Major Supply Chain Disruptions Coming: Thank Trump

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Posted: Sep 03, 2019 10:39 AM
Major Supply Chain Disruptions Coming: Thank Trump

Source: AP Photo/Carlos Osorio

Trump Says "Tariffs Absolutely Worth It" as Administration Escalates Trade War

Absolutely Worth It

In yet another escalation of the trade was Trump Administration Goes Ahead With New Tariffs on Chinese Products.

Tariffs on clothing and other imports from China went into effect on Sunday, escalating the trade war in a move expected to squarely hit consumers.

The U.S. tariffs of 15% on tools, apparel items, some footwear and many electronics will be charged on imports valued at $111 billion last year, according to an analysis by The Wall Street Journal. Additional tariffs of 15% on $156 billion of smartphones, laptops, toys, videogames and other products have been postponed until Dec. 15, after the period when goods are typically imported for the holiday season.

Mr. Trump cited the views of economist Peter Morici, who was interviewed Sunday on Fox News and said the tariffs would average Americans “not as much as the critics say” due to shifts in exchange rates and supply chains.

Business groups and others criticized the tariffs as harmful for American companies and consumers.

AFL-CIO President Richard Trumka credited Mr. Trump for “taking on China” but said, “unfortunately, he’s done it the wrong way.”

“To take on China, there has to be a multilateral approach. One country can’t take on China to try to dry up its overcapacity because they just send it through to you in other ways,” Mr. Trumka said an interview on Fox News.

Myron Brilliant, head of international affairs at the U.S. Chamber of Commerce, said that the president was using the wrong tactic to take on unfair Chinese trade practices. “The tariffs—import taxes by any other name—are or will cost every American household between $600 and $1,000 by the end of the year.”

Targeting China

Supply Chain Disruptions

No matter how preposterous one's view on trade may be, there is always someone who will support it, and then some.

Peter Morici says the tariffs would average Americans “not as much as the critics say” due to shifts in exchange rates and supply chains.

Let's analyze that in pieces.

  1. Shifts in exchange rates
  2. Supply chains

1A: If the shift in exchange rates mitigated the the problem, then the tariffs did not work. We would still import from China. And If the consumer costs are negligible, then why postpone until December tariffs on toys, electronics, etc?

2A: Supply chains moves are very disruptive to US businesses. It is not exactly easy to pack up and go somewhere else. But if exchange rates mitigated the problem the businesses would not chose to relocate.

The irony of the supply chain theory is that businesses do move, at an operational cost, but to other low-cost nations like Vietnam, Singapore, and Taiwan.

Manufacturing did not return to the US which was Trump's goal.

All Trump did was disrupt supply chains at a cost to both US consumers and US businesses.

Please note that December 15 date in the above chart.

There is only one logical conclusion: Major supply chain disruptions will start soon, if they haven't already.

What About Farmers?

Lost in all the above analysis is the major impact Trump's tariffs have had on agriculture exports.

So even if US consumers did not pay the tariffs (they did), US farmers felt the impact of trade war retaliations.

Self-Inflicted Wounds

Please note that Amid Trump Tariffs, Farm Bankruptcies And Suicides Rise

The American Farm Bureau Federation, also known as the Farm Bureau, published a report in July that dove into farm loan delinquencies and bankruptcies based on Federal Deposit Insurance Corporation and U.S. court data.

The information showed that, “the delinquency rates for commercial agricultural loans in both the real estate and non-real estate lending sectors are at a six-year high and … were above the historical average of 2.1%.”

Wisconsin, Kansas and Minnesota led the nation in Chapter 12 filings; bankruptcy filings in Kansas and Minnesota increased so significantly in the past year that they reached the highest levels of the past decade

While Trump’s decision to impose tariffs on China and its subsequent retaliation is not the only reason for the stress farmers are under, it is a self-inflicted wound.

In another report from Newton, his analysis shows that while farm income in 2019 should increase by 10% from 2018, that would put it in the bottom 25% of the past 90 inflation-adjusted years. His analysis also includes direct payments from the Trump Administration’s Market Facilitation Program, and while it is not on the chart, 2018’s was even lower than 2019’s projected result.

Newsweek article in May detailed a Fox News interview with Patty Edelburg, vice president of the Washington-based National Farmers Union, which represents about 200,000 U.S. farms. In the interview she said, "It has been insane. We've had a lot of farmers—a lot more bankruptcies going on, a lot more farmer suicides. These things are highlighting many of the news stories in our local news."

Soybean Prices

Anti-Suicide Corn Maze

Trump's Ludicrous Position

Trump's notion that Trade Wars are Good and Easy to Win is truly ludicrous.

Each escalation made matters worse.

Please recall that Trump made that Tweet on March 18, 2018. That's 1.5 years ago.