The court singled out Trump’s use of the International Economic Emergency Powers Act, or IEEPA, to levy tariffs on almost all countries and particular tariffs on Canada, China and Mexico – allegedly for facilitating the importation of fentanyl into the United States. The legal basis for the ruling was that the IEEPA makes no mention of tariffs.

This is the first major case where SCOTUS has limited the power of the presidency under Trump.

Trump was not happy about the decision, saying, “I can do anything I want” and re-imposed a global 10% tariff on imports using the Section 122 of the Trade Act of 1974, which allows the president to impose tariffs of up to 15% in response to a “large and serious” balance of payments deficits. The United States has been running large and serious trade deficits for decades, mainly because U.S., European and Japanese corporations have offshored production meant for the U.S. market, for example Apple’s computers and smartphones.

However, this law only allows for tariffs for a period of 150 days, meaning that Trump would have to ask Congress to agree to an extension in July. This is very unlikely to happen with the midterm elections looming.

Trump is also likely to expand sectoral, or good specific tariffs under section 232 of the Trade Expansion Act of 1962 where imports are a “threat to national security.” He has already used this to put tariffs on aluminum, steel, copper, lumber and wood products. This act is commonly misused because the threat to national security is not defined.

For example, imported kitchen cabinets are being tariffed because the wood products industry is claimed to be important to national security. However, this act requires an investigation and finding by the Commerce Department which takes time and effort and cannot be done on a whim.

In a sign that the chaotic tariff rollout and retractions are not over, the day after Trump declared 10% global tariffs, he raised the rate to 15%, the maximum allowed by law. Still to come will be lawsuits by U.S. companies seeking to be reimbursed for the billions of dollars in the illegal tariffs that they paid. Finally, are the review of the USMCA (formerly NAFTA) coming up in July, where the United States is expected to try to tighten trade rules.

While the SCOTUS decision was a setback to Trump’s imperial presidency, it by no means a return to a more free trade approach.

Both Democrats and Republicans are likely to restrict trade, in particular with China, which is surpassing the United States in one industry after another. For example, Trump used the section 301 of the Trade Act of 1974 in his first term to impose tariffs on imports from China on the basis of “unreasonable or discriminatory” trade practices by a country as found by the U.S. trade representative. These tariffs were maintained by the Biden administration and continue to this day.

Even a future Democratic administration is likely to keep major tariffs, especially since there are now industries benefiting from protection.

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While Trump claimed that foreign companies would pay for the tariffs by being forced to cut their prices, this did not happen. This can be easily seen in the index of import prices, which was exactly the same in December of 2025 as it was a year earlier in December 2024.

Economic study after economic study said that 90% or more of the cost of the tariffs were being paid by U.S. businesses or consumers. The Trump administration finally had enough of hearing the truth, so their chief economist, Kevin Hassett, said that the authors one study (who were on the economic research staff of the New York Federal Reserve Bank) should be “disciplined.”

There are two reasons why Trumps tariffs were not able to bring back more manufacturing jobs.

If Trump’s goal was to bring back manufacturing to the United States, he needed to bring down the prices of goods and labor that manufacturing needs. Instead, he put tariffs on raw materials and intermediate goods (manufactured goods that are used to make finished products) like steel and aluminum.

Also, while Trump likes to harken back to the industrialization during the McKinley administration (1897-1901) when tariffs were high, he omits the fact that the factories of that time were filled with immigrant labor. Thus, Trump’s attempt at mass deportation and terrorizing immigrants are driving away the very workers needed to re-industrialize.

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Trump was reacting to China’s announcement late Wednesday that it was strengthening its export regulation of rare earths and their products, in particular to prevent diversion to use by hostile militaries. China, in turn was reacting to the United States strengthening its export controls on computer chips in September. China also responded to the imposition of U.S. port fees on Chinese-operated and Chinese-built ships with similar regulations, which mainly fell on ships with some U.S. ownership.

Many people knowledgeable about China were left wondering why Trump reacted with higher tariffs, since the April escalation of tariffs to over 140% didn’t work. If anything, China’s economy may be even stronger to withstand another round of U.S. tariffs than it was in April. The latest trade report from China showed that while China’s exports to the United States had dropped more than 25% in September as compared to a year ago, overall exports had risen 8.3%. This shows that China has been successful in expanding trade with the rest of the world to more than offset the loss of U.S. markets.

China’s imports also rose 7.4% in September as compared to a year earlier. This is a sign that China’s economy is doing relatively well, as a growing economy will buy more imports. Here too China has managed to buy imports from other countries such as Brazil, which has become China’s main source of soybeans instead of U.S. farmers.

While China has pledged to retaliate if and when the Trump administration goes through with the high tariffs, there are still more than two weeks for Trump to back off.

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The average U.S. tariff rate on imported goods has gone up from about 2.5% before Trump unleashed his trade war in April to about 18% today. This increase in tariffs of about 15% would require a drop in import prices of about 13% to fully offset them, meaning that the foreign exporters would be paying the entire cost of Trump’s tariffs.

But in fact, the average price of imports has started to rise, not fall. In July of 2025, U.S. import prices rose 0.4%, and over the past year have fallen 0.2%, far from the 13% drop needed for “the world” to pay for Trump’s tariffs. This means that the vast majority of the tariffs are being paid by U.S. businesses and consumers.

