ONLY survival strategy is to fake it.
Do not doubt that China will give their production away to purchase the market. They ARE predatory and they are also broke and desperate to keep the machine going. They are building cities and structures and then tearing them down simply as economic busy work to cover the fact that they are simply printing the money,, and as long as they can continue to move this “paper” out of the country to buy REAL things, the Chinese will not complain.
The current paradigm is suicide and no one has the heart to challenge it, to make any changes that disrupt the “something for nothing” of which Mish is so greatly enamored.
Ask any living creature how historically free stuff has worked out for them….not well. The Jews in Nazi Germany may well have been initially excited about the free train ride and showers they were provided. Well, I guess it was still better than loaning them a low interest loan to buy the ticket….but not by much.
I have read good explanations nonsensing trade imbalance/restrictions as a relevant parameter , and they make perfect sense at the level at which they address the topic.
However given the way the world functions, nations function , societies function , those explanations miss out on a whole swathe of relevant detail .
A local market is an ecosystem that ties completely into the everyday reality of its participants … their routine , culture , politics , hierarchies , social interaction , and so on . In theory it should continuously evolve into something better, more efficient, and more worthy over time , by a steady learning , trial and error , the introduction of novelty , the rejection of the artificial …. at all levels .
That local ecosystem will know itself . It may not be the best of ecosystems around , but it will be well founded , it will know how to maintain itself indefinitely .
Once you start to replace parts of it too quickly from outside though , it will become unbalanced , untested , and unable to resolve difficulties by itself , unable to discern where errors lie , as the frame of reference will have become altered beyond anything that could be returned to, as tradition is replaced with a forward escape that seems ever more dependent on outside involvement .
Traditionally there was little need for protectionist policy given the slowness of interaction between localities , and protectionist usually just meant , more than anything else , from military invasion . Trade imbalances were almost informal , not leveraged political affairs .
What we now have is an enticed form of ruin, where voluntary desertion is nationally financed , where generation after other is promoted to a prepared higher allocation dreamt up by those fast enough to politically profit from a sponsored surplus of supply paid for by an endless foreign deficit coupled with the introduction of migrant labour and cheaper foreign production .
When that has run its course , when the migrant cost is no longer profit , when the currency is worthless to bill deficit with , when foreign production becomes expensive due to the lack of worth of the currency as a direct result of loss of national status and production , and production is so low or mundane as to be not worth trading with by foreign powers , most energy will be dedicated to maintenance of the structure (something like where we are now) , but eventually it will have to be rebuilt in some way , maybe out of ruins – I am not as optimistic as Mish on the ability of robotics and future technology to provide the kind of answer that is needed .
So in effect no real protectionist policies were needed as long as trade imbalances were restricted to being measured in terms of real production , protection was/is needed from those who take control at national and international levels in order to implement a wider plan , one that gets imposed by delicately introducing a newer ‘better’ reality that spells an end to the existing local frameworks, using outside pre-financed agreements , and without ever questioning if it will actually prove as sustainable in the long run.
People bought it , simply because that was what was placed before them , simply because they were encouraged to, I don’t think there was ever much of a question of choice , the writing had already been written on the wall … and signed for them .
But we had protectionist tariffs and they worked. It was the democrats who sought to end them and replace them instead with “revenue” tariffs which simply taxed everything the same.
And these imbalances you speak of are relevant but their consequences are being shrouded with massive debt…..debt used to create imitation income to replace loss of earnings, and huge national debt which is being used to fund entitlement.
When we lived in relatively isolated rural environments, locks on our doors seemed less of a necessity. Today, living in cities of millions and crime occurring mere blocks away, locks seem woefully inadequate. Protectionism is an attitude, not a reactionary one but a security one that looks at statistically relevant risks and creates inhibitors, not setting around lamenting how we THINK it should be. We have watched for decades now, one “free trade” bill after another forced upon us while also witnessing our businesses and jobs simultaneously disappearing while being told one has NOTHING to do with another.
