Tariffs are the greatest!
That assessment of America’s protectionist push, delivered on Tuesday via Twitter proclamation, underscored the notion that Donald Trump is becoming increasingly detached from reality as he plunges further down the trade war rabbit hole on the way to taking US protectionism to levels last seen in the mid- 1970s.
Trump’s efforts to extol the imagined virtues of his trade policies came just hours ahead of an announcement that the government is now moving to bailout American farmers hurt by China’s retaliatory tariffs. The proposed $12 billion aide package was roundly criticized by Republican lawmakers and didn’t play especially well with the agricultural community either.
“America’s farmers don’t want to be paid to lose – they want to win by feeding the world”, Senator Ben Sasse said, in a statement, adding that “this administration’s tariffs and bailout aren’t going to make America great again, they’re just going to make it 1929 again.”
Bob Corker offered a similarly scathing critique.
You have a terrible policy that sends farmers to the poorhouse, and then you put them on welfare, and we borrow the money from other countries. It’s hard to believe there isn’t an outright revolt right now in Congress over what is happening.
Actually Bob, it isn’t that “hard to believe”, because if you look at the polls out last week following the President’s objectively bad performance at the Helsinki summit with Vladimir Putin, Republican voters are inclined to support Trump no matter what he says or does, which in turn means lawmakers view opposing him as political suicide headed into the midterms.
That said, you’d think that once people start losing jobs and see their livelihoods threatened by the tariffs and the trade war, you might start to see some figurative and literal cracks in the base. That appears to be what China is betting on by targeting the farm belt with their tariffs and if the bailout is any indication, it’s working.
Meanwhile, the tariffs are starting to affect corporate earnings and guidance.
Alcoa cut its outlook last week, citing the impact of the trade restrictions and on Monday, Whirlpool pointed to rising raw material costs on the way to disappointing the market with their quarterly results and outlook.
Last month, General Motors and Harley-Davidson warned about the possible impact of the tariffs on U.S. investment spending and jobs, much to the chagrin of the Trump administration. The President found himself in a one-sided Twitter war with Harley and Peter Navarro accused both companies of “speaking with forked tailpipe” and suggested, in a CNN interview, that both GM and Harley are “playing into the hands of foreigners.”
On Tuesday, Harley delivered decent results in its second quarter earnings report, but again flagged the tariffs as a risk factor.
Fast forward to Wednesday and General Motors is out with their second quarter results and guess what? The company cut guidance, blaming rising raw material costs (among other factors). From the report:
Recent and significant increases in commodity costs and unfavorable foreign exchange impact of the Argentine peso and Brazilian real have negatively affected business expectations. Because the company anticipates these headwinds will continue through the second half of 2018, it has revised its full-year outlook to the following: EPS diluted of approximately $5.14; EPS diluted-adjusted of approximately $6; Auto Operating Cash Flow to approximately $11.5 billion; Adjusted Auto Free Cash Flow to approximately $4 billion.
That $6 projection is down from previous estimates that were as high as $6.50.
“GM had been on pace to flirt with record profits until the effects of President Trump’s steel and aluminum tariffs undercut performance”, Bloomberg notes, adding that “record earnings in China, market share gains at home and rising profit at its lending arm are all being undermined by steel and aluminum getting pricier after the U.S. slapped tariffs on the metals in June.”
As Reuters reminds you, “the automaker buys most of its steel from U.S. producers, who have raised prices in reaction to tariffs on imported steel imposed by the Donald Trump administration earlier this year.”
GM’s shares plunged more than 5% in premarket trading.
This comes on a day when Trump is set to meet with European officials to try and hammer out a deal that will avert further escalations in the trade dispute between the U.S. and the E.U.
Late last month, in comments filed with the commerce department, General Motors warned that the administration’s proposal to tax vehicle imports “could lead to a smaller GM”.
The U.S. Section 232 National Security Investigation of Imports of Automobiles and Automotive Parts has the potential to “undermine competitiveness versus foreign carmakers” and chances “provoking retaliation by other countries”, the company went on to say, in the same letter.
As a reminder, GM is another one of the “American icons” Trump sought to curry favor with early in his presidency. His relationship with the automaker has been controversial since then. Earlier this year, Trump falsely claimed that his policies were effectively dictating the company’s negotiations with South Korea.
That, as it turns out, was a lie. Here’s what GM said the day after Trump made those comments:
The announcement is related to our need to restructure our business in South Korea. Depending on the outcome of those restructuring efforts there could be broad global implications but as we said yesterday we need the full engagement of all stakeholders with a sense of urgency.
What is unequivocally true, though, is that the tariffs have now manifested themselves in yet another guidance cut from an American company, again lending the lie to the idea that the trade war is set to make anything “great again”.
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