U.S. imposing steel and aluminum tariffs on Canada, Mexico and Europe

[Machjo]

Just now, Zeitgeist said:

But the U.S. isn't a big exporter in general as compared to what it imports.  There are astonishingly few U.S. auto exports to Asia.  The U.S. might drive down imports, but it would seem much more needs to be done to increase exports, and I don't think the world is bullish on buying U.S. right now.

If the US is so concerned about its balance of trade deficit, all it has to do is balance its budget. The reason it imports so much more than it exports, or at least in part, is because the US government borrows so much money to spend more than it takes in revenue. That obviously drives up demand that the US economy might not be able to supply. If Trump wants to reduce imports, all he has to do is reduce US government spending and balance the books.

[Wilber]

1 minute ago, Machjo said:

Unilateral free trade would amount to a tax reduction on businesses that may need to import parts and machinery from abroad. That actually would put them at a competitive advantage in world trade. Furthermore, with consumers paying less in tafiffs too, workers would be less interested in pushing for higher wages when the price of goods and services would be dropping. This too could help to reduce or at least maintain business costs.

No it won't if other countries keep tariffs up against your industries. You are a Canadian company, your biggest market is the US and the Americans slap a big tariff on your product. Where are you going to produce your goods, Canada or the US?  

[Zeitgeist]

35 minutes ago, Machjo said:

So maybe Canada needs right-to-work laws.

Perhaps Canada would adopt a policy to gradually eliminate tariffs over a seventy-year period to give businesses time to adapt.

Right to Work legislation is the saddest piece of anti-labour legislation.  Talk about hollowing out the middle class.  Lower what were once the kinds of wages that allowed workers to buy the products they produced and price them out of the market.  Henry Ford's greatest achievement after the car assembly line was paying workers $5.00 a day for building the Model T.  Those high wages (for that time) helped create the middle class and a huge market for the autos Ford's plants cranked out.  Brilliant.  That's what a $16.00 minimum wage in Mexico will hopefully do for auto workers.  Right to Work-type anti-union policy erodes workers' wages and benefits, period.

Edited October 10, 2018 by Zeitgeist

[Wilber]

10 minutes ago, Zeitgeist said:

But the U.S. isn't a big exporter in general as compared to what it imports.  There are astonishingly few U.S. auto exports to Asia.  The U.S. might drive down imports, but it would seem much more needs to be done to increase exports, and I don't think the world is bullish on buying U.S. right now.

Most of the major manufactures have auto plants in China. VW is huge in China. GM is also very big. Ford is moving Focus production there and BMW is moving much of its X3 production from the US to China and some to South Africa. China is now the biggest  auto market, Europe is #2 and North America has dropped to #3. Where the consumers are counts.

Edited October 10, 2018 by Wilber

[Zeitgeist]

2 minutes ago, Wilber said:

Most of the major manufactures have auto plants in China. VW is huge in China. GM is also very big. Ford is moving Focus production there and BMW is moving much of its X3 production from the US to China. China is now the biggest  auto market, Europe is #2 and North America has dropped to #3. Where the consumers are counts.

Yes, and those autos would be considered domestically produced vehicles, not imports, because they're produced in China.  That's why it's so difficult to ascribe a nationality to companies anymore.  Most major companies are publicly traded multi-nationals.  They're as national as their production.  Really though, it should be the market that counts.  As you clearly explain, the U.S. is no longer the big market it used to be, or rather, it's not the only big market.  It's number 3.

Edited October 10, 2018 by Zeitgeist

[bush_cheney2004]

16 minutes ago, Zeitgeist said:

But the U.S. isn't a big exporter in general as compared to what it imports.  There are astonishingly few U.S. auto exports to Asia.  The U.S. might drive down imports, but it would seem much more needs to be done to increase exports, and I don't think the world is bullish on buying U.S. right now.

 

No, and unlike Canada, the U.S. economy is not exports driven by design.   Still, U.S. annual exports are bigger than Canada's entire GDP, and far more diversified.

[Machjo]

33 minutes ago, Wilber said:

No it won't if other countries keep tariffs up against your industries. You are a Canadian company, your biggest market is the US and the Americans slap a big tariff on your product. Where are you going to produce your goods, Canada or the US?  

