So the idea of a trade war is beginning to rise with Trump slapping tariffs on our closest allies, plus China. As someone who isn't very knowledgeable when it comes to trade, can someone on the escapist enlighten me on how this harms the american economy? Thank you.
Well, because Trump's tariffs injure multiple trading partners, and the Chinese as well asother nations have promised to meet dollar for dollar the costs of Trump's tariffs.
So what ends up happening is that U.S. products will be priced out of competition, as thus diminished consumption and yet higher domestic prices due to more expensive domestic materials production and supply leading to higher manufacturing costs ... and this injures U.S. jobs as well as the double whammy of making so many basic goods far more expensive. Like aluminium for instance doesnot affect the Chinese at all (well, not much). It injures Canada.
One of the reasons U.S. motorcycles were targeted by the EU, because steel and aluminium prices will jump tremendously in the U.S., and on top of that, U.S. motorcycles in the EU will be well and truly priced out of favour compared to local producers like Triumph, etc.
I mean .... why the fuck you'd buy a Hardly Rideable when you can buy a Triumph or Moto Guzzi to begin with? There'll always be idiots with cash, I suppose.
And given that the U.S. cannot really produce aluminium domestically as cheaply as places lke Canada, which provides roughly half of all U.S. consumption of primary aluminium. Primary aluminium and alumina is cheapest made in countries with a lot of excess (cheap) power (Canada has an abundance of hydroelectric power generation tosubsidise high energy demanding industries like aluminium production), and the easiest possible means to access bauxite.
The U.S. will need to import 99% of the bauxite it will need to produce equivalent volume in the U.S.
So it will likely import that from Australia if it wishes to domestically source more of its own primary aluminium through domestic smelters. Which might be why the U.S. excluded Australia from the tariffs given where the fuck else would it even begin to resource the bauxite necessary to stimulate their own domestic production?
Australia is a a decent provider of high quality primary aluminium, but not a large producer of things like aluminium for soda cans.
So there's an item that will increase in cost if the U.S. attempts to resource more of its domestic consumption.
The other big one is steel ... despite the U.S. not having the right coking coal to produce high quality steel products. So if the U.S. legitimately wants to resource its own high quality steel consumption, it will need to import high grade coking coal from places like Australia (as well as buy our high carbon steel like they do already) to supply steel manufacturing consumption. Once again, another reason why Australia may have been spared such tariffs. Given reciprocation might have meant that price and cost inflation may have resulted in still yet cheaper steel overseas, and merely greater consumption costs.
The problem with tariffs as they are, is the biggest winners are often the people who try to avoid them all together and stay out of a trade war.
Like why Australian pollies were kicking up a stink and sending delegates to the U.S. aboutthe 'evils' of a trade war, but are now quiet when the U.S. excluded Australian exports ... even though tariffs are affecting its allies. Ultimately Australian consumers may end up having to watch out for dumping, and will suffer the downturn in Chinese manufacturing, but at the same time we benefit from cheaper consumption of Chinese goods with perhaps increased export capacity into U.S. and European markets...
Much like the trade war of the 70s inbetween the U.S. and numerous European markets, the big winner of that was none other than the Soviet Union, who stayed out of it, and benefitted from cheaper European imports whose prices may have been higher if the U.S. accounted for more of their consumption.
So trade wars are kind of funny like that, given there are rarely winners barring those thatare really quiet, off on the side, and don't feel the need to weigh into the discussion.
Best to be the arms dealer, not the shooter/target.
The big problem isn't merely reduced consumption of U.S. goods and dearer materials supply. It's also the price of shipping. Something economists often forget to factor into prices of goods. See, when ships enter harbours, it costs a hell of a lot more if those hips can't load up for the trip back/elsewhere.
So nations often negotiate FTAs from the position of how best the other nation might facilitate a consumption of goods liable to promote that equality of exchange.
It's the whole reason why scrap iron was the 2nd most exported good the U.S. had at its disposal.
Global trade, and cheap shipping, is a careful ballet. Too much, or too little the total volume deficit (incredibly complex when you consider multinational stops), the higher the prices of shipping goods. This is particularly relevant the more isolated you are. One of the reasons FTAs help not only market exposure and access, but also help reduce the prices of doing business between two countries in a very literal sense that you have a lot more cargo going both ways.
Australia had an FTA with China concerning a whole lot of weird goods for a reason ... it made Chinese shipping to Australia cheaper because there were more goods Australia could load up on ships going back.
Like Australian wine...
Cheaper shipping, by ships coming and going equally or closely mutually loaded, is the secret to successful penetration of foreign markets. If the price of shipping is too expensive between two nations due to high disparity of total volume exchange, so too does the operating costs of trying to penetrate that market in the first place.
You need a careful ballet.
Which is another reason why trade wars can become so destabilizing. Hence why you sort of want to be the nation that stays out of it, and cansee where best to negotiate and with whom in the aftermath... because after a trade war, nations become very interested in examining how best to penetrate other markets and capitalize on total supply and cheapen thecost ofbusiness in multiple places.
Where are the opportunities of operating?
Which is why FTAs often create jobs as much as destroy them.
The FTA between Australia and China allowed Australian wine producers to dismantle the European presence there and clawing their way into a dominant position for Chinese consumption ... a combination of greater shipping equality as well as lower tariffs meant Australians could outperform European producers.
And within a year you're talking almost twice the volume in total consumption.
Addressing shipping is important.