President Trump in his view of the world believed trade wars are winnable. For most people outside the White House, this was a strange view to take, because for the past 80 years, American companies and governments have been setting up supply chains to benefit American companies. The supply chains did not necessarily help American workers but they were designed to help American companies and many of the largest companies in the America benefited. Then the President comes along and says something is not right. It is good that he wanted to change, except for change often means looking inwards at the systems America has put in place.

Veronique de Rugy a senior fellow at the Mercatus Center at George Mason University wrote an opinion piece in the New York Times in late August. Ms. de Rugy discussed the steel and aluminum tariffs. The 25% tariff was put on for “national security reasons”. The facts were the US Steel industry prior to the tariffs had a 70% market share and the Department of Defence report said no national security harm from global steel imports.

How did the justification allowed to go through? It turns out the Commerce Department who is responsibe for measuring a given tariff’s impact only measures the most direct impact an industry. By law, the Department does not have consider the impact on the industries which in this case use the steel and aluminum in their businesses. For example numbers produced by the Commerce Department shows that may increase employment by 14,000. The report says significantly larger number of jobs will be destroyed in industries downstream from metal production. This is why over 20.000 firms have sent in requests for exemption from steel tariffs. The number which is given is 6.5 million jobs could be affected downstream. The tariffs help 14,000 damage 6.5 million what is a President to pick?

Another trade body the US International Trade Commission or ITC is forbidden by statue from considering the impact of tariffs on downstream industries.

The solution or a solution that makes common sense is change the statues to ensure the trade bodies and Commerce Department seriously consider the downstream effects on both industries and consumers. (You may have notice prices went up because of the tariffs, when the tariffs come off will prices go down or will consumers pay more and companies profit more?  Wall Street is voting for the companies.)

Ms. de Rugy does not believe the statues will be changed because the 3 biggest boosters of the tariffs Wilbur Ross (he made money in the steel industry); Robert Lighthizer the US trade representative for years represented the steel industry and trade advisor Peter Navarro 2012 documentary Death by China was funded by steel producer Nucor.

Ms. de Rugy noted the last time the US under President Obama was tire tariffs and it proved to be an unmitigated failure.

Linking to dividend paying stocks, while many of us believe normal common sense will prevail and things will revert to some sort of nomalcy, often times they are take longer because govenment reguations make it harder to do normal. In the above example departments only look at a very narrow scope to solve a problem that did not need the tariff solution. If the real problem is China or Chinese steel imports – go after that and have US President say I was part of the problem I used Chinese steel in my building projects. Steel and aluminum are bulky importers when they come from China the metals come by boat and rail – there are only so many places to they can come to the US and if the US can not monitor those locations for big items, what do they do about illegal drugs? Trade systems are complex and they should be but fixing the internal process helps on the external process. If the company you invest in blames outside forces take a look inside the company to see do they really understand the problems and how are they tackling it inside the company?

There are more questions than answers, till the next time – to raising questions.