Trump Threatens Europe: 'We Will Tax Your Cars'
By Tyler Durden / ZeroHedge
This is how trade wars escalate: Trump hasn’t even officially announced the steel and aluminum import tariffs, expected to be formally unveiled this coming week, and the rhetoric is already one of World Trade War I doom and gloom.
Hours after Trump tweeted on Friday morning that “trade wars are good, and easy to win,” European Commission President Jean-Claude Juncker said the bloc is prepared to respond quickly and forcefully by targeting imports of Harley-Davidson motorbikes, Levi Strauss & Co. jeans and bourbon whiskey from the U.S.
According to some, the preliminary EU retaliation was targeted in a way that would maximize political pressure on American leaders: Harley-Davidson is based in House Speaker Paul Ryan’s home state of Wisconsin, while bourbon whiskey hails from the state of Senate Majority Leader Mitch McConnell. San Francisco-based Levi Strauss is headquartered in House Minority Leader’s Nancy Pelosi’s district.
As Bloomberg noted, Juncker’s threat heightened the prospects of a global free-for-all, as the World Trade Organization said the potential of escalating tensions “is real” and the International Monetary Fund warned the restrictions would likely damage the U.S. and global economy. It also prompted speculation that in light of the widespread condemnation by US trading partners and allies, that Trump might step back and reconsider the sanctions. This in turn led to a late-day burst in the stock market.
That however appears unlikely: first, in a tweet Friday morning, Trump doubled-down and warned of more trade actions ahead, casting them as reciprocal taxes, a term he has used for imposing levies on imports from countries that charge higher duties on U.S. goods than the U.S. currently charges.
“We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!” Trump said in the tweet.
* * *
On Saturday, Trump’s resolve appears only to be hardened. For one, Trump’s newly reincarnated foreign trade advisor said that the tariffs will likely be signed early next week. On Friday, Navarro also made clear that there wouldn’t be any exemptions, for either Canada or other US allies:
“I don’t believe any country in the world is going to retaliate for the simple reason we are the most lucrative and biggest market in the world,” Navarro told Fox News Friday. “They know they’re cheating us. All we’re doing is standing up for ourselves.”
One look at the record US trade deficit, with both the entire world, and with just Europe, and one could make the case that he is correct.
And then, just to underscore that the market’s late Friday assumption that Trump may change his mind on trade wars may have been woefully premature, on Saturday trump unleashed a pair of tweets making it clear that he not only has no intention of backing down, but is already planning counter-retaliation to Europe’s retaliation.
In the first of two tweets, trump blasted that “the United States has an $800 Billion Dollar Yearly Trade Deficit because of our “very stupid” trade deals and policies. Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more!”
Donald J. Trump✔@realDonaldTrump
The United States has an $800 Billion Dollar Yearly Trade Deficit because of our “very stupid” trade deals and policies. Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more!
More importantly, Trump followed that tweet with an explicit threat aimed at Europe, saying that “If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!”
Donald J. Trump✔@realDonaldTrump
If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!
And yes, the trade imbalance is indeed big: in fact it has never been bigger.
Of course, that’s just how the EU likes it, and once Trump counter-retaliates to Europe’s retaliation, it will be Europe’s turn next to retaliate once again, eventually resulting in the tit-for-tat “prisoner’s dilemma” constant defection game taught in every Poli Sci 101 class, which also happens to be the worst possible outcome.
Incidentally, while many have been quick to slam Trump’s strategy, at least one hedge fund believes that Trump is correct in his trade war stance. Here is Stephen Jen from SLJ Macro Partners:
- The US is the least protectionist large economy in the world, while China is the most protectionist. In our note on this subject a couple of weeks ago, we pointed out that the US, based on data from the WTO, is by far the least protectionist nation in the world (with the exception of a tariff-free city state like Hong Kong) — far more open than Europe, Japan, and especially China. And it seems a bit hypocritical to us that more protectionist nations are complaining about the actions of the least protectionist nation.
- Excess capacity in China. China has half of the world’s steel production capacity, much of which is excessive and unnecessary, even Beijing would admit. The 2008-09 RMB4 trillion stimulus in China further boosted China’s industrial capacity, including in steel and other sunset industries. This has led to a situation where Chinese steel production had to be exported to the rest of the world at very low prices. Some in the US, not surprisingly, consider this ‘dumping’. Further, both the US and the EU share the verdict that China is still not a ‘market-based’ economy, because of the large and persistent explicit and implicit government subsidies, and other forms of support from the public sector, that make Chinese products unfairly competitive.
- Why is Europe not held to the same standard as the US? Europe is complaining about the US’ latest policy. Investors should know that Europe has already imposed two dozen anti-dumping measures against Chinese steel exports. What then is the substantive difference between the anti-dumping measures imposed by the EU and what the Trump Administration is doing? Is Europe less protectionist than the US? If Europe were so open, what is all the fuss about Brexit and the inability of the UK to access the European market?
