Import tariffs and inflation.
US import tariffs will ignite inflation. Higher prices of imported goods due to import taxes will enable US manufacturers to increase their prices without losing market share. This will cause inflation to spike.
An example of this happening in real life were the US steel and aluminum prices, which jumped up 5-10% after import tariffs on steel and aluminum were imposed in June 2018.
Import tariffs and GDP
US import tariffs will lead to counter tariffs. The counter tariffs will make US produced goods less competitive in foreign markets. As a consequence, export focused companies will see their exports and thus their production shrink, which in turn will reduce the GDP.
FED economic outlook
The Federal Reserve held this week interest rates steady for the second meeting in a row and maintained a prior prediction for two rate cuts at some point this year.
What the central bank did change, however, was its outlook on inflation and economic growth amid uncertainties stemming from President Trump's plans for an aggressive slate of new tariffs on top of new duties already imposed on China, Canada, and Mexico.
Fed officials now see inflation staying higher this year than previously estimated and economic growth going lower than prior predictions.
Fed spread-eagled
The Fed has only one tool to stimulate GDP or fight inflation: interest rates.
If the Fed raises the interest rates, then it is fighting inflation. Higher interest rates will create less demand for goods and thus will lower prices and inflation. However, with a lower demand for goods will lower production and the GDP will shrink as a consequence.
If the Fed lowers interest rates, then demands for goods will increase, with higher prices and thus higher inflation. The GDP will grow but the inflation will spike.
What the Fed cannot do is fight inflation and boost GDP both at the same time. If both happen at the same time then the Fed will be spread-eagled. FED Chair Jerome Powell will have to choose one over the other and let the other one go out of control for some time. How a runaway shrinking GDP or peak inflation hereafter can be brought under control again is highly uncertain. It may take a long time.
Historic import tariffs
President Trump is talking about bringing import tariffs back to levels of 10-25%. These are levels not been seen since the late 1800’s.
The last two major spikes in import tariffs coincided with the two biggest depressions in US history – the long depression (1873-1899) and the big depression (1929-1941). The two depressions had many root causes, but high import tariffs and a stagnation of world trade as a consequence did not help.
Import tariffs cause trade wars. Trade wars have no winners, only losers.
Let us hope that Republican policy makers will intervene and stop the import tariffs before it is too late.
Import tariffs will spread-eagle the FED
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Import tariffs will spread-eagle the FED
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Harry
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Re: Import tariffs will spread-eagle the FED
The European Union is delaying the retaliatory tariffs it announced after the United States imposed a 25% tariff on steel and aluminum imports earlier this month.
The countermeasures, which include higher tariffs on American whiskey, were set to take effect starting April 1 and follow a phased approach. Instead, they will take effect all at once in mid-April, pending negotiations, the Commission announced on Thursday. In addition to whiskey, the first phase called for 50% tariffs on motorboats and motorcycles from the US. The second phase, which was set to take effect on April 13, included tariffs on beer, poultry, beef, and produce such as soybeans, tomatoes, and raspberries.
Now both phases, which cover an estimated €26 billion ($28 billion) worth of American goods exports, are set to take effect on April 13.
The phase one delay was put in motion to allow “additional time for discussions with the US administration,” European Commission spokesperson Olof Gill said in a statement. “The change represents a slight adjustment to the timeline and does not diminish the impact of our response.”
President Donald Trump has said that as of April 2, a slew of new tariffs will be announced on goods coming to the US from all over the globe as part of his package of reciprocal tariffs. He has also said new, higher tariffs on goods such as lumber, autos and copper will be announced then.
“This is a very positive development and gives US distillers a glimmer of hope that a devastating 50% tariff on American whiskey can be averted,” US Distilled Spirits Council president and CEO Chris Swonger said in a statement Thursday.
I am glad that at least one party is keeping a cool head. I hope the US administration will respond accordingly. Unilateral tariffs result in trade wars. Trade wars have no winners, only losers.