My God….how stupid do we have to pretend to be to accept this?
Either you outlaw the high level manipulation that has gone on that has got us here , which Mish is for and I agree with but for its difficulty , or you implement some form of protectionism , which is an imperfect patch and another form of manipulation , but an immediate practical step all the same .
Its all crazy unless you happen to be sat at the top , where you get to profit from directing it all, or unless you are free to ride on whatever is up for grabs .
I think people just cannot properly take in what is going on , slowly they are , and it shows where they have a free say , in their vote .
An interesting rant, particularly the mahogany story. It pretty much proves Mish’s point that we are better off without the tariffs. These things do indeed take on a life of their own, and like with the wire hanger manufacturer example (Carl R.) the unintended consequences tend to make the tariffs a losing proposition (even in a world with no counter tariffs by other countries).
The USA in 1900 did not need an income tax and could fund government based on tariff revenues because government was relatively small then. The income tax was meant to be a temporary expedient afflicted only the wealthy to fund World War I. After 1900 and the Spanish American War, the USA chose the path of imperialism/empire and war on a more international scale. As long as the USA wants to fight worldwide wars and maintain military bases in 110 countries around the globe, the search for revenues will be insatiable. Bush II proved that even invading a country rich in resources (Iraq, oil) did not make war into a profitable adventure for the USA as a whole (yes, I concede, certain winners, but a loser for the USA as a whole). Even ending foreign wars, the demands of socialism will reduce the country to poverty.
Tariff monies go to the industries bringing the tariff lawsuits (those harmed most directly is the theory; same as for the secret international trade treaties). If not to them, the tariff monies would quickly be consumed by the welfare-warfare state and not lower income or other taxes. Mish is right, tariff and protectionism is a losing racket for the USA in the 21st century. I wish it were otherwise, but the 1880s USA government had a much smaller footprint than today’s warfare-welfare mega-machine.
@madashell
I remember those tariffs. Rosewood is still a wood you will not buy cheaply. For the same stupid reason but you can buy from Great Britain, finished products in rosewood cheaper then the wood itself in the USA.
Do you remember the Gibson guitar fiasco?
So Joel, it evidently works for you that we tax our own production and wages while taxing imports not at all? Do you feel that our constant bleed of jobs and industries and immensely growing debt has NOTHING to do with these policies? Simply a coincidence?
It just seems odd on the face of it that a massive and diverse country such as America would need international trade for a sustainable economy. Once the world is completely borderless and there are zero trade barriers between what were once distinct nations, will our economy collapse unless we find alien worlds with which to trade? If so, it looks to prove that our only means of having a prosperous economy is to either have trade deficits or trade surplus with a “foreign” economy, just not a balanced one.
A complex system, madashell. Taxing imports (tariffs) and passing the money to corporations filing trade lawsuits does not reduce USA.gov debt. Furthermore, jobs lost (and jobs not created) in other industries as tariff collateral damage make tariffs a net loser for the USA economy. Why knowingly adopt a losing policy? Oh, yeah, it feels good to think you’ve saved the environment (e.g. rosewood, mahogany) or jobs or whatever. But what is true for rosewood and mahogany tariffs is true for job tariffs. Same underlying principles. There are very narrow benefits for the lawsuit-filing industries, with workers/jobs as shills waving in the wind like American flags to be unquestioningly saluted.
Tariffs are a racket in the 21st century, pure and simple, and are not the same as the 19th century tariffs that provided a small-footprint government revenues (and obviated the need for an income tax). Tariffs today are the corporate equivalent of SSI disability fraud. Lifelong corporate revenue entitlements, as in the case of the steel wire coat hanger companies that no longer have to seek to become competitive. Just every several years file for a benefits extension, now going on for a second decade. Nothing sustainable about that. Rather, Eastern European and Soviet style state-supported industries is what modern tariffs are creating in the USA in the 21st century. If this corporate welfare creates a sustainable economy, it will be at a much lower level with fewer jobs.