Tariff-related price increases have just started to show in the Consumer Price Index or CPI. The CPI has gone from a low of 2.4%, as compared to prices a year earlier in March, before Trump’s “Liberation Day” tariffs, to the latest 2.7% in July. So far it seems that the bulk of the cost of tariffs have been borne by U.S. businesses, but more and more of them are saying that they will be raising prices in the future.

This is not a small matter, as Trump is continuing to raise tariff rates, with the de minimis exception on all countries but China ending at the end of August (China’s de minimis tariff exception already ended).Trump is also threatening even more tariffs, as high as 200% on medical drugs, and 300% on semiconductors. Given that these tariff hikes from Trump never seem to end, the price increases will be even greater as time goes on.

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While the GDP report for January through March showed negative growth, this was mainly because of the large surge in imports to try to beat Trump’s tariffs. If all other sectors had stayed the same, the import surge would have dragged the economy down by 4.7%. Then in the second quarter of the year, imports dropped by an even larger amount as Trump’s tariffs began to bite, which would have caused GDP to grow by 5.2%.

So, when we wash out the boom and bust in imports, by putting the first two quarters together, there was an average of 1.25% annual rate of growth. Because there was also a big shift in inventories of unsold goods, which surged in the first quarter as imports piled up, and then dropped in the second three months as they were sold off, economists often look at final sales to domestic private purchasers, which also excludes changes in government spending. This figure was only up 3%, as compared to a 5.3% rate of growth in the second quarter of 2024.

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Many economists like to look at the so-called “core” rate which strips out changes in food and energy prices, which can give a better sense where inflation is headed, since food and energy prices bounce up and down a lot. The core rate for the CPI in June on a year-over-year basis was even higher, at 2.9%. This was because the total inflation rate was pulled down by 8.3% year-over-year drop in gasoline prices.

Goods that are mainly or even almost entirely imported showed even faster increases in prices, showing the early impacts of Trump’s historic increase in tariffs. Shoes and other footwear prices rose 0.7% in June, more than twice the average rate of 0.3%. Tire prices were up 0.9%, while toy prices were up by 1.8%. Major appliance prices soared 1.9% in June, or a whopping 25% annual rate of increase.

The impact of climate change-fueled disasters showed in the 1.1% increase in home insurance premiums in June – this is equivalent to a 13% annual rate. The number of natural disasters is becoming more frequent. In 2024 the United States suffered almost $218 billion in losses, of which a bit more than half, or almost $113 billion, were covered by insurance.

The price increases caused by Trump’s trade wars still have a way to go. So far, the impact has been muted by the very large “front-loading” of imports. Imports, which are a deduction from Gross Domestic Product, rose at a record pace in the first three months of the year to avoid Trump’s tariffs. This led to a large increase in unsold goods.

Trump’s historic April 2 tariff increase on almost every country in the was shocking, but then he backed off, with 10% baseline tariffs (except for Canada, China, and Mexico) for 90 days. But his sectoral, or industry-wide tariffs on aluminum and steel (first 25%, then doubled to 50%), automobiles and auto parts, expansion of first term tariffs on washing machines to include refrigerators and dishwashers, stood. Trump also eliminated the tariff free or “de minimus” rule for packages under $800 in value.

In July, Trump sent letters setting higher tariffs of 25-40% to at least a dozen more countries, mainly in Asia. The average U.S. tariff rate rose to almost 18% – the highest rate since the Smoot-Hawley tariffs of the Great Depression of the 1930s.

Finally, Trump is not done with raising tariffs. There is a new tariff on imports of copper – 50% – to go into effect August 1. Trump is raising tariffs on Brazil from 10% to 50% to try to strong-arm them to stop persecuting Brazil’s right-wing former president. Trump has threatened 50% tariffs on goods from the European Union starting August 1.

The Trump administration is also studying new tariffs on digital services, timber and lumber, medical drugs, semiconductors, “critical minerals,” trucks and truck parts, and commercial aircraft and jet engines. He has also threatened steep tariffs on imported solar panels, putting tariffs on dolls, and on foreign-made films.

So, in all likelihood, higher tariffs, and higher prices from tariffs, will continue to at least the end of the year.

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The Chinese agreed to match this tariff reduction, reducing China’s tariffs on U.S. goods from 125% to 10%. China did not agree to any of the U.S. trade demands and many U.S. news reports had to admit that China did well, with one headline from Bloomberg News reading, “Xi Defiance Pays Off as Trump Meets Most China Trade Demands.”

At the beginning of the massive tariff escalation, Trump was confident that the United States had the upper hand, since China would lose more sales from U.S. tariffs than the United States would lose. What Trump and others failed to see was that much, if not most of what was imported from China could not be replaced, putting U.S. jobs and businesses at risk. On the other hand, some of the largest U.S. exports to China, such as farm products, oil and natural gas were goods that other countries were willing and able to sell to China. Most of the countries in the world have China as their largest trading partner, while only countries in North America and western Europe generally still have the United States as their largest trading partner.

Ever since the first Trump administration, the Chinese government had been preparing for U.S. escalation of its trade war. China sought out other countries to trade with and reduced the proportion of Chinese exports going to the United States. Increasing restrictions on high tech exports, and in particular sanctions on one of China’s tech champions, Huawei, forced China to develop its own semiconductors and allowed Huawei to bounce back.

