Tariffs bad news for American economy, including workers and consumers

From today’s The Hill:

There’s never a good time for tariffs. American workers and consumers will pay dearly for the Trump administration’s short-sighted action to protect an industry that shows no signs of needing any protection—the market values of the five largest steel companies have more than doubled over the past five years. Yet with a major infrastructure spending bill set to come through Congress over the next year, Trump’s tariffs are bad policy with even worse timing.

While a small amount of people will benefit from the proposed tariffs, many more will be harmed. The American steel industry employs roughly 140,000 workers, but industries that rely on steel to create their products—the ones who will suffer directly under the tariffs—employ 6.5 million workers. A recent study by the Trade Partnership found that the direct cost of tariffs on employment would be 18 jobs lost for every one created. On net, 470,000 Americans could lose their jobs.

The Trade Partnership’s study fits with the lessons of recent history. In 2002, President Bush instituted protective tariffs on foreign steel imports. After just a year in which steel prices rose by up to 50 percent, steel production was insufficient to meet demand, 200,000 Americans lost their jobs, and the tariff was dropped. A mere fifteen years later, these lessons have already been forgotten.

Nor will other countries sit idly by as Trump restricts trade. Well over 10 million Americans’ jobs are supported by exports—jobs which would be at risk in the case of a trade war. Already, the European Union has prepared a ten-page hit list of potential targets of retaliatory tariffs should Trump’s steel and aluminum tariffs go into effect.

American consumers will be harmed as well. A combination of new steel tariffs and lumber tariffs imposed last year mean that the cost of new homes is likely to continue rising—nearly half of steel imports go towards construction. Other American staples such as cars and canned beer are also set to see price spikes resulting directly from tariffs.

Read the complete article here.

Stocks rally on move by central banks, but the rally won’t last long

In a sign that the U.S. and European Union are serious about resolving the ongoing debt crisis in the euro zone, the central banks of five countries, including the European Central Bank, the Bank of England, Bank of Japan, Bank of Canada and the Swiss National Bank, announced a plan to infuse banks across the E.U. with fresh capital. The move comes in an effort to assure financial markets that the debt crisis is being taken seriously and policies are being developed to resolve it.

The announcement comes on the heels of global financial markets being battered in the last two weeks as investor confidence has withered in the face of the ongoing debt crisis, as well as the inability of governments to take swift action to alleviate it. The move by the central banks is supposed to reduce the cost of a program under which banks in foreign countries can borrow money from their own central banks by about 40 percent, with much of the money coming from the Federal Reserve Bank in the U.S. This is supposed to infuse banks with fresh capital and shore up their liquidity in the hopes that they will begin lending again.

The news led to today’s rally on Wall Street, one of the biggest yet, with the three main indexes rising 4 percent or more, representing the largest gain since March 2009. Stock markets across followed favorably with exchanges in London, Paris, Berlin, and Euro Stoxx rising from 3 to 5 percent.

However, the rally will be short lived, as they have proven to be in the past. Although investor confidence depends heavily on the perception that governments are taking strong action to deal with avalanche of debt arising from a slowing global economy and shrinking tax revenues, the underlying reality is that the fundamentals of the global economy are not sound. There is too much money controlled by two few private actors, particularly large hedge funds and other investment banks, that can be moved around too quickly, thanks in large part to financial deregulation and advanced communications technology. Moreover, there is too little democratic accountability, particularly in the U.S., which has deregulated banks, insurance carriers, and other financial institutions to the point where the fraud and theft of “complex financial instruments” are legal grey areas.

Plagued by serious unemployment both the U.S. and E.U. cannot jump-start their economies even if the debt crisis is resolved favorably. Assume banks achieve stability and return some of their liquidity to businesses and consumers in the form of loans. Very few companies will enact aggressive expansion strategies that require hiring new workers, and banks will not lend to consumers without jobs. Thus, even if the debt crisis is resolved, there is no guarantee that the labor market will improve, leaving governments in the lurch as revenues from taxes remain stagnant and requiring them to make further cuts in entitlement programs that exist to help citizens beset by difficult financial times.

This catch-22 is not lost on investors, who more than once in the last few years, have rallied markets on some slim piece of good news like the announcement made today by central banks, only to have their hopes dashed the next day by a slim piece of bad news, for example, that jobless claims are up. The surge in markets today is therefore not “good” news in the sense that it does not guarantee that the so-called “jobless recovery” is actually underway.