U.S. TRADE DEFICITS AND TARIFFS

For the first half of my long life, the U.S. carried a trade surplus, but starting in 1976 our balance of trade turned to deficits that have continued through the present.*

The WSJ published a figure showing our tade deficits beginning with 1985 (see figure)

(click on figure to enlarge)

I have long wondered whether continuing such deficits will be bad fr America.  Thus we have made much use of directed tariffs such as 20% on soft wood lumber from Canada and, as of 2016, some types of steel from China.

The problem with tariffs, of course, is that they drive up the prices of the goods being tariffed so that the price added to goods by the tariff are actually paid by the American consumer.

The duty on soft wood lumber from Canada has contibuted to a cost increase of $8,500 to a home.  In addition to the duty, other factors contributing to the cost rise are forest fires in the West and transportation difficulties.***

Analysts say trade protection will prop up prices, but can’t be expected to save beleaguered companies or improve market demand, especially in the oil and gas segment.

“There’ll be a short-term benefit,“ said John Packard of Steel Market Update. ”However, in the long run, the U.S. mills are always going to want more tariffs, and it’s questionable how much more [protection] they can get." The U.S. already has anti-dumping duties in place on 19 categories of Chinese steel. And the U.S. needs some imports because U.S. demand—regularly over 110 million tons—is far higher than the U.S.’s annual production of around 80 million tons.

Although China is only the seventh biggest exporter of steel to the U.S., behind Canada, Brazil, Russia, Mexico, South Korea and Turkey, Chinese steelmakers have received the most attention because they have the ability to disrupt the U.S. market. Their prices tend to be 20% to 50% lower than anybody else’s, say steel traders****

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The Obama administration has been discussing steel production with China, which pledged to trim output by up to 150 million metric tons over five years. Chinese Premier Li Keqiang told U.S. Treasury Secretary Jacob Lew this week in Beijing  the country would press ahead with economic overhauls to shrink the steel industry.****

Directed tariffs, however, don't seem to raise too much alarm; however, President Trump is instituting a 25% tariff on imported steel and 10% on imported aluminum, initially across the board that has created much alarm and affected the stock markets as that could create a trade war with the possibility of leading to a depression such as occurred during the 1930s (the Great Depression).

The duty may not apply to our companian NAFTA countires of Canada (our largest foreign supplier of both steel and aluminum) and Mexico.  Negotiations with couther countries are underway.  So these tariffs are still in a state of flux as to whom they will apply.

* https://www.thoughtco.com/history-of-the-us-balance-of-trade-1147456
** https://blogs.wsj.com/economics/2018/03/08/trump-readies-tariffs-u-s-trade-gap-widens-who-will-replace-gary-cohn/
*** https://www.wsj.com/articles/with-lumber-in-short-supply-record-wood-costs-are-set-to-juice-home-prices-1519916401
**** https://www.wsj.com/articles/u-s-imposes-266-duty-on-some-chinese-steel-imports-1456878180