C’mon on Down! Trade Dealing in a New Reality

Our former TV reality show president says that countries are lining up to negotiate new bilateral trade agreements at a time when he is pursuing trade wars with tariffs and reportedly seeking to undermine the World Trade Organization.

“Let’s make a deal!,” is what Trump says he’s hearing from counterparts abroad. On its face, this claim from the president might make it seem he is doing something constructive.

Or is it destructive and counterproductive? Trump promised to be a disruptor and challenger of the status quo. To be good at that tactic, you must fully understand the status quo. This process is known as a reality check.

Trump has repeatedly said he wants to slap a tariff on European cars in the U.S., as if to even the playing field for U.S. automakers. What is odd about that suggestion is that many foreign companies already build vehicles at U.S. plants with American workers:

  • BMW in South Carolina
  • Volkswagon in Tennessee
  • Mercedes in Alabama
  • Hyundai in Alabama
  • Toyota trucks in Texas

Earlier this week, I read Trump said tariffs on European carmakers would encourage them to build vehicles here to avoid an import tax. Of course, I repeat, they already do build vehicles here. I can only guess he wants to take credit for something that has been going in for years as a result of state and local officials crafting economic development incentives to bring in such major employers.

What is the true cost? What is the price of these tariffs? Let’s start with the steel and aluminum import tariffs Trump imposed. Well, that increased costs for U.S. manufacturers, including Mid-continent Nail, which as a result cut 60 jobs in Missouri last month and warns it might go out of business by the end of August. And, of course, Trump got annoyed with Harley-Davidson for announcing that it would need to move some production overseas due to the tariffs. That too means some more U.S. workers will get laid off. In Texas, workers at a steel mill that makes pipe and tube products started a letter-writing campaign to Trump, asking him to lay off the tariffs.

Tariffs and retaliatory tariffs are not just problematic for American manufacturers and their American employees. Those increased costs are passed through in the pricing of products, so the pain becomes more widespread.

There’s another trouble on the horizon: the flattening of the yield curve, a key economic indicator that looks at rates on Treasury bonds. A higher curve indicates economic growth. While some think this is happening because of the strength of the 2-year Treasury yield, which is a positive sign, others worry this flatter curve could signal a possible recession.

Now, I’m not an economist, just a former small-time business news writer, but those extra costs are something to ponder when considering if Trump is doing anything to improve the economy. To me, the price is not right.

The Sage Leopard