What tariff hikes?
U.S. stock prices rebounded Friday, as another strong jobs report showed the economy under President Trump continues to create new positions at a rate of more than 200,000 a month.
The employment news seemed to reassure traders who had been spooked by Thursday's promises by leaders in Europe, Canada and Mexico to retaliate against Trump's steel import tariffs with their own new fees on U.S.farm and factory products. The job report looked good all around: "Hiring [and] wages are up, unemployment is down," to a 27-year low of 3.8 percent, trumpeted chief economist John E. Silvia, told clients of Wells Fargo & Co.
Despite fears of a trade war that could jack up prices for many consumer and industrial goods in the months ahead, the U.S. economy — especially construction and manufacturing — has been so strong that the Federal Reserve will probably raise interest rates again this month, Silvia added. That would boost profits for banks.
There are also signs the tariff fight isn't as much a long-term job strategy as a tactic to push Europeans, at least, to align more closely with Trump policies worldwide. The fact the U.S. is growing faster than its "so-called trading partners" ought to send the Europeans a message, Larry Kudlow, Trump's National Economic Council chairman, told CNBC Friday: Since "our model is working and their model is not," the Europeans should follow Trump's lead in pushing China to ease its own protectionist practices. Europeans should also stop building so many plants in Mexico to export products cheaply to the U.S., Kudlow added.
Kudlow sought to downplay this conflict among North Atlantic allies: He likened the retaliatory tariff threats to a "a family disagreement. It's a trade discussion. It's not a trade war." He said the Europeans would have a chance "to engage us" more seriously at the G7 leaders' summit in Canada next week.
But Mexico and Canada said they were treating Trump's moves seriously. "Faced with tariffs imposed by the U.S., Mexico will impose equivalent measures to various products such as flat steel (hot- and cold- rolled, including coated, and various pipes), lamps, pork legs and shoulders, sausages and processed meats, apples, grapes, cranberries, various cheeses, among others," the Mexican government said in a statement promulgated through the Mexico consulate in Philadelphia.
"The U.S. pork industry exports almost 25 percent" of its production, almost triple the level of the late 1980s, but the tariffs will make U.S. pork less competitive and will drive down demand, Keith Stahler, spokesman for family-owned Clemens Food Group in Hatfield, told me. It's "unfortunate," he added, that American pork farmers who have invested capital and labor to feed the world "will likely be the ones that lose value" in a tariff war.
Mexico is going through a presidential election campaign in which business-backed parties that bank on expanded sales to the U.S. have lost ground to left-leaning candidate Andres Manuel Lopez-Obrador, who has argued his country can't count on U.S. support and should pursue more nationalist policies. Analysts in Mexico say U.S. tariffs dishearten capitalists and embolden socialist Lopez supporters.
UPDATE 6/4: At least 30 Pennsylvania products face retaliatory tariffs, said Michael Gerber, spokesman for the Pennsylvania Department of Community and Economic Development, which maintains a network of trade reps pushing Pennsylvania experts in foreign countries. Gov. Tom Wolf's administration believes the planned tariffs "place a heavy burden on the candy and confectionary industry, which is a significant area of concern for Pennsylvania due to the large number of candy and snack food manufacturers here in the commonwealth," he added. Hershey and other exporters sent more than $300 million in candies, cakes and chocolates to Canada alone last year. Other manufacturers face higher raw-materials costs. State officials have long pushed for steel protection, but the broad-based tariffs threaten to force factory, energy and consumer prices higher, Gerber said.
Area fruit and vegetable farms, even those that make products threatened by tariffs, "tend to sell to local markets," but cider-makers and other fruit processors pay prices that are set in national and international markets and vulnerable to tariffs or anything that boosts costs, said Peter Furey, executive director of the New Jersey Farm Bureau. Berry farmers work hard to develop markets and "really can't afford hits on demand" for their produce under today's conditions, Furey added.
Terry Humfield, executive director of the Cranberry Institute, said the industry "strongly supports free trade." He called tariffs "detrimental," "and we hope that an agreement can be reached by the parties involved which avoids retaliatory tariffs on cranberry exports." Most New Jersey cranberries are sold to the Ocean Spray co-op, which processes at a Lehigh Valley plant, among other sites.