The countermeasures, which include higher tariffs on American whiskey, were set to take effect starting April 1 and follow a phased approach. Instead, they will take effect all at once in mid-April, pending negotiations, the Commission announced on Thursday. In addition to whiskey, the first phase called for 50% tariffs on motorboats and motorcycles from the US. The second phase, which was set to take effect on April 13, included tariffs on beer, poultry, beef, and produce such as soybeans, tomatoes, and raspberries.
Now both phases, which cover an estimated €26 billion ($28 billion) worth of American goods exports, are set to take effect on April 13.
The phase one delay was put in motion to allow “additional time for discussions with the US administration,” European Commission spokesperson Olof Gill said in a statement. “The change represents a slight adjustment to the timeline and does not diminish the impact of our response.”
President Donald Trump has said that as of April 2, a slew of new tariffs will be announced on goods coming to the US from all over the globe as part of his package of reciprocal tariffs. He has also said new, higher tariffs on goods such as lumber, autos and copper will be announced then.
“This is a very positive development and gives US distillers a glimmer of hope that a devastating 50% tariff on American whiskey can be averted,” US Distilled Spirits Council president and CEO Chris Swonger said in a statement Thursday.
I am glad that at least one party is keeping a cool head. I hope the US administration will respond accordingly. Unilateral tariffs result in trade wars. Trade wars have no winners, only losers.
Harry
Re: Import tariffs will spread-eagle the FED
PE, which came first . The chicken or the egg? You seem dismissive of the fact that Europeans have been tariffing American goods since post WW2 to rebuild their countries. I guess you look at tariffing American goods for nearly 80 years as normality. Some prominent economists on the pro tariff side beleive that the tariff contribution to inflation is quite small. Trump is betting that the Chinese and Europeans will suck up the increase or eat the difference as opposed to eliminating their baseline tariffs. Your suggestion that sane minds in Europe are holding back may be a reflection of the 80 year feast coming to its end. Here's an article from the Economy Policy Institute(a liberal think tank more in line with European economics) worth reading.
https://www.epi.org/blog/tariff-increases-did-not-cause-inflation-and-their-removal-would-undermine-domestic-supply-chains/
https://www.epi.org/blog/tariff-increases-did-not-cause-inflation-and-their-removal-would-undermine-domestic-supply-chains/
Re: Import tariffs will spread-eagle the FED
MY TAKE is that Team Trump realizes that
1. The U.S. increasing debt level is unsustainable.
2. The U.S. trade deficit year-after-year is also unsustainable.
3. Team Biden's open border policy is one of the dumbest political decision EVER. The massive amount of deadly drugs coming into America that are killing 5,000 to 10,000 people per month is unsustainable.
If the Trump Tariff's do get more companies to build factories in the U.S. and reduce the drug related deaths, it will be worth the pain.
European countries need to remember that the U.S. does not need anything they sell us, to survive. Europe needs access to the U.S. market a lot more than the U.S. needs the European markets. We can live without French wines, BMWs and VWs.
We do need Canadian oil, so I expect tariffs on Canadian oil & gas to removed later this year if Canada will negotiate a trade deal. Getting into a trade war with Team Trump is not wise.
1. The U.S. increasing debt level is unsustainable.
2. The U.S. trade deficit year-after-year is also unsustainable.
3. Team Biden's open border policy is one of the dumbest political decision EVER. The massive amount of deadly drugs coming into America that are killing 5,000 to 10,000 people per month is unsustainable.
If the Trump Tariff's do get more companies to build factories in the U.S. and reduce the drug related deaths, it will be worth the pain.
European countries need to remember that the U.S. does not need anything they sell us, to survive. Europe needs access to the U.S. market a lot more than the U.S. needs the European markets. We can live without French wines, BMWs and VWs.
We do need Canadian oil, so I expect tariffs on Canadian oil & gas to removed later this year if Canada will negotiate a trade deal. Getting into a trade war with Team Trump is not wise.
Dan Steffens
Energy Prospectus Group
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Petroleum economist
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Re: Import tariffs will spread-eagle the FED
Dan,
I fully agree with you that the US debt is unsustainable, I partially agree that the trade deficit is unsustainable. Solve the budget deficit and the trade deficit will follow. I agree that trying to reduce deadly drug imports is a good thing. However, drug imports are not reduced by imposing import tariffs.