China also proceeded with its “Made in China 2025” plan and today key industries of the future, including solar energy, electric batteries, electric vehicles, ocean ship building, robotics and now even artificial intelligence have Chinese firms either dominating or competitive on a world scale. In contrast, Trump is accelerating the relative decline of the United States by wanting to go back to 1900 in terms of tariffs and industry, applying protectionist tariffs on steel and promoting coal. Rather than dealing a blow to Chinese socialism, Trump has in fact made American capitalism lag even farther behind in more and more industries.

While Chinese leader Xi was making trade deals with Vietnam, Cambodia and Malaysia, all members of ASEAN or the Association of Southeast Asian Nations, Trump could only sign a “framework” with the United Kingdom while levying heavy tariffs on almost every other country in the world.

More negotiations will happen between China and the United States, but Trump’s trade war is by no means over. Trump has mentioned even more sectoral tariffs to be levied on pharmaceuticals, movies and semiconductors, and his administration is conducting investigations into copper, trucks and lumber.

Further, given the agreement with the United Kingdom, where the United States has a trade surplus, and with China, it seems like the 10% across the board tariffs are here to stay. This is a large increase from the less that 2% average tariffs when Trump came into office, meaning that prices are likely to rise even faster in the United States, further squeezing the purchasing power of workers’ wages and small businesses’ income.

#SanJoseCA #CA #CapitalismAndEconomy #Tariffs #Trump

The first report was the Institute of Supply Management’s Manufacturing Purchasing Managers’ Index (or PMI) that came out on April 30. This report came in at 48.7%, which meant there was an overall contraction in the U.S. manufacturing industries. For the second month in a row now, the Manufacturing PMI was below 50, and in contraction territory.

The second report was the Department of Labor’s employment report on April that came out May 2. Here the survey of businesses reported a net loss of 1000 manufacturing jobs in April. The biggest losses were in computer and motor vehicle and parts manufacturing, both of which are heavily exposed to trade. The biggest gainer was in food manufacturing, which tends to have a more domestic supply chain.

One reason for the declines is that Trump’s trade war, which began on February 1 with the first tariffs on Canada, China and Mexico, took an “Everything everywhere all at once” approach. Trump then upped the tariff on Chinese imports to 145%, on top of previous tariffs. So, for example, the tariff on Chinese electric vehicles went from 100% to 245%.

Trump also declared tariffs on the whole world based on the countries’ trade surplus with the United States. While Trump suspended this a week later, 10% tariffs remained on every country (except for China, where super-high tariffs remained).

By placing tariffs on steel and aluminum, as well as other imported raw materials and parts that are all used in production, it makes manufacturing more expensive here in the United States. Studies of Trump’s tariffs on steel and aluminum during his first term found that while there were small gains in jobs in those industries, there were much larger job losses in industries that use steel and/or aluminum for production.

Another reason is that Trump doesn’t take into account that other countries can retaliate against his trade war. When Trump said, “trade wars are good and easy to win,” he might have been thinking of the Heard and McDonald Islands, which don’t have any humans living there, but got 10% tariffs anyway. China has the second largest, or even largest, economy depending on how one measures it, and China has placed a 114.73% tariffs on U.S. soybeans as part of a more general 125% tariff on U.S. goods in retaliation for Trump’s 145% tariff on Chinese goods. This virtually shuts down the purchases of U.S. soybeans, which China can afford to do by buying soybeans from other countries such as Brazil. While U.S. farmers try to hold on, they are not buying tractors, and John Deere is laying off 119 workers at its plant in Iowa, citing a weak market for their farm equipment.

#SanJoseCA #CA #CapitalismAndEconomy #Trump #Tariffs

He is trying to brace Americans for hard times to come, saying that you might only get two dolls for Christmas instead of 30. Now, I didn’t know anyone who got 30 dolls for Christmas when I was growing up, but maybe having a multi-millionaire father gave Trump a different gift experience as a child.

While Trump pledged to start bringing prices down on “day one,” the reality is that signs of rising prices caused by Trump’s tariffs on goods from China are popping up. On Friday, May 2, the “de minimus” exemption for packages worth less than $800 ended by Trump’s order. Some of the fastest-growing online retail platforms were Shein and Temu, which specialized in direct sales from China. Last year Amazon even created a discount section that also featured direct from China sales. In the last week of April, prices started to rise on fast fashion online sales platforms such as Shein and Temu. The price increases more than doubled many of their prices. Then Temu stopped selling direct from China, relying on stock from U.S. warehouses.

Microsoft has also raised the price of their Xbox consoles by 20% or more claiming that “market conditions” were to blame. The real reason is that 75% or more of all gaming consoles, by the three major companies (Microsoft, Sony, and Nintendo,) are made in China, with most the rest made in Mexico and Vietnam.

Other companies that announced price increases in April and May included Stanley Black & Decker, which raised prices on their tools. Baby product company Evenflo announced prices would go up around May 1.

Even products that are made in the U.S.A. are seeing costs go up and are raising their prices. With Trump’s across the board 10% tariffs, all imported parts and raw materials have gone up in price, causing businesses to raise their prices. But companies that rely on materials that are largely made in China, like silk, are being hit the hardest.

While only a minority of companies are raising prices right now, they are but the tip of the iceberg. More and more companies are announcing future price increases.

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Not only was this turning a deaf ear to the voice of many working-class and low-income people, but the Democrats’ position relied on official inflation measure, the Consumer Price Index, or CPI, which left out two important costs: interest payments (which were way up because of the Federal Reserve’s method of fighting inflation by raising interest rates) and home insurance costs, which were rising rapidly as climate change-fueled disasters, from hurricanes to wildfires, were driving up insurance companies’ costs, which in turn were raising premiums.