Tariffs in the 21st century are permanent corporate welfare, and do not breed prosperity. Instead, with tariffs we are breeding fat, lazy uncompetitive corporations that become lawsuit money gluttons (e.g. now they need international trade treaties to supplement domestic tariffs). They will go belly up eventually, as tariffs have removed the incentive to change and innovate. The messy, painful free market economy makes more sense if a sustainable economy is the true goal. Industries and jobs will disappear, shrink and fade no matter what (e.g. take a look at whale oil lamps, blacksmiths, telephone switchboard operators, video tape manufacture, cathode ray tube manufacture, floppy disk manufacture, etc.).
Interesting. I was out shopping for hangers earlier (see below) and just did a quick look on Google and found that despite the lack of hanger manufacturing in the USA, USA.gov is continuing its anti-dumping tariffs on wire hangers from China:
https://www.federalregister.gov/articles/2014/03/11/2014-05245/steel-wire-garment-hangers-from-the-peoples-republic-of-china-continuation-of-antidumping-duty-order
Steel Wire Garment Hangers From the People’s Republic of China: Continuation of Antidumping Duty Order
A Notice by the International Trade Administration on 03/11/2014
SUMMARY
As a result of the determinations by the Department of Commerce (the “Department”) and the International Trade Commission (the “ITC”) that revocation of the antidumping duty order on steel wire garment hangers from the People’s Republic of China (“PRC”) would likely lead to a continuation or recurrence of dumping and material injury to an industry in the United States, the Department is publishing a notice of continuation of the antidumping duty order.
There is a pdf file on the 2014 ruling continuing the 2007 tariffs. These tariffs are a real racket, in effect channeling money from American consumers to companies for “not making” metal hangers. Like the old farm subsidies paying farmers for not growing crops. Also the original 2007/8 dates were coincidental with major elections.
https://www.usitc.gov/publications/701_731/pub4453.pdf
The original investigation of SWG hangers from China was initiated in response to an antidumping duty petition filed on July 31, 2007, by M&B Metal Products Company, Inc. (“M&B”), a domestic producer of SWG hangers. On September 29, 2008, the Commission determined that an industry in the United States was materially injured by reason of imports of SWG hangers from China..sold in the United States at less than fair value (“LTFV”)…September 3, 2013. M&B, Innovative Fabrication LLP/Indy Hanger (“Indy Hanger”), and U.S. Hanger Co., LLC (“U.S. Hanger”), domestic producers of SWG hangers (collectively “Domestic Producers”), filed a joint response…the Commission found the domestic interested party group response to be adequate. In the absence of an adequate respondent interested party group response, or any other circumstances that would warrant a full review, the Commission determined to conduct an expedited review…Steel wire garment hangers, fabricated from carbon steel wire, whether or not galvanized or painted, whether or not coated…Specifically excluded from the scope of the order are wooden, plastic, and other garment hangers that are not made of steel wire. Also excluded from the scope of the order are chrome‐plated steel wire garment hangers…SWG hangers were used primarily by the dry cleaning, industrial laundry, textile, and uniform rental industries… As measured by apparent U.S. consumption, demand was *** hangers in 2012. It was 3.3 billion hangers in 2007…nonsubject imports from Taiwan and Vietnam declined after 2011, when those imports became subject to U.S. antidumping and countervailing duty investigations…the U.S. product, the subject imports, and nonsubject imports were frequently or always interchangeable and that price was the largest single factor affecting purchasing decisions…subject producers in China failed to participate or furnish information…the domestic industry sacrificed sales volume in order to maintain its prices…On that basis, the Commission found that the significant underselling by the increasing volumes of subject imports had significant adverse effects on the domestic industry… Consequently, if the order were revoked, subject imports would likely undersell the domestic like product. This in turn would likely cause the domestic producers to lose sales volume, cut prices, or restrain price increases.
Fair trade and Free trade is a utopian ideal which does not exist in the real world. We need to stop using the terms an instead call it adjusted or controlled trade.
