Analysis | The Finance 202: It’s U.S. states that will bear the brunt of Trump’s tariffs

THE TICKER

The ticker today was written by Rachel Van Dongen.

Beer. Cheese. Newsprint. Those are just a few of the many U.S. industries that could be significantly affected by President Trump’s burgeoning trade war – especially his slapping of tariffs on aluminum and steel imports, including on NAFTA partners Mexico and Canada. The president has also imposed the punitive levies on the European Union. 

But the Trump tariffs won’t necessarily be so acutely felt on the national level. It’s the states – and some swing ones, at that – that could bear the brunt of what the president says is at long last an aggressive strategy to protect the American worker and economy.

Take the latest spat over the dairy industry following Trump’s meeting with the leaders of industrialized nations at the G-7 last weekend. Trump issued several outraged tweets aimed at Canadian Prime Minister Justin Trudeau and his country’s 270 percent tariffs on dairy imports once imports meet a certain yearly quota. 

Trump was referring to Canada’s dairy support system, which is known as “supply management.” It’s not covered by NAFTA and “sets production quotas meant to match domestic output with demand,” explains Bloomberg’s Jen Skerritt. If imports of milk powders exceed Canada’s quota, the country applies a 270 percent levy to more of them. Having said that, the U.S. ran a trade surplus of two-to-one on dairy products last year, so Trump seems to be raising an issue that at least last year didn’t really cost U.S. consumers or businesspeople.

Already, Wisconsinites are worried. After all, it was in the Badger State that Trump announced in April 2017 his plan to “Buy American, Hire American.” At the Kenosha, Wis., Snap-on tool factory Trump announced an executive order he said “declares that the policy of our government is to aggressively promote and use American-made goods and to ensure that American labor is hired to do the job.”

The new tariffs are hitting a “plethora of Wisconsin goods, including Harley-Davidson motorcycles, cheese, yogurt, pork,cranberries, sweetcorn, ginseng, wood, boats, paper and shoes,” according to the Milwaukee Journal Sentinel. Wisconsin Republican Rep. Jim Sensenbrenner told the paper he’s gotten an “earful” from manufacturers in his district about them.

“They’re very, very afraid what’s going to happen is that they’re going to be increasingly non-competitive to goods, particularly the ones that come in from China,” he said.

“Those kinds of tariffs, if they end up being permanent rather than a negotiating tool on Trump’s part, are going to bring about retaliation … And with us (in Wisconsin) being number two in per capita manufacturing jobs (in the U.S.), we’re going to get hit harder too.” 

Wisconsin’s GOP governor, Scott Walker (who is also up for reelection in November) called in March for Trump to “reconsider” the tariffs. In March, he claimed they would drive up prices, cause “major disruption in the market” and spark layoffs and other ill effects. 

This week, Walker seemed to backtrack a bit – instead saying Trump’s proposal at the G-7 to eliminate all tariffs is helpful if “it gets their attention” and creates a “level playing field.” “My hope would be that if they don’t pull back entirely on the tariffs that at least we can get some exemptions for Wisconsin-based companies and farmers,” he said.

Joe Parilla, a Brookings Institute fellow who authored a March report with Max Bouchet, says that the impact of the current and threatened tariffs will disproportionately affect states and localities – mainly in the Rust Belt where Trump lured voters to win the 2016 election.

“The immediate economic impact of these tariffs is not yet a huge economic deal,” Parilla told me. “It’s not going to probably throw — certainly not the country or individual states — into a recession.”

“The worry is that in very specific communities, this may alter hiring and expansion decisions among companies … Everybody is kind of waiting and seeing. Right now, this is not good. It’s not a net good thing, but it’s not going to be a hugely disastrous economic event.”

That, of course, depends on your vantage point. According to the Brookings study – published in March, before all of the steel and aluminum tariffs were actually implemented —  the five states hardest hit by the share of steel and aluminum imports in their economy will be Missouri, Louisiana, Connecticut, Maryland and Arkansas.

But if you slice the data another way — by the raw total of steel and aluminum imports – it’s those Rust Belt states that are most directly affected, Parilla said. They include Michigan, Illinois, Pennsylvania and Ohio – all states, except for Illinois, that went from the Democratic to Republican column from the 2012 to the 2016 presidential race.

Parilla told me that these states, with their heavy manufacturing base, should expect to suffer under the tariffs — but increased production in the steel and aluminum industry could also occur, too.

