In the first part of this story I broke out a few key cogs to understand this trade/tariff puzzle. These are them:
US trade is almost exclusively "non-essential"
The US had run deficits every year since the mid-70's
The US deficit from 2017 was 24%
Moving on to what it means to you... You'd never choose to hand someone a dollar and get 76 cents back in return with nothing else to show for your transaction, right? So that's the first thing. As a country we're choosing to get ripped off. With non-essential trade the only benefit can be economic. In the case of the United States it'd be the benefit of American multi-national companies selling goods to all our trading partners. The upshot would be more jobs with American multi-national companies, more of that money coming back home to the United States and additional product choices for consumers. But as we know, until last year, manufacturing jobs had continued to decline as more jobs were shipped outside the US or eliminated through technology. 2017 represented the best year for US manufacturing since 2004 which isn't coincidental as the President took extensive action, often through elimination of regulation and threats of tariffs to encourage companies to reinvest at home. They did. So why then the solar tariffs in January and now the steel and aluminum tariffs?
After tax reform President Trump realizes that the climate is right for potential change. Do American companies produce solar panels? Yes. Do we have a need for panels? No. Which country is most impacted by the solar tariff? China. Low risk place to start which is why he did. So, what about steel & aluminum? Different version of a similar thing. These are the top five countries we import metals from...Canada, Brazil, South Korea, Mexico & Russia. So why exactly would we be subsidizing the outsourced production of metals to these countries costing American jobs in the process? That's what the President is attempting to address. Remember that 24% trade deficit? It's not a coincidence that the proposed tariff is 25%. So, what's the best and worst-case outcome here? I'll cover that in the third part of this story.