All this will do is allow China to point to the US as causing the problem when the Chinese steel industry finally capitulates to the laws of supply and demand. We would be doing the Chinese government a favor.
Chinese steel companies do not pay wages:
http://www.ibtimes.com/chinas-public-sentencing-workers-protesting-unpaid-wages-seen-sign-rising-tension-2338994
http://www.ibtimes.co.uk/china-unpaid-migrant-workers-forced-sleep-work-economic-crisis-deepens-1542228
http://www.mining.com/chinese-coal-workers-protest-unpaid-wages/
Do not pay for energy:
http://www.bloomberg.com/news/articles/2016-05-19/xi-s-supply-side-china-dilemma-seen-in-a-gas-plant-s-occupation
Do not pay for capital:
http://www.chinatopix.com/articles/86731/20160512/china-reveal-plans-zombie-firms.htm
The Chinese house of cards must fall. Until then a steel embargo is prudent.
Chinese Steel companies do not pay wages. Do not pay for energy. Do not repay loans for capital investment. The Chinese house of cards must fall. Until then a steel embargo is prudent.
so what?
The sun does not pay anyone either. Mercy!
Tax the sun!
Coal is free.
Air is free.
Water is free.
Slave labor is free.
Natural gas is free.
Sunlight is free.
You are on a roll !!
Steel should be free.
Simply absurd. The sun may be free but see what the rates are on solar energy. It is free, as is iron ore in the ground, only lacking in the mining, the refining and production. The things we actually make a living doing. If someone offers everything you do for free, effectively leaving you destitute and/or dependent upon a redistributionist, debt riddled and profligate government, will you still applaud “free” stuff? This is not some fictional game where we all get unicorns shating free candy. It is an economy based (in theory) on markets which implies that nothing is free. Free infers no trade, no pay, simply gifting everything and all with no expectation of anything in exchange.
You have been trading fictional paper too long. When your clients are able to own ten thousand shares of facebook for free and look at you strangely when requesting payment for your commission, maybe you will grasp the true cost of FREE.
Good grief, do you listen to yourselves?
Say, for example, Walmart is giving away free toasters. What possible objection could you have? The only one I can think of is MAYBE giving away these free toasters will cause it to go bankrupt, which will impact a lot of workers. But now if it is China instead of Walmart, the worker issue is gone. Who cares if China gives us free stuff? The only people hurt are Chinese citizens and anyone invested in China. Frankly, if China goes busto, some of those jobs may come back here. I say, take everything they are offering, and then some.
People are free to object, free to withold their reasons for objecting, a nation via its government is free to choose what crosses its border, you are free to ask it to allow in free toasters, the Chinese are free to produce free things for you, you are free to live in China to take advantage of them.
Its all free, rejoice and be merry.
Have any of you actually used Chinese steel? Have any of you bought Chinese Steel fasteners? Both suck to be honest and when I spec construction I spec American, Japanese or EU steel in construction. The steel produced in China usually does not meet USA specs. Do not believe me go ask California where the bridges build are already rusting or a general contractor using Chinese steel fasteners and they twist the heads of the bolts off or strip a screw with American made impact driver adaptors. Better yet go buy Chinese made nut drivers or screwdriver attachment for an impact driver and watch them strip or break off.
The problem is quality control and performance testing is now overlooked for the cheapest price. I guarantee you the performance testing on the steel in all of those bridges was not conducted by a reputable testing agency and someone got their hands greased with a lot of money. You pay a lot more for good steel and it lasts trust me or go buy a American graded bolt or screw and then for buy Chinese and you will know what I mean.
Home Depot and Lowes both carry crap unless you look for the American made items and you will find they cost a lot more. I buy from an industrial supply for bolts and fasteners. Chinese steel is like Chinese sheetrock.
Many here think this is just about the unions and I do agree but you do get what you pay for. American made steel is some of the best in the world. People want cheap copies when figuring bids and I never do that. Do yourselves a favor and pay the higher price and you will never be disappointed with our steel, fasteners and bolts. Especially stainless steel.