There’s another potential trade tsunami in the works. According to Politico’s Adam Behsudi, the administration is expected to announce its tariffs on China by the end of this week or the next. “The administration on Friday is planning to publish a final list of Chinese goods that will take the hit,” Behsudi writes. “The trade talks had been most recently focused on China’s willingness to increase imports of the very goods it is likely to target for retaliation: U.S. aircraft, soybeans and other high-value exports.”

PROGRAMMING NOTE: Tory Newmyer is on vacation and this newsletter is publishing on an abbreviated schedule onTuesdays, Wednesdays and Thursdays through June 25. Have a great weekend!

MARKET MOVERS

— Comcast makes bid for 21st Century Fox. The Washington Post’s Steven Zeitchik: “Comcast made a $65 billion bid Wednesday for 21st Century Fox in what is expected to be the first of many attempts to buy up pieces of the entertainment world after AT&T’s decisive legal victory over the government to buy Time Warner. The offer sets up a battle of wills between two of the most dominant and deep-pocketed entertainment companies in the world — Walt Disney, which proposed a $52.4 billion offer for Fox last year, and Comcast, the nation’s leading cable company which already owns Universal Studios and NBC. Such merger proposals are unlikely to be the last to be announced in the coming months, given the government’s failed attempt to stop AT&T from purchasing Time Warner, analysts said. The stocks of entertainment companies soared Wednesday, as investors grew giddy at the prospect of big conglomerates opening their wallets to buy ailing film and television studios.”

— The Fed raises its benchmark interest rate. The Post’s Heather Long: “The Federal Reserve hiked the United States’ benchmark interest rate a quarter point Wednesday to a range of 1.75 percent to 2 percent, a move that will probably cause a slight increase in mortgage, credit card, auto loan and small-business loan rates. This hike, which was widely expected, is the Fed’s second of 2018, and the central bank signaled it is likely to do two more increases by the end of this year. The U.S. economy is in ‘great shape,’ the Fed indicated, and no longer needs the historically low interest rates that were put in place in the aftermath of the financial crisis to stimulate growth. ‘The main takeaway is that the economy is doing very well,’ Fed Chairman Jerome H. Powell said in a news conference after the announcement. ‘Most people who want to find jobs are finding them, and unemployment and inflation are low.’

Powell called it a “puzzle” why wages aren’t rising despite such low unemployment and so many companies complaining they can’t find enough workers. But he predicted it will get better for most Americans as unemployment continues to drop this year and next. ‘You will see wages go up,’ he said. ‘You’ll see people at the sort of margins of the labor force having an opportunity to get back into work.’

As for Trump’s trade policies, Powell dismissed arguments they were having an impact on the economy so far: “‘Right now, we don’t see that in the numbers at all. The economy is very strong, the labor market is strong, growth is strong. We really don’t see it in the numbers. It’s just not there,’ he said, although he acknowledged the Fed has heard from some companies that say they might hold off on investments because of trade uncertainty.”

— Producer prices go up. The Associated Press’s Paul Wiseman: “U.S. wholesale prices last month posted the biggest 12-month gain since January 2012, a sign that the strong economy is beginning to rouse inflation. The Labor Department said Wednesday that its producer price index— which measures inflation before it reaches consumers— rose 3.1 percent from May 2017. The index rose 0.5 percent from April, biggest one-month increase since January. In April, producer prices rose just 0.1 percent. Energy prices, pulled higher by surging gasoline prices, rose 4.6 percent last month from April, the biggest jump in three years.”

— Kudlow is out of the hospital. The Post’s John Wagner: “Top White House economic adviser Larry Kudlow was discharged from the hospital on Wednesday, and his recovery from a heart attack is going very well, the White House said. Kudlow was admitted Monday to Walter Reed National Military Medical Center after what officials said was a very mild heart attack. ‘Doctors say Larry’s recovery is going very well,’ White House press secretary Sarah Huckabee Sanders said in a statement. ‘The President and the Administration are happy Larry is back home and look forward to seeing him back to work soon.’”

