Ironically, U.S. President Donald Trump’s strident views on trade have turned the humdrum subject of exports and imports into the stuff of water cooler chatter.
Presidential quotes that include hot words like “war” and “winning” are front-page news around the world.
But the real economic bottom line in any trade action won’t be net exports, but whether Trump’s trade disruption will throttle down the North American job-creation machine, whose latest numbers will be released Friday.
We expect more news on Trump’s tariff plans as soon as today, and there are now signs that, under pressure from U.S. free traders, the president might spare Canada and Mexico.
The overwhelming expert opinion is that if Trump were to go ahead with his big tariffs on steel and aluminum, jobs would suffer.
Fighting the ‘cheats’
The message that Trump’s America will fight back against trade cheats to make the country great again worked in the presidential election campaign.
There are some signs it is still working among his core supporters, according to Bloomberg.
“There’s a feeling of identity with Trump,” Yale University economist and Nobel Prize winner Robert Shiller told the news service. “The man they identify with is in power and that’s exhilarating.”
But a report released this week from the Brookings Institution, a D.C.-based think-tank, shows many U.S. voters from all sides of the political spectrum are already worried about the effect of Trump’s anti-trade attitude on jobs.
A steelworker stops for a picture high above the streets of New York. The building boom that made American steel skywalkers famous has now moved to places like China. (Peter Morgan/Reuters)
Among experts it is difficult to find voices defending Trump’s tariff and trade war policy as being good for U.S. jobs.
The essential economic argument is that while some jobs in specific steel and aluminum plants would benefit, those have to be weighed against job losses — or reduced job creation — in other sectors.
U.S. factory bosses worry that even within the steel sector itself, manufacturers will be damaged by the tariff.
Just as Canada exports pulp and bitumen to the U.S. to be upgraded into higher value products, countries including Brazil, Russia and Mexico send unfinished steel to the U.S. to be transformed using sophisticated technology and sold at a higher price.
That upgrading of relatively raw materials, or value added, is one of the strengths of trade.
U.S. President Donald Trump is reportedly considering whether to spare Canada from his proposed steel and aluminum tariffs. (Leah Mills/Reuters)
Canada and the U.S. both export and import about the same amount of steel. Suddenly with a 25 per cent tariff, importers could be forced to try to ship goods east and west across the country instead of north and south across the border. The inefficiencies would be absurd.
The inevitable effect is that the price of U.S. steel and aluminum would rise. The price of products made with that steel and aluminum would also rise, making U.S. products less competitive at home and in foreign markets.
In the case of aluminum, the U.S. produces a fraction of its needs, meaning a trade war could leave it short of the metal for making all kinds of goods, including civilian and military aircraft.
Free trade rebound
And all that ignores the risk to U.S. exports if countries decide to retaliate. Forget Europe’s threat to Kentucky corn whisky, if Mexico were to decide to stop buying actual U.S. corn and milk products, the effect on Midwest farmers would be devastating.
As the Bank of Canada showed yesterday, the automatic stabilizing effect of currency movements following a trade disruption could result in all U.S. goods and services becoming more expensive here. After the central bank’s statement cited trade as one of its concerns preventing it from raising rates, the Canadian dollar declined, dipping below 77 cents US, but bounced back after rumours started circulating that Trump’s worst provisions were off the table.
Bank of Canada governor Stephen Poloz has already worried publicly that trade fears are having an adverse effect on jobs and the economy as companies hold off on investments until they see whether a NAFTA deal can be done.
By extension, the same considerations will apply to all North American investors until they see the final version of Trump’s tariff plans.
By contrast, clear signs of a resolution on steel, aluminum and NAFTA would likely have the opposite effect on the markets and the economy. They would also be good for jobs.
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