That depends. If the US imposes import tariffs on Canadian goods and Canada does not reciprocate, then I as an entrepreneur would consider the following:

 

1. Will the tariffs target my product? If so, then it might make sense to move to the US, depending on other factors of course.

2. Will the tariffs affect certain equipment and resources that I might need to import to build my product? If so, I might want to establish my business outside of the US so as to avoid those additional overhead costs.

3. Am I planning on selling my product to a US market? If so, I might want to establish my business in the US, while taking into account point 2 above. If the tariff on my finished product would be minimal but that on the resources that I would need to build the product are high, I might rather move to Canada for the cheap materials and then export to the US and pay the tariff. If the tariffs on my finished product will be very high but those on the machinery, resources, etc. will be low, I might rather set up shop in the US, pay the extra cost on resources, and then just sell in the US.

4. What are other businesses doing? If all my competitors move to the US, I might want to stay in Canada. Looking at points 2 and 3 above, a US manufacturer might be at a competitive disadvantage when selling to Canada due to extra overhead costs in tariffs it must pay on its purchases. I'd have the advantage when selling to Canada since I'd not face those tariffs myself. In other words, businesses in the US would have the greatest advantage when focusing on the US market. their products might be more expensive, but at least they'd be protected from Canadian competition. The Canadian business would have the advantage in Canada due to lower costs of production.

5. How does this affect economies of scale? If a business is particularly affected by economies of scale, it might rather set up shop in the US. a business that isn't might rather take advantage of lower costs of production in Canada and focus on the Canadian market.

5. How much do transportation costs affect my product? If it's a low-value and physically heavy and bulky product, transportation costs could greatly add to the cost of the product and so affect competitiveness. With that, I might rather set up shop in the US where at least I can focus on the US market. If it's a high-value and low-weight product and non-perishable, I might rather set up shop in Canada. Firstly, I could take advantage of lower import costs for machinery, etc. Secondly, I could then exploit the lower cost to ship my product to other states around the world. I should consider too that other states would be more willing to negotiate more comprehensive trade agreements with Canada but not with the US. This means that if I'm planning on producing in one country and from there ship around the world, I want to set up shop in a country that would have friendlier relations with other states. The US would not be it for that.

6. Am I selling a product or a service? For example, if I want to set up a private university that would attract foreign students or a hotel to attract foreign tourists, I might rather set up shop in Canada where my customer base can come with less border hassle.

7. Can I avoid tariffs in some way? For example,  if I sell software online and the US has not imposed any tariff on foreign currency exchange, I could sell my product to the US by email or web download without my product ever needing to cross a customs check point.

8. How do climate and other factors affect my product? I might rather grow oranges in the US but collect maple syrup in Canada.

In short, the US would have the advantage when I'm planning on selling a product to the US market and have little need to be price competitive on the world stage. Canada would have the advantage when I'm planning on selling mostly outside of the US so that I can avoid US import taxes and bureaucracy.

Even if the US raises tariffs, while this would give US businesses an advantage in the US market specifically, it would put them at a competitive disadvantage in any export market due to the extra overhead costs that they must incur when buying machinery. Either they'd have to pay a tariff or settle for a less ideal domestically-made machine. No country can produce everything and be the best at everything. Industries in a protectionist state eventually become jacks of all trades and masters of none, protected within their own borders but noncompetitive on the world stage.

 

Canada would adapt by exploiting the natural advantage that unilateral free trade would give its industries.

Edited October 10, 2018 by Machjo

[Wilber]

Take Fiat Chrysler. An Italian American with its main office in Amsterdam, its financial headquarters in London, its stock traded on the Milan, London, New York exchanges and plants on five continents.

The US is still a huge market but it isn't the only market that counts anymore. That's all of North American that is #3, not just the US.

[Wilber]

1 minute ago, Machjo said:

 

Canada would adapt by exploiting the natural advantage that unilateral free trade would give its industries.

Unilateral free trade isn't an advantage, It's just going into a knife fight with your bare fists.