— Good luck buying a home right now. The Post’s Jonnelle Marte: “The housing supply is low. Interest rates are rising. And even Canada plays a foil: Tariffs on lumber have sent the price of construction sharply higher. Those hit the hardest? People who are trying to buy their first homes, just as they are amassing the savings to make the leap to homeownership. Buyers are facing a competitive market in which they need to move quickly, bid high and make other concessions if they want to land the deal, real estate agents say. And for every month that buyers strike out, the combination of rising home prices and higher mortgage rates can add hundreds or thousands of dollars to the cost of the home.”

— And more good luck if you want to rent a two-bedroom apartment and earn a minimum wage salary. That’s just not possible anywhere in the U.S., reports Tracy Jan: ” … even with recent wage growth for the lowest-paid workers, there is still nowhere in the country where someone working a full-time minimum wage job could afford to rent a modest two-bedroom apartment, according to an annual report released Wednesday by the National Low Income Housing Coalition … Even the $15 living wage championed by Democrats would not make a dent in the vast majority of states.”

  • Arkansas has the cheapest housing in the country, but a worker would need to earn $13.84 an hour to rent a two-bedroom apartment and minimum wage is $8.50 an hour.
  • Hawaii has the most expensive housing nationally, and a worker would need to earn $36.13 to afford a “decent” two-bedroom rental when the minimum wage there is $10.10 hourly.

TRUMP TRACKER

TRADE FLY-AROUND:

— Senators and the White House are headed for a clash on ZTE. The Wall Street Journal’s Michael C. Bender, Siobhan Hughes and Kate O’Keeffe: “The White House moved to protect its deal with Beijing to rescue ZTE Corp, taking steps to head off a bipartisan effort to use a must-pass defense bill to reinstate a ban on sales of U.S. components to the Chinese telecommunication company. A senior White House official said Wednesday that the administration would try to remove Senate language that severed a lifeline President Donald Trump’s administration had extended to the company. The Senate is expected to pass the bill as soon as this week, and the White House official said the administration would try to block the measure later in the legislative process. ‘The administration must be getting some pushback now from China,’ Sen. Bob Corker (R., Tenn.) said. ‘I may have a misunderstanding—I don’t think so—but there had been a wink and a nod saying look we did what we did with the leader of China but if Congress wants to counter that they’re free to do so.’”

ZTE announces a management shake-up. Reuters’s Sijia Jiang: “ZTE Corp … has proposed a $10.7 billion financing plan and nominated eight board members in a drastic management overhaul, as it seeks to rebuild a business crippled by a U.S. supplier ban. The news, announced late on Wednesday, indicates China’s No.2 telecom equipment maker is working towards meeting conditions laid out by the United States so it could resume business with American suppliers, who provide about 25-30 percent of the components used in ZTE’s equipment. Investors cheered the development, driving up ZTE’s Hong Kong-listed shares as much as 3.7 percent on Thursday morning.”

— The White House considers moving ahead with tariffs on Chinese goods. WSJ’s Bob Davis and Lingling Wei: “The Trump administration, deepening its global trade offensive, is preparing to levy tariffs on tens of billions of dollars of Chinese goods in the coming week, perhaps as early as Friday—a move that is likely to spark heavy retaliation from Beijing. … Trump hasn’t given his final approval and could have second thoughts about applying heavy pressure on China … particularly because the U.S. wants Beijing’s cooperation in its efforts to get North Korea to give up its nuclear weapons. … An administration official said Mr. Trump and his circle of advisers are scheduled to finalize plans on Thursday on imposing the China tariffs.”

— Canada says the United States is breaking the rules. Reuters: “Canadian Foreign Minister Chrystia Freeland said after talks with members of the U.S. Senate Foreign Relations Committee on Wednesday that U.S. trade actions against Canada are illegal under World Trade Organization rules. Freeland said while Canada believes the U.S. use of a national security rationale to impose tariffs on Canadian steel and aluminum imports is absurd, it is confident common sense will ultimately prevail.”

— Freeland said on CNN that Trump’s tariffs on steel and aluminum on national security grounds are “absurd” and that Canada would retaliate by July 1 if the dispute doesn’t get resolved. She also responded to Trump’s tongue lashing of Prime Minister Justin Trudeau following last week’s G-7 summit: “The government of Canada does not believe that ad hominem attacks are the right way to go about foreign policy, to go about foreign relations, particularly when it comes to foreign relations with your close allies and neighbors,” Freeland said, per CNN.

