Tariffs: He Really Meant It

(photo Schiefelbein/AP/American Prospect)

The big news this afternoon was the new tariffs imposed on the rest of the world:

President Trump’s sweeping new tariff plan reverberated through global markets, with U.S. stock futures slumping and the dollar tumbling to its lowest level of the year. Popular stocks such as Apple, Amazon and Nike were among the largest retreaters in offhours trading and oil prices slid.

Here’s what to know:

All U.S. imports will be subject to a 10% tariff, effective April 5.

Trump will impose even higher rates on some nations that the White House considers bad actors on trade. For example, Japan faces a 24% duty and the European Union faces a 20% levy, effective April 9.

China will be hit with a new 34% tariff, adding to previous duties, like the 20% tariff Trump imposed over fentanyl. That means the base tariff rate on Chinese imports will be 54%, before adding pre-existing levies.

The tariffs are pegged to amounts Trump says other countries impose on the U.S. Here’s the math behind the levies.

Some global leaders are vowing to retaliate, while others are hopeful there is still time to strike a deal with the U.S.

Canada and Mexico are excluded from the reciprocal tariff regime. They are still subject to plans to impose 25% tariffs on most imports to the U.S., though the administration has given an exemption for autos and many other goods. Here’s a list of the products and countries exempted from the tariffs.

Trump’s 25% tariffs on foreign-made autos and parts took effect at 12:01 a.m. ET

Four years ago we reflected on the stagflation of the Seventies and how it took years for Ronald Reagan and Paul Volcker to wring inflation out of the system and restore economic growth.

The short-term pain hurt the Republican Party politically in the Eighties and may well hurt it this time as President Trump tries to reset 80 years of globalization and no-import-tariffs "free trade" practiced by the United States and no one else. It was clear to your humble blogger that President Trump did not talk about the pain of his policies in order to get elected, but it is better that he get it out of the way now while his party controls both the House and Senate.

The Affection for Avocados

CA: you call that an avocado?

It was only after moving to the Mainland that I fully appreciated Hawaii's home-grown fruits. Relatives and friends grew mangos, papayas, bananas, lychee, and avocados, all of which I received fully ripe (and free, of course).

California supermarkets carry these items, usually imported from the Philippines and Mexico, but they're half the size and picked for transport before they're ripe.

BTW, it's illegal to hand-carry fresh produce on flights from Hawaii to California in order to prevent the spread of fruit flies.

Hawaii: now that's an avocado.

Of all these tropical fruits, it was the avocado that has exploded in popularity. The reasons are free trade with Mexico and ripening technology.

We have developed such a voracious appetite for this versatile fruit that the U.S. now annually brings in nearly 3 billion pounds of avocados. In fact, 90% of the avocados that Americans eat are imported—and close to 90% of those imports come from Mexico.

It’s hard to remember a time when their availability was so limited that avocados were more like a luxury item. Except that time wasn’t very long ago.

They were only allowed into the country from Mexico in 1997. They weren’t accessible across the country until 2007. Now they are beloved everywhere in America—and not just because they are healthy and delicious.

“The success of the avocado industry is rooted in our trade relationship with Mexico,” said David Ortega, a Michigan State University professor of food economics and policy...

Now a professor at the University of California, Riverside, [Mary Lu Arpaia] started her career there in 1983, when unripe avocados sold in grocery stores felt like baseballs. But it was around that time when avocado researchers became obsessed with an idea that would revolutionize their industry: ripening.

To increase awareness, demand and sales, avocado growers realized they had to give consumers a product they actually wanted, something just firm enough to buy in the morning and eat for dinner that night.

Basically, avocados had to be more like bananas.

It was a simple insight that would change the industry forever. Through a series of experiments, researchers figured out how to improve ventilation on pallets of ripening avocados.

As soon as Americans were able to grab softer avocados in a grocery store, they began filling their shopping carts with them. These days, you can feel a bunch of plump avocados and pick the ones that are immediately ready to be smashed into guacamole. But that’s only possible because of all that ripening progress.

“It laid the foundation for this avocado renaissance,” Arpaia said.

To home consumers the imposition of a 25% tariff on a $9 package of six (6) avocados to $11.25 won't reduce purchases much but it will definitely affect restaurants where guacamole and avocado toast enjoy high margins.

Avocados, like eggs, are not as important to the economy as gasoline or electricity but are of symbolic importance. The majority of Americans will probably allow the Trump Administration some time to work through new tariff and trade arrangements, but the trick will be in ascertaining when patience will run out.

The Trump Tariffs

Republican Senators greet Donald Trump in DC (WSJ)

Donald Trump's tariff proposals--and their acceptance by the Republican Party--show how far Republicans have strayed from their free-trade principles. [bold added]

Trump floated the idea of an all-tariff federal revenue system, large enough to replace the income tax, during a morning session with the House GOP, according to a GOP lawmaker in attendance.

The presumptive GOP presidential nominee has consistently supported higher tariffs as a way to protect domestic industries. He has long backed income-tax cuts, including extensions of the ones he signed in 2017. An all-tariff approach would combine the two stances and take them to the extreme, reversing more than 100 years of economic policy that encourages free trade and requires higher-income households to pay higher tax rates than the middle class. Such a return to 19th-century fiscal policy could amount to a tax cut for high-income people and, effectively, a tax increase on consumers, who would pay tariffs passed along to them in prices.

Economic theory teaches that barriers to trade, such as tariffs, make one's own population worse off because they have to pay more for imported goods. Tariffs are typically justified to protect the home industries that cannot compete on price with imports.