[Machjo]

20 minutes ago, Zeitgeist said:

Right to Work legislation is the saddest piece of anti-labour legislation.  Talk about hollowing out the middle class.  Lower what were once the kinds of wages that allowed workers to buy the products they produced and price them out of the market.  Henry Ford's greatest achievement after the car assembly line was paying workers $5.00 a day for building the Model T.  Those high wages (for that time) helped create the middle class and a huge market for the autos Ford's plants cranked out.  Brilliant.  That's what a $16.00 minimum wage in Mexico will hopefully do for auto workers.  Right to Work-type anti-union policy erodes workers' wages and benefits, period.

Sweden has right-to-work laws and it has less of a divide between rich and poor than Canada does. There are ways to redistribute wealth without forcing a person into a labour union.

 

For example, imagine the following scenario:

 

1. Canada introduces a right-to-work law.

2. Canada allows all sole proprietorships, worker cooperatives and consumer cooperatives to import tariff and quota free from any state on which the UN has not imposed sanctions.

3. Canada allows all other businesses not mentioned in 2 above to import tariff and quota free from any jurisdiction that respects the International Covenant on Civil and Political Rights.

4. Introduce co-determination laws (https://en.wikipedia.org/wiki/Co-determination).

5. Introduce a moderate tax on accumulated personal wealth minus basic necessities, debt, and business shares and spend that money on universal compulsory public education, and trades and professional education for the unemployed and underemployed.

There are plenty of ways to help the poor without giving labour unions excessive political power.

 

[Machjo]

5 minutes ago, Wilber said:

Unilateral free trade isn't an advantage, It's just going into a knife fight with your bare fists.

It lowers the cost of production. How's that not an advantage?

[Wilber]

1 minute ago, Machjo said:

It lowers the cost of production. How's that not an advantage?

Doesn't matter if the cost to the intended market's consumer is protected by tariffs. 

[Machjo]

6 minutes ago, Wilber said:

Doesn't matter if the cost to the intended market's consumer is protected by tariffs. 

As I mentioned above, we can't assume that the US would necessarily be the intended market. For example, a business that wants to avoid tariffs on its exports would rather move to the US and just focus on selling to the US market. A business that wants to focus on keeping its production costs down would rather set up shop in Canada and focus on the Canadian market. The US business might have to sell at a higher price to cover its higher overhead costs but would be protected by tariffs against Canadian competition. The Canadian business could undersell the US product in Canada. So each would just focus on its own market.

Where I could see a problem has to do with economies of scale and high transportation costs. Businesses that are particularly affected by that would naturally prefer to move to the US and just accept the higher costs of production. Businesses that are less affected by these factors and would benefit more from lower costs of production would rather just move to Canada and focus on the Canadian and other 'free-market countries.'

[Zeitgeist]

Yup, raising tariffs is the protectionist game, which might be won by big powers in the short term, but over time the protectionist regime becomes uncompetitive, being reliant on artificial mechanisms to maintain production rather than free markets.  New ideas and technologies are kept out of the country.  In a closed society like the Soviet Union, consumers had no choice but to buy the limited supply available to them, but none of these products would sell on the world market, except resources.  There was no incentive to improve, no competition.  Tariffs are a Great Wall.  I still think counter-tariffs are necessary to prevent countries from taxing more of your exports.  

[Wilber]

6 minutes ago, Zeitgeist said:

Yup, raising tariffs is the protectionist game, which might be won by big powers in the short term, but over time the protectionist regime becomes uncompetitive, being reliant on artificial mechanisms to maintain production rather than free markets.  New ideas and technologies are kept out of the country.  In a closed society like the Soviet Union, consumers had no choice but to buy the limited supply available to them, but none of these products would sell on the world market, except resources.  There was no incentive to improve, no competition.  Tariffs are a Great Wall.  I still think counter-tariffs are necessary to prevent countries from taxing more of your exports.  

I agree but you still need markets to compete in. It's also a question of scale. Canada cannot be competitive in manufacturing just supplying its own needs. While tariffs may be a losing proposition in the long run for the US, they can certainly outlast us. The idea of unilateral free trade is just dumb because it is only free for one side.

[Zeitgeist]

25 minutes ago, Machjo said:

As I mentioned above, we can't assume that the US would necessarily be the intended market. For example, a business that wants to avoid tariffs on its exports would rather move to the US and just focus on selling to the US market. A business that wants to focus on keeping its production costs down would rather set up shop in Canada and focus on the Canadian market. The US business might have to sell at a higher price to cover its higher overhead costs but would be protected by tariffs against Canadian competition. The Canadian business could undersell the US product in Canada. So each would just focus on its own market.