In Canada, Prime Minister Justin Trudeau said his government will impose "surtaxes" and "restrictive countermeasures" on U.S. steel and aluminum products July 1 to retaliate for the "totally unacceptable" Trump tariffs against a nation that he said "has been America's most steadfast ally" in war and peace, and whose soldiers are "serving alongside Americans" hunting terrorists in Iraq .
"Canada buys more American steel than any other country," and Canadian aluminum is used in U.S. military aircraft, so why does Trump want to make it more expensive? Trudeau asked. He announced 25% import fees as "retaliatory measures" on U.S. rolled and sheet steel, railway track, and oil and gas drilling and transport pipes, among others.
UPDATE: Canada has also announced July 1 tariffs of 10 percent against Heinz ketchup, Hershey chocolates, U.S. coffee, whiskey, pens, mayonnaise, and many other products. See table 2 at https://www.fin.gc.ca/activty/consult/cacsap-cmpcaa-eng.asp.
In a report earlier this year after Trump threatened to impose the metal tariffs, S&P Global Ratings listed steel producers such as Philadelphia-based Carpenter Technologies, Kennett Square-based Phoenix Services International, Pittsburgh-based US Steel Corp. and AK Steel Corp., and aluminum processors led by Pittsburgh-based Alcoa, among businesses that could benefit from what amounted to a U.S. tax on foreign competition.
At the same time, Morgan Stanley analysts predicted that steel users — including Detroit automakers and Midwest appliance makers, as well as food companies such as Cambell Soup of Camden and Crown Holdings Corp. of Philadelphia — would have to pass higher costs along to consumers. Morgan Stanley predicted U.S. hot-rolled steel prices could rise from a recent $836 a ton to as much as $1,000.
ArcelorMittal's Coatesville and Conshohocken plants have laid off workers in the past two years, as their owners declined to upgrade production systems with so much cheap foreign steel available. Dura-Bond, a steel-pipe company based near Pittsburgh, has also laid off workers in the last year, while asking Trump to make good on domestic-content requirements he promised which could increase demand for U.S. pipe in big energy projects.
Like Canadians and Mexicans, Europeans called Trump's moves high-handed and unfair, but seemed more confident that international institutions could still help prevent a last-ditch trade war.
In Brussels on Thursday, European Commission President Jeane-Claude Juncker called the U.S. tariffs "protectionism, pure and simple." In a reference to China's expanded state-backed steel manufacturing sector, Juncker said the problem for U.S. mills isn't in neighobring or in allied countries, but in the global "overcapacity" developed in recent years.
Cecilia Malmstrom, Europe's Commissioner for Trade, threatened unspecified "rebalancing measures" against U.S. industries, adding that Europe will first try to get the World Trade Organization to condemn Trump's moves this month before escalating its own anti-American tariffs.
Economists insist the tariffs will boost costs for American businesses and consumers over time. Companies surveyed for the jobs report told government economists they have "concerns about rising prices of steel and aluminum, and the large degree of uncertainty due to trade disputes." warned economist Ksenia Bushmeneva, in a report to clients of Toronto-based TD Bank. Now that Trump has made good on his tariff threats and other countries are retaliating, "those worries will only intensify for the U.S. businesses," she predicted.
To be sure, Trump's tax reform and "regulatory relief" have accelerated the economy — but "imagine where we could be without the specter of tariffs, which only undermine our full economic potential with the threat of higher costs for consumers and businesses," said Brett Gardner, chief lobbyist for Americans for Prosperity, a Washington group funded by chemical billionaires David and Charles Koch.
U.S. Sen. Pat Toomey, R-Pa., broke with Trump over tariffs and condemned his steel and aluminum fees.
So did steel users, not surprisingly. "We are deeply disappointed that the Trump Administration has decided to move forward with imposing steel and aluminum tariffs on the EU, Canada, and Mexico," forcing U.S. materials prices to levels "vastly" higher than in other countries, complained Richard Chriss, president of the Ameircan Institute for Intenrational Steel in Washiongton. Chriss predicted higher costs on many U.S.-made products.will be passed along to consumers — a pattern that followed earlier steel tariffs, for example in the early 2000s.
The threat of steel tariffs "have already caused American mils to increase their prices by almost 30 percent" in advance of future deliveries, said Joe Casucci, founder of New York-based FJM Ferro Inc., whose steel suppliers for the high-rise buildings it erects include U.S. mills owned by Arcelor Mittal.