One problem with tariffs is that other countries retaliate by imposing tariffs of their own. For example, a tariff on Chinese electric vehicles (President Biden proposes 100%, while former President Trump wants 200%) will likely result in Chinese tariffs, which they have imposed in the past, on American agricultural products. As retaliatory tariffs escalate, perhaps bringing in other countries, a trade war results, impoverishing everyone.

Another problem with tariffs is that domestic industries become dependent. They exert political pressure to keep tariffs in place instead of raising their own game, making it likely they will never be competitive in world markets.

One of Mr. Trump's strongest arguments for his election is that inflation will return to the much lower level of his first term. Broadly increasing tariffs will raise the general cost of living and torpedo that goal. If he is elected, let's hope that his economic advisers will talk him out of widespread use of tariffs and restrict them to products like EV's that Americans don't seem to care about.

Now That It's Gone I Want It

(Esquire photo)

Your humble blogger has never watched an episode of The Sopranos and was unfamiliar with, much less tasted, "gabagool", which is

basically a "cross between prosciutto and sausage" ... is seasoned with a variety of flavors like wine, garlic, and paprika, stuffed into a meat-based casing, then smoked, slow-roasted, or in most cases, "hung for up to six months to cure."

It's red and white, not as spicy as soppressata, but also not as creamy-tasting and mild as, say, mortadella.

Gabagool is the subject of a legal kerfuffle between San Francisco sausage-maker P.J. Molinari & Sons and brewer Seven Stills Brewery & Distillery.

Molinari owns trade dress rights to a distinctive look and feel of its gabagool packaging and claims that Seven Stills' new gabagool beer (!) cans had a design too close to Molinari's.

Gabagool beer (Chron photo)

The dispute was resolved amicably when the brewer backed down. [bold added]

Seven Stills owner Tim Obert said they “weren’t trying to blatantly rip them off,” but acknowledged the playful beer design looked very much like the salami packaging...They’re going to stop making the gabagool beer.

That's too bad. Drinking a meat beer is one thing I didn't know I needed until it was brought to my attention.

Reversal of Fortune

The Chinese century? Not so fast.

“Since Xi came to power, problem after problem have occurred on his watch that he seems unable to effectively manage,” says Jude Blanchette, a China analyst at the Washington-based Center for Strategic and International Studies. These include popular unrest in semiautonomous Hong Kong, a disruptive trade war with the U.S. and now an unfolding health crisis.

It took only a few months for the Hong Kong protests and the mishandling of the coronavirus outbreak to damage the perception of Chinese invincibility. Also, the trade war that would supposedly have no winners has so far caused more harm to China's economy than the U.S.'

Recent setbacks may well be temporary, and the Chinese are famous for playing the long game. But the century is not theirs yet.

Steve Job's Wisest Decision

Unlike other Silicon Valley tycoons opposed to Donald Trump--a redundant description now that the President's only major SV supporter moved to LA--Tim Cook has kept the lines of communications open:

(WSJ photo)

Mr. Cook is one of the few executives in a hyperpolarized political era who has managed to both support and challenge the president’s agenda in a way that has kept him in Mr. Trump’s good graces while avoiding any public backlash from either employees or customers.

The laudatory Journal article, IMHO, understates the business and political skill of Tim Cook. He can express disagreement with the President and his own virulently anti-Trump work force without being vilified by either. And he is able to maintain cordial relations with China though Apple is one of the most prominent symbols of America and a visible target for China's displeasure.

This month the Apple CEO was named the chairman of the advisory board for Tsinghua University's economics and management school, aka the "Harvard Business School" of China. The appointment was lambasted by some American hard-liners, but declining the position would not only have hurt Apple but also the U.S.-China trade negotiations. The result is that Tim Cook has the ear of everyone and is respected by everyone.

Most of us didn't see it clearly in 2011, but naming Tim Cook his successor was Steve Jobs' wisest decision.

AAPL has outperformed the FANG (Facebook, Amazon, Neflix, Google) stocks in 2019.

South Korea and Japan Should Just Move On

The U.S.-China "trade war" gets all the headlines, but there's budding conflict between two of the world's most important economies and American allies. South Korea's resentments over its Japanese colonization from 1905 to 1945 had gradually subsided over time--though Japan's whitewashing of its World War II history remains a sore point--but exploded anew over policy toward North Korea.

South Korean business owners trash
Japanese logos. (Ahn Young-Joon--AP)

The new face-off in the conflict between the two U.S. allies started July 1 when Japan slapped export restrictions on South Korea, the latest move in a long-running feud between the governments of Prime Minister Shinzo Abe and President Moon Jae-in over World War II history. The new curbs slow shipments of three materials essential for semiconductors and flexible displays, two drivers of Seoul’s export-heavy economy.

Tokyo officials have suggested the moves are justified for national-security reasons, accusing South Korean of not doing enough to ensure Japanese-produced chemicals and equipment can’t be shipped on to help rogue nations build weapons. One of Mr. Abe’s closest aides named North Korea as a possible destination.

Seoul has denied the suggestion. North Korea slammed Japan’s trade policy in a state-media report Thursday. “This is a cunning artifice to justify the unreasonable economic retaliation by disguising it as an ‘issue related to national security,’ ” the North’s state media said of Japan’s export restrictions.

Relations are souring but haven't reached the point where the U.S. will step in:

The U.S. has kept relatively quiet on the matter. But on a visit to Seoul on Wednesday, David Stilwell, the top U.S. diplomat for East Asian affairs, said Washington would “do what it can” to help patch up the frayed relationship between its two allies.

From the American vantage point South Korea and Japan's differences are minor compared to their common geopolitical interests. Just like Americans do with ancient grievances, both parties should look past the sins that no one alive is responsible for and move on.