Where I could see a problem has to do with economies of scale and high transportation costs. Businesses that are particularly affected by that would naturally prefer to move to the US and just accept the higher costs of production. Businesses that are less affected by these factors and would benefit more from lower costs of production would rather just move to Canada and focus on the Canadian and other 'free-market countries.'

Canada's big trade advantage going forward is free trade.  We will be able to upgrade our manufacturing with technology from Canada, Europe, the U.S., Chile, and Pacific Rim partners.  We'll be able to export both raw materials and finished goods into these markets with low barriers.  We'll also have a vast variety of low-cost consumer goods from these countries, including items we simply can't produce in Canada.  Our manufacturing will have to be super productive and value-added to compete with low-cost jurisdictions and highly skilled workforces.  The challenge continues to be competing on wages and labour conditions, which is why having international labour laws, even an international minimum wage (based on purchasing power parity) is necessary.  I think we'd all agree, Americans included, that when wages are similar, we can compete quite well.  Higher wages also create new export markets.   

Edited October 10, 2018 by Zeitgeist

[Machjo]

3 minutes ago, Zeitgeist said:

Canada's big trade advantage going forward is free trade.  We will be able to upgrade our manufacturing with technology from Canada, Europe, the U.S., Chile, and Pacific Rim partners.  We'll be able to export both raw materials and finished goods into these markets with low barriers.  We'll also have a vast variety of low-cost consumer goods from these countries, including items we simply can't produce in Canada.  Our manufacturing will have to be super productive and value-added to compete with low-cost jurisdictions and other highly skilled workforces.  The challenge continues to be competing on wages and labour conditions, which is why having international labour laws, even an international minimum wage (based on purchasing power parity) is necessary.  I think we'd all agree, Americans included, that when wages are similar, we can compete quite well.  Higher wages also create new export markets.   

We can compete even when wages are dissimilar. Even in the present NAFTA, many manufacturers moved to Mexico only to regret it later since while the workers were willing to accept lower wages, they didn't always have the skills the company needed, forcing the company to then spend much money on training. Some businesses even remained in the US or Canada to avoid this problem.

The same applies in world trade. i absolutely agree that in a state of unilateral free trade, Canada would absolutely need to invest heavily in universal compulsory public education and trades and professional education for its unemployed. Also, it would need to take a more no-frills-no-gimmicks approach to policy. No more official bilingualism from coast to coast to coast. We might allow unilingual English packaging and labeling in BC and French in Quebec to reduce the cost of translation for example. We might scrap Canadian-content laws. While education would still need a civic-education component, it would need to become more streamlined. Unless second-language education can achieve more than a 10% success rate as is presently the case in New Brunswick schools, we may need to make it an optional subject (or let students choose easier languages like Esperanto, Indonesian, Swahili, etc. to increase success rates). We may need to focus on more practical education. For example, environmental policy might involve teaching vegan cookery in school so that students know how to cook healthier dishes to reduce health care costs and improve the environment through dietary influence. We may need to focus more on ensuring that every child graduates with a trade or profession. In short, education would need to become highly public-policy-driven.

Since the state could not afford to help the poor as much, it would become important to help the poor help themselves. This could mean allowing for more high-density mixed development with more walking and cycling paths. This is not to say that the rich have no obligation towards the poor, but merely saying that we cannot help the poor through monetary solutions alone. They need to be combined with strategies that would allow the poor to live at lower cost without the need for subsidies. Again, I'm not saying scrap social assistance, but I am saying a much more no-frills-no-gimmicks-hands-up type of assistance.

[Zeitgeist]

The official languages and packaging aren't changing, nor the cultural protections.  People sometimes try to say Canada doesn't have an identity.  Well these are aspects of the Canadian identity, non-negotiables.

[Machjo]

3 minutes ago, Zeitgeist said:

The official languages and packaging aren't changing, nor the cultural protections.  People sometimes try to say Canada doesn't have an identity.  Well these are aspects of the Canadian identity, non-negotiables.

