“Republican senators were quick to respond. They disagreed with the idea of a retaliatory tariff war. As Roy blunt R-Mo. Put it, ‘I think we need to be more positive about our trade opportunities.’
Lawmakers also stressed caution regarding Trump’s dissatisfaction with NAFTA. This has also been the case with multiple Chambers of Commerce, Governors, and both Mexico and Canada. Senator John Thune R-S. D. remarked that ‘withdrawing from NAFTA would be a disaster.’”
>> This column weekend of Jan. 26, 2018
That weekend I warned that President Trump was dangerously close to repeating the folly of the 1930 Tariff Act otherwise known as the Smoot Hawley Tariff Act. It cut trade by 25 percent thereby prolonging the Depression. And the damage would not cease until the General Agreement on Trade and Tariffs began in 1944, taking full effect by 1948.
This past week brought more early warnings of Trump’s simplistic “us versus them” view of trade.
Last year the president set this potential disaster in motion by instructing the Commerce Department to investigate if steel and aluminum imports threaten national security under Section 232 of the Trade expansion Act of 1962. As instructed, Commerce concluded they do.
This is in spite of the 164 anti-dumping duties on steel already in effect. There are two dozen tariffs on Chinese steel and more on aluminum. Canada accounts for 43 percent of our aluminum imports, but more on that later.
The tax reform act is bringing money back to the United States. But more tariffs will only increase the cost of doing business in all industries using steel and aluminum. Indeed more workers lost jobs — 200,000 due to Bush’s 2002 steel tariff than were employed by the entire steel industry (187,500).
As we warned Jan. 26, this “strategy” plays right into the hands of China’s goal of becoming the new manufacturing super power in the world. Withdrawing from the Trans Pacific Trade Partnership puts China in that driver’s seat, free to make global arrangements. The Trump idea of a separate trade deal for each nation is foolish when so many products, like autos, are built from material imported from multiple nations.
One hopeful example is the creation of a pro-NAFTA website by Mexico, no less. Check out www.naftamexico.net. This English website allows one to click on each of our 50 states to see the NAFTA advantage. Columns and letters continue to sprout advocating the benefits of NAFTA. But I was discouraged again reading the latest in the U.S.-Canada trade talks.
The United States runs a $12.5 billion dollar trade surplus with Canada. Apparently Canadian Prime Minister Justin Trudeau does not care for the politically incorrect President Trump, nor does the Canadian Parliament. As a result, Canada has done little to sell the trade deal. We have not seen full-page ads bulwarked by newspaper editorials demanding continuation of the 20-year NAFTA trade boom. Canada has been America’s closest ally and trading partner, well, ever since there has been an America and Canada.
Meanwhile, Trudeau has inked deals with the European Union and the Trans Pacific Partnership. Is this a literal snub, aiming to reach the same conclusion as Trump, better no deal than any perception of a flawed deal?
This week, America is back to arguing gun safety when in fact the issue is school safety. There are no school shootings in Israel where all schools have armed guards. Install the same safeguards for schools that exist in every Federal Courthouse. Building access should be limited to entrances with metal detectors manned by armed police. Require students and teachers to have ID badges just as corporations do at their locations. Problem solved. Then get serious about avoiding another Smoot Hawley fiasco.
The U.S. Dollar has been weak against the Euro, but that relationship is about to change. The Euro is stretched to its upper limit and the buck appears to be finding support at the $88-$89 level. Crude oil has surged back to the $62-$63 level, but that is below the previous high of $66-$67. Resurgence in the dollar is liable to weaken oil prices.
The stock market remains the same. The previous high of DJIA 26,600 still stands. Unless the Feb. 16 high of 25,432 is taken out, the more likely direction for stocks is down. Leadership is ever more narrow with just three stocks moving the NASD.
Follow Dennis at themarketperspective.com