— Trump complains about oil prices. The Post’s John Wagner: “Trump took fresh aim at the OPEC oil cartel on Wednesday. ‘Oil prices are too high, OPEC is at it again. Not good!’ the president wrote on Twitter. His tweet comes in advance of a meeting of the Organization of the Petroleum Exporting Countries and Russia planned for June 22 in Vienna to discuss easing supply caps that have been in place since the beginning of 2017.”

And Iran responds to Trump. Reuters’s Susan Heavey and Alex Lawler: “Iran’s OPEC governor, Hossein Kazempour Ardebili, fired back at Trump in a statement to Reuters. ‘You cannot place sanctions on two OPEC founder members and still blame OPEC for oil price volatility,’ he said, referring to his country and Venezuela. ‘This is business, Mr. President – we thought you knew it.’”

Russia and Saudi Arabia will discuss strategy ahead of the OPEC meeting. WSJ’s Summer Said and Benoit Faucon: “Saudi Arabia’s oil minister is flying to Russia this week to discuss ways to manage an output boost both producers say they want to propose at an OPEC summit next week … Amid today’s high prices, Riyadh and Moscow have said they think the time has come to ease up on those cuts. Producers don’t like prices too high, fearful they could erode demand. Big consuming countries, meanwhile, have called for an easing.”

— Trump approaches diplomacy like business deals. The New York Times’s Mark Landler: “’The theme that comes up, over and over, is money,’ said Jeffrey A. Bader, a diplomat who advised President Barack Obama on China. … Trump’s bitter clashes with Canada and Europe over trade, as well as his solicitous courtship of North Korea’s brutal dictator, all reflect this mercantile perspective. In his transactional approach to foreign policy, considerations of financial profit or cost — often measured in ways that economists deem simplistic — can outweigh virtually any other consideration. ‘What that means is that Trump, like a lot of businessmen, doesn’t pay much attention to Canada, or Europe, or Japan,’ Mr. Bader said. ‘Businessmen pay attention to the growth markets: Vietnam, Brazil, India, China.’”

MELTDOWN WATCH:

— Cohen is under increasing pressure. The Post’s Rosalind S. Helderman and Tom Hamburger: “Michael Cohen … Trump’s personal attorney, is facing mounting pressure from two active federal investigations, contending with skyrocketing legal bills and planning to change lawyers in the near future … Cohen is under intensifying scrutiny from federal prosecutors in Manhattan who are examining his business practices, as well as special counsel Robert S. Mueller III, who is continuing to investigate episodes involving Cohen, according to a witness who testified in front of a grand jury in Washington last week. Andrii V. Artemenko, a former member of the Ukrainian parliament, said in an interview that many of the questions he faced during several hours of testimony Friday were focused on his interactions with Cohen. Artemenko met with Cohen in January 2017 to discuss a back-channel peace initiative for Ukraine.”

— Mueller continues to build up his case his against Manafort. Bloomberg News’s Stephanie Baker and David Voreacos: “U.S. Special Counsel Robert Mueller used a late-night filing Tuesday to reinforce his allegation that Paul Manafort, the former campaign chairman for … Trump, directed a pro-Ukraine lobbying campaign in the U.S. without registering as a foreign agent. Prosecutors from Mueller’s team filed two memos, one written by Manafort, which they say document how he directed efforts to influence U.S. lawmakers and media in favor of then-Ukrainian President Viktor Yanukovych.”

— House Republicans demand more documents. Bloomberg News’s Billy House: “House Intelligence Committee Republicans and other GOP lawmakers on Wednesday stepped up their demands for the Justice Department and FBI to turn over more information about their investigative decisions and tactics during the 2016 presidential election. The lawmakers said they aren’t satisfied by a plan to let only certain House and Senate leaders review some of that material Thursday. Representative Michael Conaway of Texas said he and other GOP members of the intelligence panel signed two letters on Wednesday underscoring their contention that all committee members should get a look. The material Conaway and the others want to see is related to an alleged FBI informant who explored ties between members of President Donald Trump’s 2016 campaign and Russians.”

POCKET CHANGE

— Investors expect more mergers after AT&T ruling. Bloomberg News’s Jessica Brice and Gerry Smith: “After AT&T Inc. got clearance to buy Time Warner Inc. late Tuesday, investors were quick to bet that a broader wave of mergers is coming. Takeover speculation sent shares of Lions Gate Entertainment Corp. up the most in almost five months on Wednesday, while Discovery Inc. — another potential media target — climbed as much as 4.7 percent. CBS Corp. and Viacom Inc., the subjects of on-again, off-again merger talks, also rose. AT&T’s victory in a long legal battle with the Justice Department is expected to give a green light to a wide swath of companies mulling possible deals.”