So what happens if over the next week a trade war officially breaks out? The answer will depend on how US trading partners such as China, Canada and the EU retaliate, but one thing is clear: as GMO’s Ben Inker wrote on Friday afternoon, for risk-assets this could be the start of a 40% (or more) crash in stocks:
Trade Wars are Bad, and Nobody Wins
Yesterday’s announcement by President Trump of imminent tariffs on steel and aluminum imports was taken poorly by global stock markets. Perhaps in an attempt to convince investors this was an incorrect response, early this morning he tweeted that “trade wars are good, and easy to win.” He is wrong, and beyond the simple fact of his wrongness, a trade war is probably more dangerous for investors at this time than at any other time in recent history given the implications it would have for inflation, monetary policy, and economic growth. The only positive from the tariffs is that it is a windfall profit increase for U.S. producers of steel and aluminum, which is at least positive for them. It is unlikely to cause any material increase in U.S. capacity to produce steel and aluminum and therefore unlikely to lead to many additional jobs even in those sectors. The negatives are much more significant. I believe these tariffs on their own will push inflation higher, and higher inflation is a threat to the valuations of more or less all financial assets today. But the greater threat is that this escalates into an actual trade war. A trade war would increase prices on a much broader array of goods and services, while simultaneously depressing aggregate global demand. This pushes us in the direction of not just inflation but stagflation, where both valuations and corporate cash flow would be under pressure. While there are scenarios that would be worse for financial markets—the proverbial asteroid on a collision path with Earth comes to mind—a trade war has the potential to be very bad for both the global economy and investor portfolios.
As I wrote about last December, a significant inflation problem might well be the worst thing that could happen to a balanced portfolio, leading to losses on the order of 40%. A global trade war would be exactly the kind of economic event that could foreseeably lead to losses of that magnitude.
Trade Wars are Bad
As a general rule, when you add “war” to your description of an event, it’s a pretty strong suggestion that it is unlikely to be either good or easy. Wars are sometimes well intentioned (the war on drugs), occasionally necessary (World War II), but seldom good and more or less never easy to win. Even if you do “win” easily, the longer term implications are often more problematic than you thought (the second Iraq War). There is still some time for this particular war to be averted. But while it is our general contention that equity markets tend to overreact to political and economic events, this is not one of those times.
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where both valuations and corporate cash flow would be under pressure
This is a bad thing? Corporate monpolies and mass production are the problem and why 1 percent controls 99 percent of all the wealth. Inflation is a bad thing? All the debt in america would be easier to pay off since money would be worth less. If prices go up based on foreign mass production wouldn’t that motivate domestic manufacturing?
When prices go up consumers quit buying. Which causes people to be out of work, which causes people to spend even less money, which causes more people to lose their jobs.
That is why trickle down economics is a farce. Money never flows from the top down, it stays at the top.
But when poor people get money, they SPEND it. And when they spend it, they put someone else back to work. The economy works from the bottom up.
That is why the WPA programs worked. They put working men back to work, men who then spent money that put other men back to work.
And something people are oblivious is that one single dollar travelling through the economy generates far more than a dollar in taxes. When that dollar is spent at the store, it is taxed.
When the store spends that dollar to pay a wage, it is taxed again. When the wage earner gets the dollar, he spends it and pays sales tax.
Most of the time a dollar is spent, it is taxed. And when it goes out in wages, it is always taxed.
Who goes out of work? We are not producing anything in this country. There are a handful of companies that own everything. We want to be the producers of our own goods not paying out to foreign countries that hate us.
We still produce much. Granted, because of our incompetence and greed other countries make it better, but we still do a great deal of production.
And LOTS of selling. A lot of service work.
People simply stop spending when they are out of work. They either do that or they spend on credit cards until the piper wants paid, then they dump the burden on the lenders, which in turn does even more damage to the economy and causes prices to rise.
One way or another, low wages and not taking care of the poor destroys economies.
God told the Hebrew people to leave grain in the fields for the poor to reap.
The reason for that is more than just benevolence. Grain was currency, and the input of the poor in the economy was important to keeping it strong and healthy.
Of course now we take grain from the working poor and give it to the well bodied lazy unproductive poor, which is worse than not feeding the poor.
Which creates even more poverty.
Which explains why our unemployment is so sky high ( contrary to the bullshit we are fed that it is low) and wages are so low and the economy is in reality in the shitter. And of course why we will never pay off the cheney tax give away and the credit card bill for pointless meaningless wars that have solved nothing.
Just making America FIRST and not letting people forget about. We FEED and FREED the world just as we did with Negroes.
We have done it too long and nobody pays US back. Negroes still hate your guts and other countries have lived off our backs long enough.
This is MAGA time. Sorry……
reagan tried the old badass shit too, and put a tariff on foreign steel, and as a result Pensylvanias steel industry went from thriving to shutting down.
It was such a trajic evil that Billy Joel wrote a song about Allentown steel mill closing.
Trump is going to kick the steel industry and the auto industry in the balls.
You gotta figure, the heads on most cars are aluminum, lots of consumer products are made with aluminum.
Putting a tariff on it will make consumer goods skyrocket in price and will cripple the auto industry.
I really that Trump to be a hell of a lot more intelligent than that senile old fool reagan.
Perhaps I was mistaken.
Uhhh… Trump is a businessman. Reagan was just an actor.
Much as this is true, Trump is at best a man who was born into privilege and old money
who knows how to exploit the system to his advantage.
Whether that makes him a good businessman or simply another fat is fuel for a very big and likely heated debate.
Personally, I think for an honest and competent businessman to survive in our system would take a miracle. Business in this country has become predatory and cutthroat.
If by good you mean able to take all the toys from all the other kids, then he might well be good.
If by good you mean a man of complete honesty who compensates his employees with a comfortable wage and treats them with dignity , then I think you might have an argument.
Personally, I can’t imagine anyone in this country gaining that much wealth by being fair.
Tarriff= good.. YOu people know nothing about economics… Protectionism=good… Globalism= no jobs for me here in the Usa
Dumb fucks
IM SO TIRED OF YOU MORONS ON BOTH SIDES.. I JUST WANT TO SEE THIS MOTHERFUCKER BURNNNNNNNNNNNNNNNNNNNNN
You must use full synthetic motor oil on a BMW and if you use regular motor oil you destroy the engine. And there is no head room
Oh, I don’t know. I got head in a BMW once.