US debt and budget deficit
• The US debt for fiscal year 2024 was $ 35.4 trillion, while the GDP was $28.8 trillion. The debt/GDP ratio is too high at 123 %.
• The US debt is increasing as US government consistently is running a deficit. The U.S. has experienced a fiscal year-end budget surplus four times in the last 50 years, most recently in 2001.
• In 2024 the US government had revenues of $ 4.92 trillion and an expenditure of $ 6.75 trillion spending, resulting in a deficit of $ 1.83 trillion.
• The deficit for the first five months of fiscal 2025 hit a record $1.147 trillion, including a $307 billion February deficit for President Donald Trump's first full month in office. February was up 4% from a year earlier.
• In simple words: “The US Government has been living beyond it means for a long time”.
Solving the budget deficit
• The budget deficit needs to be solved.
• This can be done by a combination of reducing government expenditure and increasing government revenues.
• Cutting expenses is an internal US matter and as a Dutchman I will not comment on it.
• Increasing government income is done by means of increasing tax revenues.
• An increase in tax revenues can achieved through boosting the GDP, increasing existing tax rates, and by introducing new taxes (e.g. VAT like most of the rest of the western world).
• Also import taxes can be a source of government income.
• The problem with import taxes is that other governments will put retaliatory taxes in place which will limit US exports. This will reduce the GDP and thus income tax revenues.
• I believe that there is not a decent economist in existence, who believes that starting trade wars will boost the GDP.
• The solution of the budget deficit must be found in stimulating the economy and in increasing other taxes (not popular with voters but sometimes painful measures are required!). Leadership is required.
Solving the trade deficit
• The trade deficit is caused by the US consuming more goods than it produces.
• The trade deficit is fueled by the strong dollar, which makes international imports attractive and US exports uncompetitive.
• The strength of the dollar is linked to the budget deficit. The deficit is funded by international lending, leading to a demand for dollars and thus higher dollar exchange rates.
• If the budget deficit decreases, so will the strength of the dollar, closing the trade deficit.
Second of April 2025
• Present Trump wants to call the second of April 2025 “liberation day”.
• The rest of the world most likely is calling it “Second April’s fool day”.
• If the announcements are extreme, then I expect that future historians may refer to it as the start date of the 2025 depression, similar to President Hoover signing the Smoot–Hawley Tariff act into law on the 17th of June 1930, thus deepening the great depression.
Let us hope that the 2nd of April announcements are moderate.
Trade wars have no winners, only losers.
FYI: The two categories with the highest US import from Europe in 2024 were not wine or cars but medical and pharmaceutical products ($ 78 B), and medicaments ($ 42 B).
I fully agree with you that the US debt is unsustainable, I partially agree that the trade deficit is unsustainable. Solve the budget deficit and the trade deficit will follow. I agree that trying to reduce deadly drug imports is a good thing. However, drug imports are not reduced by imposing import tariffs.
US debt and budget deficit
• The US debt for fiscal year 2024 was $ 35.4 trillion, while the GDP was $28.8 trillion. The debt/GDP ratio is too high at 123 %.
• The US debt is increasing as US government consistently is running a deficit. The U.S. has experienced a fiscal year-end budget surplus four times in the last 50 years, most recently in 2001.
• In 2024 the US government had revenues of $ 4.92 trillion and an expenditure of $ 6.75 trillion spending, resulting in a deficit of $ 1.83 trillion.
• The deficit for the first five months of fiscal 2025 hit a record $1.147 trillion, including a $307 billion February deficit for President Donald Trump's first full month in office. February was up 4% from a year earlier.
• In simple words: “The US Government has been living beyond it means for a long time”.
Solving the budget deficit
• The budget deficit needs to be solved.
• This can be done by a combination of reducing government expenditure and increasing government revenues.
• Cutting expenses is an internal US matter and as a Dutchman I will not comment on it.
• Increasing government income is done by means of increasing tax revenues.