— Gas frackers are going through a rough patch. WSJ’s Christopher M. Matthews: “Higher oil prices are helping many American shale drillers. But they are hurting companies that frack for natural gas. As companies respond to rising oil prices by drilling more for it, they often unearth gas as a byproduct. That has further weighed on already low gas prices, pressuring shale frackers in regions that primarily produce gas. The average share price for the five top companies focused on the oil-rich Permian Basin in Texas and New Mexico are up more than 16% over the past year. Share prices for the top five producers focused on the Marcellus Shale in Appalachia, the country’s largest deposit of natural gas, are down more than 9%.”

MONEY ON THE HILL

— Democrats want the SEC to look into a commissioner’s comments. The Hill’s Jordain Carney: “Senate Democrats want the top watchdog at the Securities and Exchange Commission (SEC) to investigate if a commissioner tried to influence Citigroup to reverse new policies restricting business with firearms manufacturers. Several Democrats, led by Sen. Chris Van Hollen (D-Md.), are sending a letter to Carl Hoecker, the inspector general at the SEC, on Wednesday asking him to look into comments Commissioner Michael Piwowar reportedly made to Citigroup during a meeting earlier this year. ‘We do have concerns that Commissioner Piwowar may have abused his government position in an attempt to unduly influence Citigroup to reverse a business decision that conflicts with his personal and political views,’ the Democratic lawmakers wrote in their letter.”

— Liberal groups don’t want further tax cuts. The Hill’s Naomi Jagoda: “A coalition of organizations that includes liberal groups and labor unions are urging lawmakers to reject a potential second round of GOP tax cuts, as the White House and key Republicans say they want to release a proposal this summer. ‘America cannot afford the Trump-GOP tax cuts benefitting the rich and corporations, and we sure cannot afford a Round 2 that puts the interests of the wealthy over everyone else while maintaining a lower tax rate on income earned from wealth compared to wages and salaries,’ the groups wrote this week in a letter to Congress members.”

THE REGULATORS

— Court rules against Mulvaney. American Banker’s Kate Berry: “A federal court dealt a blow to efforts by the Consumer Financial Protection Bureau to slow down the agency’s payday lending rule. U.S. District Judge Lee Yeakel on Tuesday denied the request by acting CFPB Director Mick Mulvaney that the court delay the payday rule’s effective date, which is set for next year. Mulvaney had sided with two industry trade groups — the Community Financial Services Association of America and Consumer Service Alliance of Texas — that sued the CFPB in April to invalidate the tough restrictions on small-dollar loan providers. The rule was written under former CFPB Director Richard Cordray.”

— German prosecutors fine Volkswagen. AP: “Automaker Volkswagen said Wednesday that it’s being fined 1 billion euros ($1.18 billion) by German authorities in connection with the diesel emissions scandal. Volkswagen said in a statement it would accept the fine imposed by prosecutors in the German city of Braunschweig. Prosecutors concluded that Volkswagen failed to properly oversee the activity of its engine development department, resulting in some 10.7 million diesel vehicles with illegal emissions-controlling software being sold worldwide.”

— Cryptocurrency case draws attention. Reuters’s Nate Raymond: “An obscure virtual currency called My Big Coin is now at the center of a closely watched case that could determine whether the U.S. Commodity Futures Trading Commission has the authority to combat fraud associated with cryptocurrencies. … Lawyers watching the case say a ruling against the CFTC could affect its ability to police virtual currency frauds as the only one on which futures contracts are traded in the United States is bitcoin, whose user base of millions dwarfs that of My Big Coin. … U.S. District Judge Rya Zobel in Boston is set to hear arguments in the case on Thursday.”

CHART TOPPER

— From the Post’s Philip Bump, via the Centers for Medicare & and Medicaid Services: Children enrolled in CHIP and Medicaid at any point in 2016:

DAYBOOK

Today

Coming soon

THE FUNNIES

— New Yorker cartoon from Lisa Rothstein:

BULL SESSION

“The Mooch” and Stormy Daniels’s lawyer sat down with Stephen Colbert:

This post was originally published here via Google News