Blog #694 Tariffs – again

More Tariffs?

From Morning Brew:

“President Trump tweeted Thursday night he’ll slap 5% tariffs on Mexican imports starting June 10 unless the flow of Central American migrants stops. If the border situation isn’t resolved, tariffs on Mexico will rise five percentage points monthly, as high as 25% on Oct. 1.

“Many U.S. industries and trade groups sounded the alarm, and the U.S. Chamber of Commerce is even considering legal options. But we’re going to focus on the auto sector.

“That’s because a massive chunk of U.S.-Mexico trade comes from the U.S. auto industry’s exchange of goods, services, and parts with entities American players own in Mexico, Axios reports.

  • For Detroit’s biggest carmakers, Mexico-built vehicles were 17% of all U.S. sales last year.
  • Overall, the U.S. imported $52.6 billion in cars and $59.4 billion in auto parts from Mexico in 2018.

Of all the Trump administration’s tariff threats, this is the most nightmarish for the all-important auto sector. Already, shrinking global car sales have dented worldwide GDP by an estimated 0.2%—you can expect that figure to grow if Mexico tariffs go into effect.”

Now, some history:

The Smoot-Hawley Act is the Tariff Act of 1930. It increased 900 import tariffs by an average of 40 to 48 percent. Most economists blame it for worsening the Great Depression. It also contributed to the start of World War II.

In June 1930, Smoot-Hawley raised already-high U.S. tariffs on foreign agricultural imports. The purpose was to support U.S. farmers who had been ravaged by the Depression. Instead, it raised food prices. It also compelled other countries to retaliate with their own tariffs. That forced global trade down by 65 percent.

Smoot-Hawley showed how dangerous trade protectionism is for the global economy. Since then, world leaders advocate free trade agreements that promote increased trade for all participants.

Are we moving towards such protectionism?  It sure seems like we are trying to fight a tariff war – an economic war.  

And …

The reality is that American consumers are going to be hit; American businesses are going to be hit, our foreign relations are going to be hit.

While I am not an economics expert, but I tend to be in the ‘free trade’ group.  If our products cannot complete with those around the world, we need to improve our products and make the quality better.  

China – now Mexico – maybe Europe – who knows where the economy is going to end up?

What do you think?

Karen

Posted by Bruce White

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