• An increase in tax revenues can achieved through boosting the GDP, increasing existing tax rates, and by introducing new taxes (e.g. VAT like most of the rest of the western world).
• Also import taxes can be a source of government income.
• The problem with import taxes is that other governments will put retaliatory taxes in place which will limit US exports. This will reduce the GDP and thus income tax revenues.
• I believe that there is not a decent economist in existence, who believes that starting trade wars will boost the GDP.
• The solution of the budget deficit must be found in stimulating the economy and in increasing other taxes (not popular with voters but sometimes painful measures are required!). Leadership is required.
Solving the trade deficit
• The trade deficit is caused by the US consuming more goods than it produces.
• The trade deficit is fueled by the strong dollar, which makes international imports attractive and US exports uncompetitive.
• The strength of the dollar is linked to the budget deficit. The deficit is funded by international lending, leading to a demand for dollars and thus higher dollar exchange rates.
• If the budget deficit decreases, so will the strength of the dollar, closing the trade deficit.
Second of April 2025
• Present Trump wants to call the second of April 2025 “liberation day”.
• The rest of the world most likely is calling it “Second April’s fool day”.
• If the announcements are extreme, then I expect that future historians may refer to it as the start date of the 2025 depression, similar to President Hoover signing the Smoot–Hawley Tariff act into law on the 17th of June 1930, thus deepening the great depression.
Let us hope that the 2nd of April announcements are moderate.
Trade wars have no winners, only losers.
FYI: The two categories with the highest US import from Europe in 2024 were not wine or cars but medical and pharmaceutical products ($ 78 B), and medicaments ($ 42 B).
Harry
Re: Import tariffs will spread-eagle the FED
USTR releases trade barriers report ahead of Trump's reciprocal tariffs
from Reuters: https://www.reuters.com/world/us/ustr-releases-trade-barriers-report-ahead-trumps-reciprocal-tariffs-2025-03-31/
The Office of the U.S. Trade Representative released its annual National Trade Estimate Report on foreign trade barriers yesterday, which "lists average applied tariff rates for trading partner countries and non-tariff barriers ranging from onerous food safety regulations to renewable energy requirements and public procurement rules."
At 397 pages, the report seems rather detailed and with the expected announcements on April 2nd for retaliatory tariffs, it will be interesting how countries respond. From the parts I read, the report is quite specific, and it appears (in my opinion) the U.S. has tried to work with the countries to address these, and there has been little to no movement.
Link to the "2025 National Trade Estimate Report on FOREIGN TRADE BARRIERS": https://ustr.gov/sites/default/files/files/Press/Releases/2025/2025%20National%20Trade%20Estimate%20Report.pdf
from Reuters: https://www.reuters.com/world/us/ustr-releases-trade-barriers-report-ahead-trumps-reciprocal-tariffs-2025-03-31/
The Office of the U.S. Trade Representative released its annual National Trade Estimate Report on foreign trade barriers yesterday, which "lists average applied tariff rates for trading partner countries and non-tariff barriers ranging from onerous food safety regulations to renewable energy requirements and public procurement rules."
At 397 pages, the report seems rather detailed and with the expected announcements on April 2nd for retaliatory tariffs, it will be interesting how countries respond. From the parts I read, the report is quite specific, and it appears (in my opinion) the U.S. has tried to work with the countries to address these, and there has been little to no movement.
Link to the "2025 National Trade Estimate Report on FOREIGN TRADE BARRIERS": https://ustr.gov/sites/default/files/files/Press/Releases/2025/2025%20National%20Trade%20Estimate%20Report.pdf
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Petroleum economist
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Re: Import tariffs will spread-eagle the FED
"Federal Reserve Chairman Jerome Powell said Wednesday the central bank will "wait for greater clarity" before considering any interest rate adjustments as he expects President Trump’s tariffs to generate "higher inflation and slower growth."
Those twin developments, he acknowledged during a Chicago speech, could create a major dilemma for the Fed — which is obligated to keep prices stable while also maximizing employment.
"We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension," he said".
That took only four weeks for a prediction on spread-eagling the FED to come true. No doubt Trump will now go after Powell.
