The President likes to call himself a tariff President and under some conditions it would be an excellent thing to call oneself. The question is under the existing global supply chain does that moniker hold water? The President likes to go to Pittsburg and talk about how the steel industry needs to come back and employ thousands at the fully integrated steel companies. The reality was always something different because over the years the industry changed. The fully integrated steel companies had higher fixed plants to make steel, but for many years they had good profit margins on areas where the smaller more flexible steel plants competed. The smaller plants over time became better and were able to compete with the same steel as the fully integrated steel mills at better prices and for them higher margins. If you want to understand watch on You Tube Havard Professor Clayton Christensen talk. In that environment, the President introduced tariffs.
The tariffs recently came off in an effort to sign the US Canada Mexico trade agreement, but how well did it do what it was suppose to? Under normal circumstances, tariffs are added to goods and services where the government wishes to encourage the producer to have the incentive to do the work in the home country. Over the past 200 years, there has been many elections about tariffs. The New York Times reporter Jim Tankersley in late May asked how well has the tariffs on aluminum and steel worked?
In both aluminium and steel, the tariffs did not change the competitiveness of the industry, for example the biggest cost to produce aluminium is electricity or a company needs to own a hydro electric water dam or receive a very long term inexpensive rates. That does not exist in the marketplace which means no new jobs. The tariffs were seen by executives as more of a hinderance to their operations. In terms of steel production, there has been a few thousand more workers added but the production of steel has remain the same as last year thanks to increased productivity in the workplace.
If the tariffs were to promote more jobs, then they have been expensive jobs as the biggest cost has been the increased prices of steel and aluminium to the consumer. At one time, the biggest user of steel was the auto industry, but it order to have lighter cars they use aluminum, they did not switch back to steel.
Linking to dividend paying stocks, every industry changes some for the good, but given the age of politicians they tend to remember the old ways. Often they fight battles they seem to think they remember rather than how the economy is actually changing. At the same time, they seem to remember all the people that worked in the mills, when many of those jobs have been changed to increased productivity and safety. Business needs to anticipate what will happen, politicians remember the past.
There are more questions than answers, till the next time – to raising questions.