One of the promises that candidate Trump made was to bring down egg prices on “day one.” But this was a classic sleazy business “bait and switch” tactic, as Trump has done nothing about the problem. In fact, from January to March, egg prices at the grocery store rose almost 25% in just two months! While Trump rails about needing to bring production back to the United States, it is not a cure-all even if done, given 99.5% of all eggs consumed here are produced in the United States.

Trump also tried to address the deindustrialization that has eliminated hundreds of thousands of well-paying union jobs, especially across the Midwest. Trump began big with double-digit tariffs on the largest U.S. trading partners: Canada, China and Mexico. Trump upped the tariffs, with 25% tariffs placed on steel and aluminum. Then he doubled down with his historic “Liberation Day” tariffs announced April 2 that were based on the U.S. trade deficit with each country.

However, Trump’s tariffs were not sustainable, causing Trump to back down many times. First, he suspended tariffs on Canadian and Mexican goods that were USMCA eligible, that is products covered by the free market agreement between the U.S., Mexico, and Canada, that Trump negotiated in his first term. He put the “Liberation Day” tariffs on hold, except for China, which had the backbone to fight back. Then he exempted the tariff on Chinese-made cell phones and computers, and most recently, suspended the tariffs on imported cars.

These jumps and drops in tariffs have had a whiplash effect on financial markets, with Trump’s first 100 days having the biggest drop in stock prices since the second term of Richard Nixon, who had also upset the capitalist world economic order by ending the U.S. dollar’s convertibility into gold, which was a key part of the post-World War II Bretton Woods currency structure.

Usually when there is financial turmoil, many investors from around the world will rush to buy the U.S. dollar and U.S. government bonds, seeing them as “safe havens” in troubled times. But Trump’s trade war on the rest of the world in general, and on China, the world’s largest economy as measured by “purchasing power parity”, has ended this, with both the U.S. dollar falling as well as bond prices, which is causing interest rates to go up.

While Trump denies that tariffs will raise prices, the American people know better, and surveys of expected future inflation are now the highest since the 1980s. Consumer confidence has now dropped for five months in a row. Mainstream economists, the Federal Reserve, and the International Monetary Fund have all raised their projections for inflation this year.

The tariffs are also starting to have an impact on jobs. Early on, the tariffs on autos from Canada and Mexico (now largely suspended) caused a Stellantis auto factory to pause production, which led to job losses at parts plants in both Canada and the United States. Indeed, all the mainstream economic forecasts have raised the likelihood of a recession later this year, along with rising unemployment.

The trade war with China is already causing shipments of goods to the United States to fall, and by late May, price increases and shortages will start to show up at retail stores.

Deindustrialization and the export of U.S. production to other countries is a real problem, but broad tariffs and dystopian dreams of American workers screwing in screws into iPhones are not the solution. The problem at its root is caused by the capitalist system’s goal of maximizing profits in general, and Wall Street’s expanding reach in particular. This can be seen in the case of the Ames True Tempur factory in Harrisburg, Pennsylvania, which Trump visited to celebrate his first 100 days in 2017.

At that time, Ames was the largest wheelbarrow plant in the world and made 85% of the wheelbarrows sold in the United States. The company had a storied history going back to 1774, supplying shovels to George Washington’s army in the Revolutionary War for independence from British colonial rule. Trump proclaimed that “We believe in ‘made in the USA’” and signed executive orders that led to his first tariffs. But in 2023 the company’s owner, Griffon Corporation, closed the plant and shifted the work abroad. True Tempur wheelbarrows can still be found in big box home improvement stores but are now marked “Made in China.”

A similar story can be seen in China’s most well-known goods export, Apple computers and phones. Apple began manufacturing here in the United States, but began production in China in 1988, and in 2004 shut down its last factory in the United States near Sacramento, California.

The story is the same with U.S. auto imports from Canada and Mexico – they are not from Canadian or Mexican-owned auto companies. They are U.S. (and European, Japanese and Korean) car companies that have shifted production to Canada and Mexico to sell to the United States.

Donald Trump is trying to convince U.S. workers that other countries are stealing U.S. jobs and robbing the United States. In fact, the job losses are “made in the U.S.A.” in the corporate boardrooms and on Wall Street to maximize profits, or in the words of Griffon Corporation “a compelling opportunity for shareholder value creation.”

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This is the third time that Trump has backed off after CEOs yanked at his leash. First it was the suspension for 90 days of Trump’s “reciprocal tariffs” on the world following comments by the CEO of JP Morgan Chase, the country’s biggest bank, Jamie Dimon. Next came the exemption for cell phones and computers from the 145% tariffs on Chinese imports after a talk with Apple CEO Tim Cook. This time it was a meeting with the CEOs of Target, Walmart and Home Depot that led to the latest softening of Trump’s stance and hints from his administration that he will lower tariffs against China.

Trump is also finding it hard to make deals with other countries. After strongly hinting that a deal was being done with Japan, one of the United States’ foreign policy and military partners, nothing concrete came out of U.S. meeting with Japanese trade officials. One problem, according to a former U.S. trade official, is that the U.S. side could not state what they wanted from Japan. Another problem was that Trump administration is trying to get other countries to limit their trade with China, despite China being Japan’s largest trading partner. In fact, almost all countries in the world, with the exception of those in western Europe, North America, Central America, and the northern part of South America, trade more with China than the United States.

