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Whenever I think of tariffs, I am reminded of history class.

Tariffs are quite boring to most people, myself included, so I never really paid much attention to them and, with reference to history class, the subject never came up as a test question!

This is the reason tariffs are such a pervasive subject in US history class:

Bill Mitchell makes an excellent point.

More recently:

Jack Posobiec makes a great point, too.

Going back even further — to 1983 — Ronald Reagan raised the tariff on imported heavyweight motorcycles in order to protect Harley-Davidson.

President Trump has imposed tariffs on European, Canadian and Mexican goods in addition to those from China.

On March 5, 2018, Sky News reported (emphases in the original):

Donald Trump appears to have rejected Theresa May’s appeal over his plan to impose tariffs on steel and aluminium imports into the US.

On Sunday, the Prime Minister used a telephone call with the US President to express her “deep concern” at his proposal, which has prompted an escalating war of words between Washington and the European Union.

Mrs May told Mr Trump that “multilateral action was the only way to resolve the problem of global overcapacity in all parties’ interests”, a Downing Street spokeswoman said.

The article includes this tweet:

However, as The Conservative Treehouse pointed out when that news item appeared, the EU imposed anti-dumping duties on Chinese steel in 2017, so it’s not as if Trump has come up with anything novel or alarming.

On March 8, The Conservative Treehouse explained Trump’s tariff strategy on steel and aluminium in full. Excerpts follow (emphases mine):

This trade specific issue, and many more soon to follow, are important to this president. This is President Trump’s subject area of specific expertise. These trade policies are the issues he has been discussing for over thirty years.

♦ … the target of the tariffs is China.  The specific target has always been China; and POTUS Trump, Commerce Secretary Wilbur Ross, USTR Robert Lighthizer and Trade Policy Adviser Peter Navarro know to hit their target they have to get past the hurdle of trans-shipments of Steel to proxy nations by China to avoid the tariff.

So what does POTUS Trump do…. he takes the position of the tariff opponents and amplifies it.  Trump’s trade policy opponents, realizing something was going to happen regardless of their opposition, started demanding “targeted tariffs”; that is, tariffs applied against target nations.  POTUS Trump brilliantly spins their position and says: ok, let’s target by granting “exceptions” to the tariffs.

What POTUS will announce is “targeted exemptions” to the trade tariffs on Steel and Aluminum.  Not “targeted tariffs”, but rather “targeted exemptions”.

The exemption approach puts more power in the hands of Team ‘America-First’ than targeting the steel dumpers directly. Team Trump will reward good behavior.

Any nation that acts like a Chinese proxy in the trans-shipment problem will not get relief from the tariffs. However, the nations that manufacture and trade honestly will be granted tariff relief. This allows Team Trump to evaluate the origin of the Steel used by countries that want to import their finished goods into the U.S. If they are using Chinese Steel, the tariff applies. If they are using their own manufactured steel, there is no tariff

No country will want to lose access to the U.S. market by engaging in the sketchy trans-shipping arrangement with China. POTUS Trump holds all the cards.

This approach also puts Mexico and Canada (NAFTA) on notice that if they use Chinese steel they will face a tariff despite our NAFTA agreement. Again, more leverage.

The stock market went up that day, and, on the next, there was more good news:

Trump discussed tariffs at his rally in Moon Township, Pennsylvania, on March 10, saying that the levies would help steel and coal return to the industrial heartland.

This is what happens when one country floods another with cheap goods. See the last two sentences (‘our’ should be ‘out’ and ‘works’ should be ‘workers’):

Then, there is the situation with the EU, as The Conservative Treehouse explained on March 11:

The protectionist EU hypocrites simply cannot afford to go toe-to-toe with the U.S. on trade.  The UK is in the process of formalizing their Brexit terms; the EU (essentially ‘Germany’) needs to find a way to make up for the lost revenue (billions in taxes) from the UK economy.  Currently the UK pays Brussels approximately a billion per month on a $2.5 trillion economy; that will stop.