It is time for Republicans in congress to stop being scared of President Trump and to take back control for tariff and taxes to where it belongs - in congress.
Those twin developments, he acknowledged during a Chicago speech, could create a major dilemma for the Fed — which is obligated to keep prices stable while also maximizing employment.
"We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension," he said".
That took only four weeks for a prediction on spread-eagling the FED to come true. No doubt Trump will now go after Powell.
It is time for Republicans in congress to stop being scared of President Trump and to take back control for tariff and taxes to where it belongs - in congress.
Harry
Re: Import tariffs will spread-eagle the FED
Harry, I'm losing respect for you. Your rants against Trump need to stop. You are supposedly a petroleum Economist, nothing else. We don't need your political comments on this board. FYI, the Congress is one of the most ineffective organizations in the USA. We can't rely upon them. The USA is $36 trillion in debt - things need to change.
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Petroleum economist
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Re: Import tariffs will spread-eagle the FED
Allen, I am sorry you do not like my tariff comments. No harm meant. I am not ranting against President Trump. I stay away from US politic. However, I have a strong dislike of import tariffs and the consequential trade wars. Tariffs not only affect the US, but also affect the rest of the world, me personally, as well as petroleum economics.
Together with the rest of the world I would like to know if the extent and the level of import tariffs imposed by President Trump are his personal views or whether these tariffs are shared by a majority in congress. I hope you are wrong on “Congress is one of the most ineffective organizations in the USA. We can't rely upon them”. That would not be good for democracy.
Let me give you three examples with increasing complexity where import tariffs directly impact petroleum economics of US and Canadian oil and gas companies.
Well costs
• If the 25% steel import tariffs would be fully passed on then the costs for tubing’s, casings, liners and well heads will increase with 25%.
• In a conventional oil well materials form about 40% of the total well costs This means that conventional well costs could go up with 40% *25% = 10%.
• For tight oil wells the effect of steel imports will be less pronounced as only 40% of the well cost are in drilling the well and 60% are in fracturing and completions. Tight oil well costs can go up with 10%*40%= 4%.
Steel tariffs will increase well costs and will reduce company activity levels. I am trying to assess the impact for each company.
Canadian realized oil prices
• Canadian oil producers have no other customers then the US refiners in the NW and US refineries in the NW have no alternative suppliers.
• Import tariffs therefore will either reduce the realized oil prices of Canadian oil and gas companies, reduce the profits of the downstream companies, lead to higher consumer prices, or a mixture thereof.
I am trying to assess the impact from tariffs on Canadian oil producers realized oil and gas prices
World oil prices
• Together with most macro-economists, I believe that tariffs and trade wars will reduce world GDP. If the world GDP reduces, then so will oil consumption.
• Over the 70-year period since WWII the relation between GDP growth and oil consumption growth has been on average 4:1. For every 4% GDP growth, world oil consumption grew with 1%.
• There were however periods with economic upheavals with substantial deviations. I believe that in an imminent period of GDP decline, oil consumption will decline linear with the GDP.
• If world GDP would decline with 2-3% due to the tariffs and the trade wars, then world oil consumption could fall with 2-3%. World oil consumption is about 102 M bbl/d. A fall in world oil consumption thus could be 2-3%*102 = 2-3 M bbl/d.
• The fall in oil consumption will have a devasting effect of oil prices, dropping to $ 40-50/bbl. The low prices will last until the balance between supply and demand is restored.
• As the US light tight oil has the highest decline rate in the world and has the shortest lead times, I expect that the re-balance between supply and demand will become first visible in US oil production.
• In short: Due to tariffs US drilling activity could reduce significantly between 2025 and 2027. US oil production could fall from 13.5 M bbl/d in 2025 to 10.5-11.5 M bl/d in 2027.
I try to analyze which companies would be least affected and I try to stay away from those which might go under. I have already reduced my oil price for ranking from $ 70/bbl to $ 65/bbl. If tariffs persist, I may have to lower this further.
Conclusion
Tariffs are no good and will have a negative impact on the US and Canadian oil industry. Let us hope that a solution can be found where the extent of tariffs can be reduced and levels restored to normal levels.