The problem is that while Trump attacks other countries for “taking advantage” of the United States and stealing jobs from American workers, it is in fact U.S. corporations that have been off-shoring their jobs for decades. Just this week, the Wall Street Journal reported that Chevron, Exxon, and other U.S. oil companies are offshoring more engineering and other skilled work to India.

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On the other hand, China does not accept this. China was fairly restrained in responding to the first two 10% tariffs leveled by the United States. But once the United States kept raising tariffs, China responded in kind, eventually raising their tariffs to 125% on U.S. items. China stands ready to begin negotiations with the appointment of a chief trade negotiator, Li Chenggang, who was China’s chief negotiator at the World Trade Organization.

China has been actively increasing its domestic market to rely less on trade for the last 15 years. Further China has expanded trade with other nations to reduce the percentage of exports going to the United States. 25 years ago, China was the leading trade partner to less than 20 countries, all in Asia, Africa and Cuba. Last year it was the United States that was the leading trade partner to less than 40 of the 190 countries and regions of the world, almost all in the Americas and Europe. China was the leader in trade with almost all developing countries and even led in trade to U.S. military allies such as Japan and South Korea.

Another thing would be to look at the details of who buys what in the China/U.S. trade relationship. The single largest product that China buys from the United States is soybeans, which China can buy from other countries such as Brazil. The same goes for the second largest products, oil and gas, which China can buy from many other countries such as Russia, Saudi Arabia, Iraq and Oman.

On the other hand, Chinese machines are the single largest item bought by the United States – not consumer goods as many people think. While the United States does have other sources of machinery, to import more from Mexico, Japan, Canada and Germany would still cost significantly more, as Trump has tariffed all these countries. The second biggest U.S. import from China is nuclear reactor equipment. Russia is a leading exporter in this field, but U.S. sanctions prevent buying from them anymore.

In particular, the United States (and the rest of the world) relies on China as a source of so-called “rare earth” metals – which are not really that rare. While deposits of these rare earths are widespread, China has a near monopoly on (92%) the processing of these metals from their ores. China’s rare earth processing is dominated by state-owned enterprises or SOEs. One of the roles of SOEs in China’s socialist economy is to have lower profit margins in order to provide raw materials at lower prices, which benefits China’s manufacturing industries.

China has begun to restrict the exports of rare earth metals and magnets made from them to the United States. These are used in both military and industrial processes and could impact both the U.S. war machine as well and companies manufacturing MRIs and automobiles, as well as other industries. While the United States does have its own rare earth mines, it would take years to develop processing facilities, and China also has the most advanced technology for processing rare earth ores.

China recently stopped its airlines from taking deliveries of Boeing jetliners. This is a blow at one of America’s giant corporations, which has been weakened by a series of accidents. While many of the commercial jets in China are Boeings, China has been moving away from Boeing for years and now flies more Airbuses than Boeing airliners. Further, Airbus has an assembly plant in China, whereas Boeing does not.

China also has a new Comac C919 airliner. It is a narrow body airliner like some of the Boeing 737 or Airbus A320 airliners. While it does rely on some U.S.-made parts, it can still import these parts – at least for now. But even if the U.S. expands its sanctions to commercial airliner parts, this will lead to China accelerating its manufacturing of substitute parts.

Finally, China has a resource that the United States doesn’t even have – the world’s longest high-speed rail system in the world. In fact, half of the world’s high speed rail tracks are in China. So even if the U.S. managed to somehow shut down China’s supply of planes, people could still take the train.

Last but not least are the two economic systems involved. Trump’s Secretary of the Treasury, billionaire Scott Bessent, said in reaction to China matching Trump’s tariffs, “they’re playing with a pair of twos.” This gaming mentality is common on Wall Street where Bessent ran a hedge fund, and represents the outlook of finance capital, a feature of monopoly capitalism.

On the other hand, China is a socialist society, and rather than gambling on a trade war, China has a long-term plan. “Made in China 2025”, adopted by the Chinese government ten years ago in 2015, was their guide to changing from being the world’s factory based on low labor costs to competing or leading in higher-technology industries. In an article by the American business news source Bloomberg, China was said to lead the world in five industries: drones, electric vehicles and lithium batteries, graphene (high-tech carbon), high speed rail, and solar panels. The success of the Chinese electric cars is seen in Chinese BYD vehicles passing Tesla.

In most of the other areas, including ship building, pharmaceuticals, agricultural machinery, machine tools, robotics, artificial intelligence (Deepseek) and semiconductors, Chinese products are competitive. Only in one industry, commercial airlines, is China still behind world leaders such as Airbus and Boeing. Because of China’s advances the Trump administration is limiting AI chip exports and is developing plans for tariffs on Chinese ships, pharmaceuticals, cell phones and computers (the last two would be general, not just levied on Chinese goods).

So, while China is looking to and making its way to the industries of the future, Trump wants to return to the past, extolling 19th century industries like iron and coal and gambling on a trade war.

#SanJoseCA #CA #CapitalismAndEconomy #Tariffs #Trump #China #TradeWar

While Trump tossed off the large declines in the stock market last Thursday and Friday, April 3 and 4, this week bond prices began to decline, driving up interest rates. These higher interest rates seemed to threaten Trump’s ability to get his tax cuts passed in Congress, so Trump pulled back.