Brexit reduces the overall EU GDP by $2.5 trillion.  German Chancellor Angela Merkel cannot -and will not- challenge President Trump.  In addition to being politically weak, Merkel has attached her economy to expansive environmental regulations (Paris treaty), though she is now attempting to pale down those regulations.  Chancellor Merkel cannot afford to run the risk of losing any access to the U.S. market.

A 25% decrease within the German auto sector alone would be enough to throw the entire nation of Germany into a recession; and functionally Germany is the EU.   President Trump holds all the leverage within the trade discussions with the EU…

…. WE ARE THE CUSTOMER in this equation.

Even the head of the AFL-CIO thinks Trump is doing the right thing:

A week earlier, Richard Trumka issued a statement on tariffs. The Hill reported:

The nation’s largest federation of unions on Thursday praised President Trump‘s plan to impose tariffs on steel and aluminum imports, even as GOP lawmakers in Congress and U.S. trade partners condemned the proposal. 

For years, we have called attention to the predatory practices of some steel exporting countries. Such practices hurt working people and cheat companies that produce in the U.S. We applaud the administration’s efforts today to fix this problem,” AFL-CIO President Richard Trumka said in a statement …

This is a great first step toward addressing trade cheating, and we will continue to work with the administration on rewriting trade rules to benefit working people,” Trumka continued.

On March 15, The Conservative Treehouse stated that perpetual trade deficits are bad for national security:

Another broad concern revolves around national security. A perpetual trade deficit is a statement about the competitiveness of the U.S. economy itself. By purchasing manufactured goods overseas for a long enough period of time, U.S. companies lose the expertise and even the factories to make those products; ex: try finding a pair of shoes made in … America. As the United States loses manufacturing competitiveness, we outsource more jobs, and our total standard of living declines.

Experts understand this:

As The Conservative Treehouse said, exemptions would be forthcoming:

On March 23, reported that the exemptions were temporary:

European Union member countries have been temporarily exempted from steel and aluminium tariffs announced by US president Donald Trump.

As well as the EU nations, six other countries – Canada, Mexico, Australia, Argentina, Brazil, South Korea – will also be free from the tariffs of 25% on imported steel and 10% on aluminium.

The White House said the levies have been suspended until May 1 this year, pending further discussions, as tariffs on other countries came into effect on Friday.

Mr Trump authorised the “pause” for the EU and other countries as Theresa May and European leaders were due to discuss the import duties on Friday.

European Council president Donald Tusk had said it was “time for politicians on both sides of the Atlantic to act responsibly”, while Mrs May had told Mr Trump of her “deep concern” over the plans.

US trade representative Robert Lighthizer had earlier signalled that the EU along with a number of other countries would receive temporary exemptions.

China immediately hit back with tariffs of their own against the US. At first, it was a threat. On April 2, it became a reality, as The Conservative Treehouse reported:

In retaliation for $50 billion in U.S. trade tariffs against Chinese imports, China laughably hits back with $3 their own billion tariffs against the U.S. According to most reporting Beijing has selected U.S. pork and scrap aluminum as targets for a 25% tariff, along with wine and fruit tariffs around 15%.

It should be emphasized the approach by China is rather ridiculous considering the Chinese government purchased the largest U.S. pork manufacturer Smithfield in 2013 for $5 billion; at the time the purchase price was 30% more than the company was worth.  Smithfield, now a Chinese company, represents 25% of all U.S. pork products.

Do you really think China is going to not import its own pork products… or subject them to a domestic tax?  Think about it.  It’s ridiculous.  China knows they have ZERO leverage in a trade-dispute with the U.S., they cannot afford to lose access to the U.S. market.

The example of Smithfield foods is exactly what we have outlined in how China cannot sustain itself and needs to control the assets of foreign countries.  Hence, their one-road/one-belt program for securing products and raw materials.  China is a dependent economy, they need to exploit global trade to surviveChina cannot feed itself. This is the inherent flaw within their short-sighted authoritarian government-controlled economic model.

