Macro Market Wrap Up - Monday, March 4
I’m going to admit ahead of time that this is a real toldja so moment. Several times in the past I’ve written and posted videos regarding trade wars and the major issues that tariffs will cause. Not with China or other trade partners, but rather, on the American people. Most notably I said that Chinese producers will view a tariff as a cost of doing business with America, and therefore, that cost will be passed on to the end user of all Chinese products. Americans would suffer with a higher cost of living, and most notably I said that would weigh heavily on retail, on housing, on anything bought on credit, really that it would just put a damper on all parts of the American economy.
Today I saw an article posted on Bloomberg which confirms what I have said about tariffs. In a nutshell, it punishes the people who can least afford to pay the higher cost of living, which are the poor and middle class. And this is all in contradistinction to what President Trump is always saying about trade deals and trade wars, which like everything else, “we’re winning, it’s the best ever, we’re bigly on top,” etc.
There were two important studies that were referenced in the article. The first article was published jointly by the New York Fed, Princeton University, and Columbia University. Normally, anything coming from the government, I'm skeptical. Very skeptical. But in conjunction with two Ivy League universities whose reputations are on the line, I am willing to accept what they say.
They concluded that the tariffs were costing $3 billion per month in taxes as well as $1.4 billion to companies in what they called deadweight losses. Additionally, they said that companies reorganizing their supply chains would suffer a whopping $165 billion in losses because of the tariffs. The combined total is in excess of $217 billion annually. The authors contradict the president by saying that consumers are bearing the brunt of these costs, not the Chinese. And they said that it would be difficult to understand how much capital investment has been put on hold, though they are now studying this as well to try to quantify losses to the economy.
The second study, published by the former chief economist of the World Bank and former editor in chief of American Economic Review Pinelopi Goldberg, in conjunction with UCLA (another university with a big reputation on the line) said the annual loss to the economy just from the additional costs to consumers is over $68.8 billion. They too found that the end user of any products were bearing the brunt of the costs of tariffs. They also said that the loss to consumers is not really $68.8 billion, but rather it’s really around $7 billion because the added economic activity of American producers who are suddenly becoming competitive (does US Steel opening plants ring a bell?). But that misses the point that anyone who buys stuff for a higher price will have less to spend and will buy less because everything they’re buying costs more. They also concluded that other countries who retaliated caused further suffering to the American economy, particularly in blue-collar workers and farming.
It's no wonder that most institutions, both government and private sector, have revised their GDP figures down to 1% and lower for the 1Q19. It's not just the interest rates. To paraphrase a former president, it's the tariffs, stupid!
Disclaimers: The contents of this article are solely my opinion, and do not represent neither the opinion of this website nor its owner(s), nor any employer whether by contract or for wages. ...
more