While most of the world breathed a sigh of relief, Trump did not mention the tariffs that he put on Canada and Mexico. Nor did he pull back on the 25% tariffs on imported automobiles, which will hit Mexico and Canada especially hard, given how the auto industry has integrated their supply and productions over the three countries since the signing of the North American Free Trade Agreement in 1994.

Trump even increased tariffs on China to 125% after China matched Trump’s tariffs, bringing the Chinese tariffs on U.S. imports to 84%. So far, China has not responded to Trumps latest escalation. Trump and most economists think that China is weaker because they sell more to the United States than the U.S. sells to them. But China mainly buys agricultural goods, oil and gas, electronics, medicinal drugs, and airplanes from the U.S. – products that China can either buy from other countries or can make themselves. On the other hand, it would be harder for the United States to replace the large amount of consumer electronics (such as the Apple iPhone) and rare earth elements that the U.S. mainly sources from China. In addition, the U.S. runs a large trade surplus in services that China could also restrict.

While China exports more to the United States than any other country, the U.S. only accounts for less than 15% of China’s goods sold abroad. Even since the first Trump administration and his tariffs on China, China has been diversifying its trade away from the United States. Further, pulling back on tariffs from the rest of the world will still allow Chinese companies to shift their production to other countries, especially the private companies that began to so this long before the Trump trade war because of rapidly rising wages in China.

China’s sophisticated supply chains, skilled labor, and machinery means that some U.S. businesses will refuse to move production out of China. They figure that Trump’s tariffs won’t last forever (in fact of the rest of the world the so-called “reciprocal tariffs” didn’t even last 24 hours before Trump “paused” them). And in the meantime, they can look for other countries to export to from China and try to find ways to cut costs in China.

Last but not least, China has a greater ability to offset the pain of tariffs domestically through government borrowing and spending. The U.S. government budget deficit is already very large, at $1.8 trillion, and growing as the economy slows. The Republican majority in Congress is much more interested in renewing Trump’s 2017 tax cut that mainly benefited corporations and the well-to-do, while food programs that benefit the poor are already being cut. China’s people are much more united against the U.S. tariffs and Trump, whereas most Americans do not support Trump’s tariff policies, even before most the side effects, such as higher prices and layoffs actually hit.

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Lin Jian stated, “The U.S. is still abusing tariffs and exerting maximum pressure on China. China firmly rejects and will never accept such hegemonic and bullying move. If the U.S. truly wants to settle the issue through dialogue and negotiation, it should let people see that they’re ready to treat others with equality, respect and mutual benefit. If the U.S. decides not to care about the interests of the U.S. itself, China and the rest of the world, and is determined to fight a tariff and trade war, China’s response will continue to the end.”

Lin Jian also noted, “No matter how the international landscape evolves, China’s economy has a solid foundation and sufficient driving forces for steady growth against the odds. With the strong leadership of the CPC Central Committee, the notable strengths of socialism with Chinese characteristics, a solid foundation built up from sustained rapid development, a super-sized market, a complete industrial system and more importantly, the concerted efforts of the 1.4 billion people, China has the confidence and capability to address various risks and challenges. External shocks cannot change China’s economic fundamentals with a stable foundation, numerous strengths, remarkable resilience and vast potential.”

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The tariff rates announced were calculated on the basis of the U.S. trade deficit with each country, or how much more the United States imports from said country than the amount of U.S. goods it buys. This was often dismissed as “nonsense,” but it reflects President Trump’s longstanding obsession with U.S. trade deficits.

President Trump has changed position on many policies: he started off as a Democrat and won the Presidency twice as a Republican; he was pro-choice but then became the most effective anti-abortion president by stacking the Supreme Court. But for at least 40 years, Trump has been opposed to imports, especially the success of Japanese cars in the 1980s. His love for tariffs is sincere, and overdone.

While he clearly wants to roll back the clock in many arenas, his tariff thinking goes back the furthest, almost 400 years, to the era of what Marx called “primitive accumulation,” where England and other European countries saw trade surpluses, or selling more exports than buying imports, as the road to national wealth. But while countries at that time followed this “mercantilist” economic policy by emphasizing exports, Trump is more focused on reducing imports through high tariffs.

So why were his April 2 tariffs so shocking to so many people? In part, he did a classic business scam of “bait and switch” – talking about reciprocal tariff for months, and then imposing tariffs based on trade deficits. Reciprocal tariffs seemed reasonable and fair to many people. Investors and economists generally knew that other countries’ tariffs were not that high, so raising U.S. tariffs to match would only be a few percentage points more.

Trump’s affinity for mercantile thought also meshes with some of his other policies. Mercantilism went hand in hand with the first wave of European colonialism, as first Spain and Portugal, then England, France, the Netherlands and even Sweden and Denmark rushed to establish colonies in the Americas. Then the European colonial conquest spread to South and Southeast Asia. This old-style colonial mindset can also be seen in President Trump, who wants to own the Panama Canal, make Canada a 51st state, and seize Greenland.

But Trump also differs with mercantilism in important ways. First and foremost, mercantilists were generally pro-immigration, seeing immigrants as bringing labor and skills that could increase production for export. Trump, of course, is anti-immigrant (or at least hostile to the vast majority of U.S. immigrants today, who come from Asia, Africa and Latin America). This is particularly a contradiction with his holding up the 1900 America of President McKinley, who championed on heavy industry, when in fact the workers in these industries were not white Americans who came off the farm – but were Central, Southern and Eastern Europeans, who made up the vast majority of immigrants at that time.