Together with the rest of the world I would like to know if the extent and the level of import tariffs imposed by President Trump are his personal views or whether these tariffs are shared by a majority in congress. I hope you are wrong on “Congress is one of the most ineffective organizations in the USA. We can't rely upon them”. That would not be good for democracy.
Let me give you three examples with increasing complexity where import tariffs directly impact petroleum economics of US and Canadian oil and gas companies.
Well costs
• If the 25% steel import tariffs would be fully passed on then the costs for tubing’s, casings, liners and well heads will increase with 25%.
• In a conventional oil well materials form about 40% of the total well costs This means that conventional well costs could go up with 40% *25% = 10%.
• For tight oil wells the effect of steel imports will be less pronounced as only 40% of the well cost are in drilling the well and 60% are in fracturing and completions. Tight oil well costs can go up with 10%*40%= 4%.
Steel tariffs will increase well costs and will reduce company activity levels. I am trying to assess the impact for each company.
Canadian realized oil prices
• Canadian oil producers have no other customers then the US refiners in the NW and US refineries in the NW have no alternative suppliers.
• Import tariffs therefore will either reduce the realized oil prices of Canadian oil and gas companies, reduce the profits of the downstream companies, lead to higher consumer prices, or a mixture thereof.
I am trying to assess the impact from tariffs on Canadian oil producers realized oil and gas prices
World oil prices
• Together with most macro-economists, I believe that tariffs and trade wars will reduce world GDP. If the world GDP reduces, then so will oil consumption.
• Over the 70-year period since WWII the relation between GDP growth and oil consumption growth has been on average 4:1. For every 4% GDP growth, world oil consumption grew with 1%.
• There were however periods with economic upheavals with substantial deviations. I believe that in an imminent period of GDP decline, oil consumption will decline linear with the GDP.
• If world GDP would decline with 2-3% due to the tariffs and the trade wars, then world oil consumption could fall with 2-3%. World oil consumption is about 102 M bbl/d. A fall in world oil consumption thus could be 2-3%*102 = 2-3 M bbl/d.
• The fall in oil consumption will have a devasting effect of oil prices, dropping to $ 40-50/bbl. The low prices will last until the balance between supply and demand is restored.
• As the US light tight oil has the highest decline rate in the world and has the shortest lead times, I expect that the re-balance between supply and demand will become first visible in US oil production.
• In short: Due to tariffs US drilling activity could reduce significantly between 2025 and 2027. US oil production could fall from 13.5 M bbl/d in 2025 to 10.5-11.5 M bl/d in 2027.
I try to analyze which companies would be least affected and I try to stay away from those which might go under. I have already reduced my oil price for ranking from $ 70/bbl to $ 65/bbl. If tariffs persist, I may have to lower this further.
Conclusion
Tariffs are no good and will have a negative impact on the US and Canadian oil industry. Let us hope that a solution can be found where the extent of tariffs can be reduced and levels restored to normal levels.
Harry
Re: Import tariffs will spread-eagle the FED
Harry,
Conflict between the President and the Fed is not new. A quick search on the history of conflict will provide more detail, and is rooted in different goals between the executive branch and Fed. I don't know who the next President will be, or the makeup of the Fed Board of Governors at that time, but if history rhymes, then I would take the bet that there will be conflict and disagreement.
In your analysis, there are two points I would like to raise.
1. Well costs and the impact of a 25% tariff. Your math is applying the 25% tariff to the final manufactured product, but the tariff is only on the imported raw material (steel). Assuming the product (tubing, casings, liners, well heads) is manufactured in Canada or the U.S., the steel is a smaller component of the final cost, which would include the actual manufacturing costs to turn the steel into the finished good. Those costs (eg, the actual manufacturing of the finished good, labor, sales & marketing, support, admin, etc) are not impacted by the 25% tariff.