On April 5, Trump upped the ante:

By March 9, China had backed down:

On the other hand, trade negotiations were going very well with South Korea. The Conservative Treehouse explained:

The deal is known as “KORUS” (KOR+U.S.), and has been in negotiations for over a year.

Part of the recent agreement within the auto-sector of the deal, between Moon Jae-in and President Donald Trump, via Lighthizer and Ross, is an exemption of U.S. steel tariffs for South Korea in exchange for a doubling of U.S. auto exports; from 25,000 to 50,000 American made cars, per U.S. automaker, per year.  (link)

This trade deal also has a role in talks with North Korea. The Singapore Summit hadn’t yet taken place at this point:

The timing for a U.S. leveraged KORUS deal could not be better.  On the geopolitical stage President Trump, through his sheer will, has thrown open the doors to a denuclearized Korean peninsular and is about to engage in direct discussions with North Korean leader Kim Jong-un.

The ramifications for peace on the Korean peninsular, and the economic outcomes therein, are seismic for South East Asia.  Thus we see today stunning reports of Kim Jong-un heading to Beijing for discussions of unknown substance.

There is no doubt both Kim Jong-un (DPRK) and Chinese President/Chairman Xi Jinping must engage in talks about the ramifications.  China has long used the DPRK as a proxy province for their own geopolitical strategy against the U.S. and western interests.

POTUS Trump using economic leverage to break down the walls of totalitarian regimes is a stunning position for two nations (China and DPRK) who must have thought such an action would be unconscionable a mere eighteen months ago.

There is more about KORUS here and here, including videos.

The other contentious areas of tariffs concern the US’s NAFTA partners Mexico and Canada.

On April 17, The Conservative Treehouse explained:

This Reuters article is framed around Mexico making a surprise announcement they will support the U.S. steel tariff against China by shutting down the NAFTA back door on that specific trade segment….  However, the bigger story is Mexico’s admission/concession to the U.S. trade position that Canada and Mexico structure access to the U.S. market inside their trade deals with other nations

By shipping parts to Mexico and/or Canada; and by deploying satellite manufacturing and assembly facilities in Canada and/or Mexico; China, Asia and to a lesser extent EU corporations, exploited a loophole.

Through a process of building, assembling or manufacturing their products in Mexico/Canada those foreign corporations can skirt U.S. trade tariffs and direct U.S. trade agreements. The finished foreign products entered the U.S. under NAFTA rules.

Why deal with the U.S. when you can just deal with Mexico, and use NAFTA rules to ship your product directly into the U.S. market?

This exploitative approach, a backdoor to the U.S. market, was the primary reason for massive foreign investment in Canada and Mexico; it was also the primary reason why candidate Donald Trump, now President Donald Trump, wanted to shut down that loophole and renegotiate NAFTA.

This loophole was the primary reason for U.S. manufacturers to relocate operations to Mexico. Corporations within the U.S. Auto-Sector could enhance profits by building in Mexico or Canada using parts imported from Asia/China. The labor factor was not as big an aspect of the overall cost consideration as cheaper parts and imported raw materials.

All nuanced trade-sector issues put aside, the larger issue was always how third-party nations will seek to gain access to the U.S. market through Canada and Mexico. [It is the NAFTA exploitation loophole which has severely damaged the U.S. manufacturing base.] That’s why this trade admission by Canada and Mexico is stunning.

Once truly fair trade deals are struck, this is what happens:

On May 31, Reuters reported that tariffs against the EU countries, Canada and Mexico would begin on Friday, June 1:

The United States on Thursday said it was moving ahead with tariffs on aluminum and steel imports from Canada, Mexico and the European Union, ending a two-month exemption and potentially setting the stage for a trade war with some of America’s top allies.

U.S Commerce Secretary Wilbur Ross told reporters on a telephone briefing that a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports from the EU, Canada and Mexico would go into effect at midnight (0400 GMT on Friday).

This is the background to what happened in June, to follow tomorrow.

Who knew tariffs could be so interesting?

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