Last but not least, mercantilists were forward-looking for their time. They welcomed the imports of raw materials if it helped produced finished goods to be exported. Mercantilists also coveted skills and technological knowledge from immigrants that would also advance production. Trump wants to tariff all imports, even if the United States simply lacks the natural resources. If anything, Trump is somewhat hostile to higher education in general and to highly skilled and educated immigrants who lead many of U.S. technology giants – unless of course, they are white like Elon Musk, who hails from South Africa.

Trump is very backward-thinking, not only in terms of centuries old economic policy but also in his fascination with century old industries like coal and internal-combustion automobiles. This reflects the different societies – Mercantilism dominated when European was on the rise and the wealth needed for capitalism was being acquired. Trump’s ideas are shaped by an empire in decline, as the United States has been since the 1970s. And rather than trying to fix the many problems that American society faces, Trump wants to go back in time to when America was on the rise.

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Many of them are true believers and believe in whatever Trump says. But for many others, the easy answer, is that they live in a MAGA world, and any opposition to Trump would result in loss of their job and even death threats. But there is also another factor less discussed in the media.

For many years, right-wing think tanks have toyed with the idea of a consumption tax like the value-added tax that many other countries have. Project 2025, a guide to right-wing policy developed by the Heritage Foundation, is one example of the right’s embrace of consumption taxes.

Their goal is to replace income taxes, which are progressive in that they tax higher income households at a greater rate and lower income households, with a consumption tax. A consumption tax is regressive, where lower income households pay a larger percentage of their income in taxes than higher income folks.

But tariffs on imported goods are a type of consumption tax that is restricted to imports. Just like a consumption tax, tariffs are regressive in that lower-income folk with pay a larger percentage of the income to tariffs than higher-income folks.

When Trump claims that his tariffs will pay for his income tax cuts, that means the higher taxes for low and middle-income people will pay for tax cuts for the rich, something that most people would oppose. But he tries to sell this by first claiming that the exporters will pay the tariffs, and secondly by promising that this will bring more jobs and income back to the United States.

So why is Wall Street so scared by the tariffs if they are actually consumption taxes? One reason is that the tariffs are not confined to consumer goods, but include many of the raw materials (such as steel and aluminum) as well as parts (like auto parts) that U.S. companies use to make their products. This raises the costs of production, leading them to have to raise prices, which would tend to reduce the volume of sales, or squeeze their profit margins. Other U.S. companies, like Apple computer, basically import all of their products, which are made overseas. Last, but not least, they worry that the high rates – about 22% on average across all imports – would slow sales in general and tip the economy into a recession.

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Up to the time of China’s announcement, futures markets for U.S. stocks looked like the stock market was going to try to bounce back from Thursday’s lows. But once the news hit, the futures began to sink. Not even the March jobs report, which came in much better than expected, was able to stem the drop in stocks. By the end of the day, all the major stock indices – the broad S&P 500, the technology-heavy NASDAQ, and the headline Dow Jones Industrial Average – all fell by almost 6%, even worse than the day before and the worst drop since the COVID-19 pandemic hit the U.S. economy in 2020.

The reality of a worldwide trade war, centered by the world’s two largest economies, China and the United States, has finally sunk into investors in U.S. stocks. For the first time, J.P. Morgan Chase, one of the big four U.S. banks, said that they expect a recession in the U.S. economy. Big U.S. retailers such as Target and Best Buy, which sell large numbers of imported goods, have said that prices are likely to rise. Once again stagflation, or a combination of a recession and higher inflation, is raising its head.

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The broadest index, the S&P 500, which includes 500 large corporations, fell almost 5%. The technology-heavy NASDAQ fell even more, dropping almost 6%. This was the biggest one-day drop since the COVID-19 hit the United States in 2020.

What set off the stock market sell-off was President Trump’s announcement of tariff increases the day before, which Trump named “Liberation Day.” Trump announced a minimum 10% tariff for almost all countries, and much higher tariffs for countries where the United States had large trade deficits. While Trump claimed that they were “reciprocal tariffs,” that is, based on other country’s tariffs, in fact they were calculated based on the U.S. trade deficit with each country.

These tariffs were piled on top of Trump’s previous tariffs. So, for example, China will now face the 20% tariffs from February plus 34% additional tariffs, for a total of 54% tariffs. This means that for every good that comes into the United State from China the importer will have to pay a fee equal to 54% of the price of the good. Trump’s 25% tariffs on imported cars also kicked in.

While Trump believes that the exporter pays the tariff, in most cases, the consumer will bear the brunt of the cost of the tariff through higher prices.

Even worse for the consumer, goods made in the United States that compete with imports will also go up in price. This is what happened during Trump’s first term, when he placed tariffs on iron and steel. While import prices went up 25%, domestic steel producers raised their prices on average 22%, preferring to make a quick buck than increasing production.

Trump also believes that higher priced imports will cause there to be more production in the United States. But his tariffs on iron and steel, and coming tariffs on imported car parts, increase the cost of production of goods using the tariffed goods. So, while there were small increases in production of iron and steel, leading to more jobs, the losses in industries using iron and aluminum for production were far greater, leading to an overall job loss.