If they're so much a part of the Canadian identity, why do they need official recognition? I remember visiting Ottawa for the first time as an adult. I was seeking directions in Orleans (a supposedly more French-speaking part). For some reason, I addresses a couple in French. They apologized in English saying they didn't know French. It took me no more than a day to realize Ottawa was English.

When I went to Gatineau, I noticed that people in Hull all seemed to know English to varying degrees, usually quite well. I soon learnt that that wasn't the case everywhere in Gatineau as I went deeper into the suburbs of Gatineau where most definitely didn't know English. This is all in the National Capital Region itself, right on the border between Quebec and Ontario. If most Ottawans don't know French and most Gatinois (at least outside of Hull and areas near it) don't know English, then I can't imagine that official bilingualism is as widespread as people think beyond the most rudimentary language skills for introductions and basic negotiation of prices in commerce. Even in Hull, some knew only what I'd call 'commercial English', meaning the ability to discuss prices and a little more surrounding their field of work and not much more beyond that.

[Zeitgeist]

Aug 2, 2017 - In Ottawa, bilingualism rates increased from 37.6 per cent in 2001 to 38.3 per cent in 2006.

It's not necessary to know both French and English when emigrating to Canada, but it's necessary to know one of the two.  Either language will do.  

[Machjo]

22 minutes ago, Zeitgeist said:

Aug 2, 2017 - In Ottawa, bilingualism rates increased from 37.6 per cent in 2001 to 38.3 per cent in 2006.

It's not necessary to know both French and English when emigrating to Canada, but it's necessary to know one of the two.  Either language will do.  

I wasn't talking about immigrants. I was referring to people with very Canadian accents in either language and probably born in Canada. If Canada is to compete with the world, our education must become more practical. Either success rates in second language learning improve, we teach an easier second language, or we stop making second-language learning a compulsory subject and have students focus on other skills. Another option would be for those who choose to learn a more difficult second language like English or French to make it a specialization to ensure that they graduate fluently bilingually.

[bush_cheney2004]

28 minutes ago, Machjo said:

I wasn't talking about immigrants. I was referring to people with very Canadian accents in either language and probably born in Canada. If Canada is to compete with the world, our education must become more practical. Either success rates in second language learning improve, we teach an easier second language, or we stop making second-language learning a compulsory subject and have students focus on other skills....

 

Agreed....the two official languages game that Canada plays is definitely a drag on competitiveness...domestically...and internationally. 

It just adds another layer of complexity and cost.

[Zeitgeist]

Well some major trade agreements are already signed.  I can see the US wanting us to have the same barriers to China that they have.  Agreed, it’s a bad deal that should change. 

[Machjo]

15 hours ago, bush_cheney2004 said:

 

Agreed....the two official languages game that Canada plays is definitely a drag on competitiveness...domestically...and internationally. 

It just adds another layer of complexity and cost.

I'm not denying that English and French Canadians may need to communicate with one another. But to learn a smattering of English or French brings no benefit whether cultural or economic. It would make more sense to allow those with the right aptitude to specialize in English and French translation and let others specialize in other fields even in high school. Those who do not wish to specialize in a second language but would still like to know a second language should be free to learn an easier language as an alternative. Given the dismal success rate in French and English as second languages in both Ontario and Quebec, I could even see Ontario and Quebec agreeing to letting interested students learn Esperanto as a second language. Since it's an easy language, even Esperanto as a core language course would suffice so no need for intensive or immersion courses. Due to a coordinated effort between two provinces, Quebecers and Ontarians could communicate with one another through Esperanto after a generation while the few bilingual English and French resources could shift aware from small business to other areas where their expertise is more needed so as to eliminate excessive market demand for that skill.

[Zeitgeist]

Ah no.  If you want to do business in Canada, it's French or English and bilingual labels.  What's it like to do business in Belgium with two languages or Switzerland with four languages?  You don't make a population give up their language because some people find it inconvenient.  Canada has to produce export goods in whatever language the target market speaks.  So what?  The solution in Europe is often to provide multiple language labels: German, French, English, Spanish, and Italian, for example.  How many companies won't sell into Europe just because many languages are spoken there?  Print off labels in the language of the market country.  Done.