Trump’s Threatened Mexican Tariffs A ‘Molotov Cocktail,’ Warns Manufacturers Group

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Tariff pain is landing hardest on Trump voters.

The head of a U.S. manufacturers association called Donald Trump’s plan to impose new tariffs on Mexico an explosive “Molotov cocktail” policy.

“Intertwining difficult trade, tariff and immigration issues creates a Molotov cocktail” policy that would have “devastating consequences on manufacturers in America,” warned Jay Timmons, president and chief executive officer of the National Association of Manufacturers.

Trump threatened via tweet Thursday to impose the tariffs not for business reasons but to force Mexico to stop people from entering the U.S. illegally. Tariffs would start at 5% on June 10 and gradually ramp up to 25% in October, he tweeted.

The threat of a “second front” on Trump’s devastating trade war on top of ramped-up tensions with China sent the stock market spiraling downward. Trump raised the Mexico tariff issue even as Republicans were pressing to pass the administration’s negotiated U.S.-Mexico-Canada Agreement, which was supposed to be the “new NAFTA” — the North American Free Trade Agreement. That may be in jeopardy now.

The U.S. Chamber of Commerce is considering a legal challenge to the threatened new tariffs.

Despite mounting concerns, Trump doesn’t seem to be changing his mind. He gushed in a tweet Saturday that “tariff is a beautiful word indeed!”

Trump’s tariffs are falling heaviest on farmers and working class Americans in manufacturing jobs. They’re the same people who helped put him over the top — but just barely — in the presidential election. The federal government is already spending a total of $28 billion in subsidies to help farmers weather a trade war of Trump’s own making. The threatened Mexican tariffs would hit autoworkers hard. Mexico is the largest source of parts for U.S.-made cars.

A trade war with Mexico would also add even more pain to what farmers are already experiencing. Mexico, which would likely exact retaliatory tariffs if Trump goes forward with his plan, is the No. 1 export market for U.S. dairy.

An analysis of tariff pain last month by Trump’s own bank, Deutsche Bank — weeks before the latest threat of new tariffs — found that of the top 10 states most affected by tariffs, all but two of them, Washington and Oregon, voted for Trump in 2016.

“I don’t think people really understand what is at stake,” Alex Camera, CEO of privately held Seattle business Audio Control, told Forbes early last month about the hike in tariffs on Chinese goods.

“Trump says China is paying these tariffs, but they are not. I am. U.S. companies are paying it at the port.”

U.S. stock market forgoes $5 trillion in returns thanks to trade war, estimates Deutsche Bank

Missed-out equity returns equal to 12 years of U.S. bilateral trade deficit with China

The U.S. stock market has left $5 trillion on the table as trade tensions over the past 17 months contributed to an effectively sideways trade, Deutsche Bank estimated on Friday.

“While other factors also arguably played a role, the trade war has been key in preventing a recovery in global growth and keeping U.S. equities range bound. Foregone U.S. equity returns from price appreciation for 17 months are worth $5 trillion,” wrote Binky Chadha, the bank’s chief strategist, in a Friday note, based on an price appreciation at an annual rate 12.5% (see chart below).

Deutsche Bank

Chadha’s calculation is based on the capitalization of the Russell 3000RUA, -1.28% a broad measure of equity markets, which had a capitalization of $28.7 trillion at the start of 2018. Foregone returns for the index over 17 months comes out to $5 trillion.

The S&P 500 SPX, -1.32% in the first four months of 2019 bounced back sharply from a steep fourth-quarter selloff nudging to an all-time closing high in April. But the index has retreated more than 6% in May, posting its first monthly decline since December and its worst May performance since 2010. The Dow Jones Industrial Average DJIA, -1.41% which failed to return to record territory before the May swoon, also fell more than 6% for the month.

The May retreat was blamed by analysts in large part on an escalation in the U.S.-China trade fight that shows little likelihood of near-term resolution. The battle between the world’s two largest economies has contributed to jitters over the global and U.S. economic growth outlook. Those worries were amplified after President Donald Trump late Thursday announced he would place escalating tariffs on all Mexican imports in an attempt to pressure the country to stem the flow of migrants to the U.S. southern borde

Chadha said the toll is comparable to the impact of the European financial crisis in 2011-12, which was also around the time of the U.S. debt downgrade, as well as to the dollar-and-oil shocks that accompanied the collapse of crude prices in 2014-2016.

“In terms of duration, the current episode is still 5-6 months short of those two episodes. But it is notable that the current episode has occurred in a context of significantly stronger U.S. macro and earnings growth and a lower unemployment rate,” Chadha said.

