Saturday, March 3, 2018

Will the Trump tariffs substantially increase the cost of vehicles and stoke inflation? - By Jack Hellner

It's amazing.  Even a topic as dry as tariffs gets the press's bias wheels turning.  Here's one example, from Reuters:
Toyota Motor Corp said on Friday U.S. tariffs on imported steel and aluminum would substantially raise costs and therefore prices of cars and trucks sold in America.
"The (U.S.) Administration's decision to impose substantial steel and aluminum tariffs will adversely impact automakers, the automotive supplier community and consumers," the automaker told Reuters.
Toyota added that more than 90 percent of the steel and aluminum purchased for cars built in the United States is sourced from the country.
Substantially?  In making this claim, somehow, the reporter did not ask Toyota what the substantial cost increase would be.  I would think that would be a valuable piece of information, since the average price of a car or truck today is around $36,000.  So I thought I would do some research to find what "substantial" means.
The current price of steel is around $800 per ton, and the price of aluminum is 97 cents per pound.  The average car uses around one ton of steel and close to 400 pounds of aluminum.  The average truck uses around one and one half tons of steel and just under 400 pounds of aluminum.
So if the price of the steel in a car went up the whole 25%, which it won't, and the price of aluminum went up the entire 10%, the cost would go up by about $240, or less than five tenths of a percent.  The cost of a truck would go up around $340.  According to Edmunds, the average car loan today is six and a half years. or 78 months, so the average payment would be up around $3 per month because of the tariffs, or 10 cents a day.  Since people keep their cars for a long time, the tariffs will add little to overall inflation.  Thank goodness Trump gave a big tax cut, which will more than cover that.
Canada is pitching a fit about the tariffs, but the Canadians have many controls on imports from the U.S.  Here are a couple of examples.
Canada uses supply-management systems to regulate its dairy, chicken, turkey, and egg industries.  The regime involves production quotas, producer marketing boards to regulate price and supply, and tariff-rate quotas (TRQs) for imports.  Canada's supply-management regime severely limits the ability of U.S. producers to increase exports to Canada above TRQ levels.  Under the current system, U.S. imports above quota levels are subject to high tariffs (e.g., 245 percent for cheese, 298 percent for butter).
Canadians face high provincial taxes on personal imports of U.S. wines and spirits upon return to Canada from the United States.
When the government calculates the growth in the economy, it reduces the growth if there is a trade deficit.  That certainly suggests that the overall deficit is bad and that a goal to improve the growth in the U.S would be to reduce the deficit, which is what Trump is trying to do.  If Trump just added the tariffs on China, China would just ship the steel to other countries, particularly other countries with free trade agreements with the U.S., and then those countries would ship the Chinese steel to the U.S., so it wouldn't solve the problem of dumping.
The United States has the world's largest trade deficit.  It's been that way since 1975.  The deficit in goods and services was $566 billion in 2017.  Imports were $2.895 trillion and exports were only $2.329 trillion.
President Trump has been handed many significant problems that have built up for many years – and, in many cases, decades.  These problems include but are not limited to:
The massive trade deficit, a slow economy, high taxes, too many regulations, North Korea, ISIS, Russia, China, out-of-control health care costs (because of Obamacare), the opioid crisis, the unconstitutional Deferred Action for Childhood Arrivals (DACA), and unchecked illegal immigration as a whole, along with lawless sanctuary cities and states.
Thank goodness President Trump and the people he hired with business experience are used to working on many projects at one time and strive to produce results as fast as possible instead of slogging through the massive bureaucratic process.  The tariffs on steel are just one part of it.