The October 18th to October 24th, 2021 economy and trade report with L.C. and the editor
US government command-and-control policies created and are exacerbating supply-chain shortages and monetary inflation. Meanwhile, continued US tariffs are piling costs onto that inflation as well as creating additional administrative burdens for Customs and Border Patrol agents and importers.
US Trade Representative Katherine Tai was in Europe this past week holding a slew of meetings with nothing so far to show for her efforts. The key issue on her agenda is to remove the Section 232 steel and aluminum tariffs by October 31st. Failing that, the EU is set on December 1st to double its counter-tariffs in retaliation for the metals tariffs. The US and EU are also at odds over just how to approach China. Hence reaching a deal on the metals tariffs is important for keeping the US-EU relationship from going into a downward spiral.
Supply chain crisis avoidable; government and unions to blame
The two great West Coast ports of Los Angeles and Long Beach are now handling but a fraction of consumer and industry needs as the US economy recovers from the pandemic. Container ships sit up to two weeks idling outside the two ports waiting for an unloading berth. The recent oil pipeline leak is suspected to have been caused by a dragged anchor of an idled container ship.
The policies of the US and California state governments are largely to blame for this unacceptable clogging, with an assist from the International Longshoremen’s Association (ILA). California’s government won’t let a majority of US trucks receive goods at the state’s ports because the trucks allegedly do not meet California pollution requirements. The same trucks are welcome everywhere else in the United States. In addition, the ILA refuses to allow non-union trucks into the port areas. Most US truckers are either non-union independents or work for major trucking companies that are also non-union.
Until very recently the longshoremen refused to work 7×24 hours to relieve the congestion – despite the fact that the Asian ports shipping goods to the US have been working flat out 7×24 hours for some time now. The Customs and Border Patrol (CBP) officials, also unionized, still aren’t working 7×24, despite the customs backlog.
Mexican truckers could help; Jones Act continues to hinder
Mexico has a huge supply of truckers and trucks who could be transporting goods in the US, either in their Mexican trucks, as seasonal US truck company employees, or as immigrants. But present US immigration and trucking restrictionism is excluding them from serving in any of these roles. This self-destructive US government behavior is to be contrasted with that of Canada, which is immigrant-friendly in general and eager to welcome immigrant truckers in particular.
The cabotage rules of the century-old protectionist Jones Act prevent non-US ships (i.e., the entire container fleet) from taking goods from one US harbor to the next. This exacerbates the US truck driver shortage further because trucks needed for inner-US shipping needs now have to be deployed to receive port shipments that could have been moved more cheaply and with less pollution by port-to-port shipping.
Tariffs not helping
Although inflation is a monetary phenomenon, supply shortages and protectionism exacerbate the inflation. The Biden administration has been continuing the predecessor Trump administration’s tariffs – to the harm of retail and industrial consumers of the goods, who are paying the tariffs as ill-disguised taxes.
True, the US has momentarily reached a settlement ending the need for the US to retaliate against the digital services taxes (DSTs) imposed or planned by European countries. Under the deal, the European countries can continue to collect DSTs, but they will be credited back to corporations once Pillar 1 takes effect and the taxes are replaced by new ones conforming to the OECD deal. (This deal with the Europeans does not apply to India or Turkey – who haven’t signed onto the OECD agreement.)
Politics of metals tariffs
Meanwhile back in the US, most US business and agriculture oppose the metals tariffs and want them removed. Downstream manufacturers are punished by the hike in metals prices caused by the tariffs, while farmers, retailers, and many industries have suffered from the retaliatory tariffs. In fact, there is little upside, other than to primary steel and aluminum producers. But steel producers and unions have out-sized influence with the Biden White House because they are concentrated in politically crucial states for the Democrats and the president. At least through next year’s elections, the administration will be trying hard not to anger these interests.
Last week also brought new pressure from the anti-tariff side. The Tariff Reform Coalition, which brings together more than two dozen trade associations representing both metal-using industries and exporters hurt by retaliatory tariffs, sent a letter to Congress. Noting that the coalition’s members are adversely hurt by the Section 232 tariffs and counter-tariffs, the letter urged members of Congress to support and pass the Bicameral Congressional Trade Authority Act recently introduced by Sens. Pat Toomey (R-PA) and Mark Warner (D-VA). The bill would amend Section 232 of the Trade Expansion Act of 1962 to take back some of the authority to impose tariffs on national security grounds that the act delegated to the president and which President Trump abused.
Tariffs also contributing to home price escalation
Also this week, the National Association of Home Builders called for removing tariffs imposed on building materials such as metal and lumber – to ease the strain on housing prices. “Until a long-term solution can be reached, Congress and the administration should temporarily suspend duties on a wide array of imported building materials and goods, from Canadian softwood lumber to Chinese steel and aluminum.”
Sen. Josh Hawley (R-MO), however, is pushing from the other direction. On October 20th he introduced what he called a “bold” bill that is perhaps the most protectionist since the US Reciprocal Trade Act was introduced in 2019. Hawley’s Make in America to Sell in America Act would ratchet up Buy American requirements in order to end the “dangerous over-reliance on foreign factories” which he claims underlies the current supply chain crunch. Three years after enactment of the Hawley bill, at least 50% of the value of those products sold in the US would have to be US-origin.
Hawley and the populist delusion
Hawley motivated his bill by charging that “For decades, Washington elites shipped American jobs overseas while factories throughout the country were shuttered, leaving us perilously reliant on foreign manufacturing…. Everyday Americans are now paying the price.” To the contrary, the expanded division of labor made the US work force more productive and the country more prosperous. Protectionists delude themselves, however, if they think that the supply chain crisis is due to too much dependence on foreign sources. Protectionism leads to shortage of suppliers and loss of the competition that pushes prices downward. There’s now an ammunition shortage. How could that be with so many suppliers? It turns out that the administration has just banned Russian imports, leaving the domestic market to just two companies. They unsurprisingly see no need to invest in new factories, given their assured domination of the market.
Continued protectionism, whether by the administration or Republican wannabes like Hawley, together with US, California, and union restriction on trucker access to the nation’s two largest ports, are a certain formula for continued shortages, price hikes, and ships that could relieve the crisis instead waiting weeks off shore,
L.C. reports on trade matters for business as well as Founders Broadsheet.
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