2. I do agree with you on tariffs, but this is about more than tariffs from other countries. It's also about trade barriers that have been put in place to restrict the flow of imported goods. Do you also feel that all trade barriers should be removed? If not, then how does that square with your argument that no tariffs should be in place?
edit: One other point... Congress. One thing to know about Congress, and politicians in general, is to not always believe what they are saying (I know, I know, it's hard to imagine a dishonest politician... lol ). Case in point, during Trump's first term he imposed tariffs on China. The democrats (and some republicans) were up in arms for various reasons. The main one that comes to mind is the impact on American farmers. Biden wins the Presidency and Democrats are in control of both parties of Congress (doesn't this sound like the current situation today?). Based on all the negative press and comments on the tariffs on China, one would expect Biden to revoke those tariffs immediately.
In fact, Biden did not revoke the tariffs but raised them (and I don't recall the Democratic congress complaining about the tariffs on Chinese imports anymore).
Conflict between the President and the Fed is not new. A quick search on the history of conflict will provide more detail, and is rooted in different goals between the executive branch and Fed. I don't know who the next President will be, or the makeup of the Fed Board of Governors at that time, but if history rhymes, then I would take the bet that there will be conflict and disagreement.
In your analysis, there are two points I would like to raise.
1. Well costs and the impact of a 25% tariff. Your math is applying the 25% tariff to the final manufactured product, but the tariff is only on the imported raw material (steel). Assuming the product (tubing, casings, liners, well heads) is manufactured in Canada or the U.S., the steel is a smaller component of the final cost, which would include the actual manufacturing costs to turn the steel into the finished good. Those costs (eg, the actual manufacturing of the finished good, labor, sales & marketing, support, admin, etc) are not impacted by the 25% tariff.
2. I do agree with you on tariffs, but this is about more than tariffs from other countries. It's also about trade barriers that have been put in place to restrict the flow of imported goods. Do you also feel that all trade barriers should be removed? If not, then how does that square with your argument that no tariffs should be in place?
edit: One other point... Congress. One thing to know about Congress, and politicians in general, is to not always believe what they are saying (I know, I know, it's hard to imagine a dishonest politician... lol ). Case in point, during Trump's first term he imposed tariffs on China. The democrats (and some republicans) were up in arms for various reasons. The main one that comes to mind is the impact on American farmers. Biden wins the Presidency and Democrats are in control of both parties of Congress (doesn't this sound like the current situation today?). Based on all the negative press and comments on the tariffs on China, one would expect Biden to revoke those tariffs immediately.
In fact, Biden did not revoke the tariffs but raised them (and I don't recall the Democratic congress complaining about the tariffs on Chinese imports anymore).
Re: Import tariffs will spread-eagle the FED
Ray, you make some excellent points. I believe Trump's endgame is a world with free trade everywhere - no barriers whatsoever. Europe, Japan, etc. have existing barriers to US goods.
Re: Import tariffs will spread-eagle the FED
As Ray articulated a 25% tariff is on raw steel not the final product.
The National Bureau of Economic Research analyzed the 2018–2019 U.S. tariffs on Chinese goods. They found that for every 10% tariff, retail prices rose 1–2%. So even a 50% tariff, if applied, might cause retail prices to edge up 5–10% — not 50%. That’s a far cry from media headlines.
I’m a believer that Trump wants balanced trade. In a utopian world , free trade markets would be the norm. Unless an exporting country is willing to eliminate all non tariff trade barriers, there will always be a tariff levied on the basis of the importing countries trade deficit. This is the only way to monetize the results of these trade barriers. Perhaps there will be a floating ,tariff rate depending on changes in yearly or quarterly trade balance.
The National Bureau of Economic Research analyzed the 2018–2019 U.S. tariffs on Chinese goods. They found that for every 10% tariff, retail prices rose 1–2%. So even a 50% tariff, if applied, might cause retail prices to edge up 5–10% — not 50%. That’s a far cry from media headlines.
I’m a believer that Trump wants balanced trade. In a utopian world , free trade markets would be the norm. Unless an exporting country is willing to eliminate all non tariff trade barriers, there will always be a tariff levied on the basis of the importing countries trade deficit. This is the only way to monetize the results of these trade barriers. Perhaps there will be a floating ,tariff rate depending on changes in yearly or quarterly trade balance.