Quality standards are ensured by self compliance. I’ve run into several huge problems with foreign products that were substandard. I wish I knew where to go to look up the number of decapitation deaths that the early 1980’s Honda Civic is responsible for (hood goes through the windshield on impacts instead of folding). We turned our test results (competitive car analysis) into the NTSA. They did nothing. Later found out that there was corruption inside the agency with Japanese manufacturers.
As a furniture manufacturer I seldom directly compete with Chinese goods, but they do effect price, even if people perceive them as lower quality. I just lost a job for a custom credenza today to a Chinese furniture company….they were less than half of my price….including shipping from China. I should have sent a congratulation letter to the client for getting it damned near free. In reality I will need a condolence card for my employees. Maybe Mish needs a credenza….nah, he like free stuff more than my existing clients.
Will it be called Utopia when we no longer have to pay for anything, simply graciously accepting whatever is given inhopes it will be enough?
If Chinese steel is no good then no one would buy it. What’s the problem?
Many manufacturers will use it regardless, but even if they don’t it still pushes overall cost lower simply through the threat of its purchase. You can bet that every steel manufacturer in America is quite aware of Chinese steel prices as they are reminded daily by their customers.
Still waiting to see ‘Low Quality Materials Used’ or ‘Chinese Steel’ printed on a wrapper.
Mish herein lies the problem. When a company bids for say a bridge or for simple fasteners, or steel used on many buildings they must submit testing results from an independent testing agency stating the steel meets the specs and the results of said test. Quality control before accepting a submittal. During my construction processes over the years I used two other testing facilities and submitted the steel delivered on site and many times the steel failed.
People, companies do not care much anymore as it is all about price. You are not required to perform more tests once submittals are excepted, with the exception of concrete and some other items are tested as delivered, and it is usually mixed items.
I always question everything especially when it came to commercial construction. Why? Because your safety comes first. I was not popular with HUD overseeing their work from time to time but they knew the materials on the job met the specs.
Old Guy: Yes, I’ve seen problems with Chinese steel fittings, valves, etc. Buyer beware. But this is a TOTALLY separate issue from tariffs.
Tariffs?
I thought the quality factor was being given as a reason to outright ban imports.
On a scaleable level though, would you deny that cheap low quality materials encourage replacement to substandard levels?
I know I know, it is a problem of quality control, but don’t you think that until you have that sorted, prudence would dictate discouraging shoddy practice in ways possible?
In other words, why load the market with rubbish and then chase around trying to verify how it is used… unless your department wants to find a good reason to install itself as a paid transnational arbiter.
Gee, I thought the chinese had the market all figured out: consumers are only interested in the price so the chinese make the cheapest crappiest products that fail in no time at all, and then – the consumers go back & buy some more cheap chinese crap.
I will say the chinese tools are great when working on a boat. If a chinese wrench falls in the water, it floats!
Trump will bring these Chinese criminals to their knees begging for mercy. He knows the art of the deal!
Wonder if this will be the trigger that starts the price inflation ball rolling?
Last time I checked … Coal isn’t free, water isn’t free, steel isn’t free. Someone is drinking too much.
If the price we pay is half of what a local producer can sell at, as far as he is concerned it might as well be free.
We all understand that technology is a natural thing and that change will always be with us, but when change occurs like a tsunami, washing on shore and wiping everything out, this is not change we can live with. If our government has any authority, any constitutional power, it is to attempt to protect us from such calamities. Unfortunately, so many who sit in positions of power have never had to face such things…it’s all theory, and job losses and people’s lives are but digits. As long as they can keep selling us foreign made goods with a decent margin, and customers do not complain, any complaints from the bleachers is just so much noise. In an economic world where every corporation only thinks as far into the future as their next quarterly report, what happens ten years later is irrelevant. That’s OUR problem.
