French, German and Mexican officials have made similar comments. It seems that trading partners are a lot like marriage or other long term significant others. If the relationship is to last, early on the partners come to respect Ben Franklin’s advice about the spoonful of honey being superior to the gallon of vinegar. Words spoken in anger or outright criticism degrade the relationship, sometimes permanently.
And this is precisely what is wrong with the Trump approach with our (at least they were in 2017) allies, Mexico, Canada and the EU. As of yesterday the vitriol has ramped up against China. Well, China has no regard for U.S. Intellectual Property laws, openly selling movies and music in public with no royalty payments. This is not the case for our allies.
The Trump Art of the Deal seems to be making an outlandish statement to the horror of the other party, backing off, then roaring back again with another threat, and then, well, I am not sure where the administration is going. The point being, that however this ends, our North America and EU trading partners are not likely to forget the affront. Being treated like an outright trade pirate like China is not appreciated.
Another of our criticisms of Trump’s ‘trade wars are easy to win’ theme is that of unintended consequences. On the one hand Trumps says he wants to decrease our trade imbalance. The U.S. shipped a whopping $19.9 billion in petroleum exports in April alone that is surely improving our export balance. And crude exports have more than doubled since January 2017.
Canadian Defense Minister Harjit Sajjan
To consider Canada a national security risk as a result of steel is beyond ridiculous.
Now the Trump shoots his own foot gambit. The price of steel is about 20% of the cost of drilling, producing, transporting, refining petroleum. So a steel tariff instantly raises the cost of petroleum products. Add it probably does that faster than retail prices can be raised to compensate. So whatever price advantage the U.S. might have via productive fracking, is being offset by increased steel prices. And the number of steel producers conceivably helped by this is much smaller than the number of manufacturers and energy producers inconvenienced by high prices.
The strength of the U.S. Dollar may have run its course since February. This caused energy shares to lead the 300+ rally this past Wednesday. Arthur Laffer and Stephen Moore have a new book coming on Trumponomics, it’s Trumps’ Economy Now. Let’s hope the next book won’t be Trump’s Failed Tariffs.