The foregone returns are already equal to 12 years of the U.S.’s bilateral trade deficit with China, he also noted.

“While we subscribe to the consensus view that U.S. trade deficits reflect macro and not micro factors and trade policy initiatives are unlikely to have any impact on them, the point is that even if one did take the opposite view that the bilateral trade deficits are bad and that trade policy would fix them, the cost in terms of foregone equity returns is already worth 12 years of that bilateral merchandise deficit,” Chadha wrote.



Democrats 2020: The Grievance Party

Describing the Democratic Party as one built on "identity politics" used to be a pejorative. But Georgia's failed 2018 Democratic gubernatorial candidate, Stacey Abrams, recently defended this description of her party. "I would argue that identity politics is exactly who we are," said Abrams, "and it's exactly how we won. ... When we refuse to engage in the conversation of identity politics, when we refuse to acknowledge that we see you and we understand you and we understand the barriers that you face, then what we are met with is a lack of trust."

Fellow Democrat and presidential candidate Pete Buttigieg apparently failed to get the memo. A week before Abrams embraced and even expressed pride in Democrats' identity politics, Buttigieg was blasting President Donald Trump for his "racist" use of it. Trump, said Buttigieg, engages in "peak white identity politics" that creates a "crisis of belonging" in America "designed to drive apart people with common interests." Buttigieg added, "When you do not belong, it doesn't just put you in a bad mood; it puts you in a different country."

By "identity" politics, Democrats really mean grievances. The party leaders push the narrative that blacks, Hispanics, gays, etc. are victims, whether due "inequality" or "sexism" or "racism" or "otherism."

Take 2020 Democratic presidential contender Sen. Kamala Harris, who announced plans to end the alleged grievance of "unequal pay." Harris claims women working full time make 80 cents on the dollar for doing the same work as men. She insists it's worse for minorities: Black women are only paid 61 cents on the dollar, Hispanic women 53 cents. Never mind that the Labor Department long ago debunked this myth.

In 2009, the Labor Department, after controlling for education, job differences, number of hours worked and other factors, found that the wage gap between genders shrank to 5%: "A greater percentage of women than men tend to work part-time. Part-time work tends to pay less than full-time work. A greater percentage of women than men tend to leave the labor force for childbirth, childcare and elder care. Some of the wage gap is explained by the percentage of women who were not in the labor force during previous years, the age of women, and the number of children in the home. Women, especially working mothers, tend to value 'family friendly' workplace policies more than men. Some of the wage gap is explained by industry and occupation, particularly, the percentage of women who work in the industry and occupation." As to the remaining 5% difference, the report said even that could be explained by reasons other than sexism.

Harris' proposed "equal pay" law mandates that companies obtain federal certification to demonstrate women are not being underpaid. Failure to certify could cost billions in fines. Companies also incur fines of 1% of average daily profits for each 1% "gap" between the pay of male and female employees who perform the same job.

Harris might like to start with her own Senate office. Her average male Senate staff salary was 6 cents more on the dollar compared to that of a female staffer, the Washington Free Beacon found. Men earned more on the dollar compared to women during the first full month on Harris' presidential campaign. But this is par for the course. President Barack Obama repeatedly railed against the alleged "pay gap" between men and women. Never mind that during his 2008 presidential campaign, Obama paid his non-intern male Senate staffers more than he paid female staffers, $54,397 to $45,152, respectively. In the White House, President Obama continued his "sexist" tradition, paying male staffers more than female staffers, $71,000 to $60,000, respectively, according to a 2011 annual report. Sen. Hillary Clinton, from 2002 to 2008, also paid male staffers more than female staffers -- $15,708.38 more, with females getting 72 cents on the dollar compared to men, according to Senate expenditure reports.

Socialist Democratic presidential contender Bernie Sanders peddles another grievance: If some get paid a lot, why can't others get paid more? "If we are a nation that can provide contracts to baseball players for hundreds of millions of dollars," said Sanders, "don't tell me we cannot pay teachers in this country the kind of wages and salaries they deserve."

Sanders might be on to something. He implicitly suggests that under a privatized educational system, teachers would be compensated at the level of their expertise, as defined by the free market. Under such a private system, schools could bid for "top draft picks," the best students coming out of education colleges. Put the Annual Teacher Draft on cable TV. The best sign lucrative contracts, renewed based upon performance, with pay adjusted up or down accordingly. No tenure, no requirement of an act of God to fire someone for incompetence. Grievance solved.

Sanders for secretary of the Department of Education!


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