Chinese steel companies are so hard up they do not pay their employees. They do not pay their natural gas bill. They do not pay their coal bill. They do not repay their capital investment. So their costs are nil. I posted links to confirm these facts but your filter refused. Google it yourself.
madashellowell: The only danger is if China destroys all competition and then jacks up prices. But this rarely (if ever) happens. Walmart has destroyed all mom ‘n pops, but their prices are still low.
Jack: Whether or not Chinese companies treat their employees well is not my concern. If their country collapses providing me with cheap stuff, why would I complain?
“Protectionists are on the cusp of a “Pyrrhic victory” over China…. ”
Labor has been on a losing streak ever since trickonomics was foisted on them nearly 4 decades ago. They are not afraid of ‘Pyrrhic victories’!
Maybe it’s because workers work half the year to cover the cost of government in the US.
The Soviet Union used central planners to run their economy. The US government uses a million or so laws and regulations to run the economy. The intent of both was to benefit government.
So, after the few remaining beneficial effects of small government are eradicated in the US, labor value will approach that of the value of labor in the former Soviet Union. It’s the size of government that matters most, not the type.
Make car in Mexico with cheap chinese steel and export to America 😀
I agree with Mish.
I think the incredibly stupid policy of another country which massively overbuilt its steel making capacity should be allowed to obliterate our domestic steel production via dumping. Same for any other country and any other commodity. Totally free trade within a central bank run economic system which inevitably produces such gross imbalances in supply/demand is surely the way to go.
Similarly, ignore the welfare state realities and allow unconditional “free migration.”
The rest of the world just learned from the best in stupid policy making, namely the US.
When US removed the gold standard and produce the best economy based on fiat currency (which includes dumping – just count the numbers of countries bankrupt by the US), another idiot on the other side will just do the same
All is good when you are drowning in money 😀
Free Trade is Fair Trade ? Really. Well as a steel maker I agree that there should be no barriers anywhere. However, at the same time, we should hold China accountable to the same environmental standards we require in the U.S. and Europe or elsewhere. Why should they have the right to pollute the world, which belongs to all of us in exchange for lower costs ? The cost of Capital, subsidies etc, are all part of an exchange system between countries and governments. A pact with the people so to speak. However, we are constrained in the west and other parts of the world to live up to environmental standards that China does not and will not enforce. So we are all also paying the price for this cheap steel. Do you really want that price to passed over to your next generation. Sorry Mish, you are just like the Chinese extremely short sighted.
Please remember that following the industrial revolution the US was the world’s biggest polluter. So now we tell the third world it can’t. Meanwhile the US drops bombs all over the world – how much environment pollution did that cause. I am not saying two wrongs make a right, I am simply pointing out hypocrisy.
China is killing its people with pollution, no question. But that is primarily to the detriment of China and the Chinese. So if reducing US pollution is the goal, perhaps we should welcome Chinese production.
Bottom line: It is not up to the US to tell everyone else in the world what they can or cannot do. 911 and ISIS are two of the sad consequences of doing exactly that.
Mish
Be fair though Mish , setting import standards stops at the border , you would only be telling China what it would have to do to cross that border . Protectionism is a shield , always , not a weapon or a pre-emptive attack or a threat . If it is used as any of those, it isn’t really protectionism.
That others do not want to or cannot achieve your standards , does not mean you should reduce yourself to theirs . That is where the hypocrisy lies . Each issue has to be looked at and dealt with individually , whether security , corruption , etc. etc. etc. .
It is meticulous work , ideally the market itself would take up the task … bad money replaces good money springs to mind though .
Hey Genius Mish, how is your Chinese steel bridge over the bay doing?
http://www.americanmanufacturing.org/blog/entry/dang-the-chinese-made-bay-bridge-continues-to-fall-apart
As I said, if Chinese steel is inferior, no need to ban it. US Corporations would not use it.
Governments are not as bright. “An ultrasonic test performed late last month indicates that the steel fastener may be as much as 6 inches shorter than the other rods”
Where the hell is the quality control?
Oh excuse me we are talking governments aren’t we.
Next time, please think.
Mish