This is even greater with Trump’s tariffs on imported automobiles. Over the last 30 years the auto industry has built plants across Canada, Mexico and the United States based on the no-tariff rules of NAFTA and now the USMCA [United States-Mexico-Canada Agreement] that Trump himself negotiated. But rather than moving plants to the United States, which would take billions of dollars and years of construction time, auto makers have started to shut down plants in Canada and Mexico on the belief that their cars cannot be sold with the 25% tariff. But parts for these plants are often made in the United States, so they can be shut down too. This is the case with Stellantis, which suspended production at plants in Canada and Mexico, leading to layoffs at their part plant here in the United States.

Another issue is that of retaliation and the costs to American workers and farmers. In Trump’s first term, he only tariffed about half of imports from China, but China’s retaliation by cutting off purchases of U.S. farm goods, especially soybeans, led the Trump administration to spend more than $20 billion on aid to farmers. This time, with Trump putting tariffs on virtually the whole world, the retaliation will be much greater and the cost in terms of lost business sales and workers’ jobs, will be much greater.

One of the impacts of Trump’s trade war is growing uncertainty among businesspeople, who are holding off hiring and investment decisions given the escalating trade war. For this reason, even mainstream economists are raising their estimates of the likelihood of a recession in the United States later this year. Factoring the damage to the economy caused by retaliation, the job cuts of federal workers, as well as terminating government contracts, it is more likely than not there will be a recession.

How bad could it get? Trump has threatened additional tariffs on semiconductors, pharmaceutical drugs, copper, timber and lumber, and more. He has also threatened more tariffs on countries that retaliate, countries that buy oil from Venezuela, countries that tax digital services by U.S. companies, etc. So rather than providing more certainty, “Liberation Day” marks the beginning of even more uncertainty.

With the Trump administration and their minions at DOGE going all out to cut spending, and with Republican majorities in both the House and Senate, it is very unlikely that there will be anything like the massive aid in 2008-2009 and 2020. Without federal spending, it is quite possible for the economy to continue to grind down, in a deep and painful recession.

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Behind the drop in the stock markets was the growing realization of the economic costs of Trump’s trade wars and the growing possibility of a recession. The worry is that Trump’s tariffs will lift import prices, causing inflation to go up and production to go down because of higher costs. This so-called “supply-shock” would be a (hopefully) milder version of the COVID-19 pandemic impact in 2020.

On Monday, the Canadian province of Ontario imposed a 25% surcharge on the electricity it exports to the United States in response to Trump’s tariffs. About 1.5 million households and businesses in the states of Michigan, Minnesota and New York use Canadian electricity. The Premier of Ontario also said that they could shut off electricity exports altogether if Trump escalated his trade war on Canada.

The same day, China’s previously announced response to Trump’s tariffs also went into effect. It consisted of 15% tariffs on chicken, wheat and corn and 10% tariffs on soybeans, pork, beer and fruit. China also limited purchases of Chinese goods by 15 U.S. companies and banned ten from doing business in China. These agricultural tariffs are both an attempt to hit back at U.S. farmers, which is one of Trump’s bases of support, and reflect the progress China has made in applying technology including AI, global positioning (what we call GPS, but China has its own system by Baidu), and drones to agriculture.

Further, Trump’s 25% tariffs on aluminum and steel for all countries are scheduled to go into effect on Wednesday. The tariffs on aluminum will hit Canada the hardest, as they are the single largest country exporting aluminum to the United States. In fact, Canada’s exports are about the same as total U.S. production of aluminum. While steel imports are only less than a quarter of total U.S. steel consumption, Canada is still the largest exporter of steel to the United States, with Mexico as number two.

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Canada immediately hit back, with tariffs on $30 billion (Canadian) or about $20 billion U.S., with tariffs on another $125 billion (Canadian) or about $80 billion U.S. of U.S. goods, to go into effect in three weeks. China also hit back, putting 10-15% tariffs on U.S. agricultural exports, to go into effect March 10. Mexico’s response was more subdued, with the Mexican president saying that she would announce their response on Sunday, March 9.

While the immediate counter-tariffs were somewhat restrained, as both Canada and China would like further talks, the Canadian Prime Minister and the Chinese representative from the Foreign Ministry used very strong language.

Prime Minister Trudeau of Canada described Trump’s tariffs as an existential threat to the country, saying the tariffs are designed to cause “a total collapse of the Canadian economy because that will make it easier to annex us” referring to Trump’s repeated desire to make Canada a 51st state. Public sentiment in Canada has turned anti-American, with Canadian hockey fans booing The Star-Spangled Banner when it played at a professional hockey game in Canada. China’s foreign ministry representative also used strong language, saying “if war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.” 

The immediate impact of the tariffs will be to cause a logjam of imports and exports at the U.S. borders with Canada and Mexico. While many Chinese goods have been placed under tariffs since Trump’s first term, most goods crossing to and from Mexico and Canada largely had no tariffs and imposing them will be a logistical nightmare. This will lead to shortages, somewhat like the early days of the COVID pandemic, which also disrupted trade.

The second impact will be higher prices. Some of these price increases have already started. Others will show up in days. The amount that consumers will have to pay will vary by product. If there is a lot of competition in terms of other countries making the item, as in the case of shoes, the 20% tariffs on China will mean about an 8% increase in prices. More expensive products sold to people willing to pay more will see a larger pass-through to the consumer, such as iPhones, which could rise 15% in price. Finally, where there are almost no alternatives, such as avocados from Mexico, the 25% tariff could mean a 20% jump in prices.

One of the most expensive goods to be hit with tariffs will be automobiles, where U.S, Japanese and German corporations have factories. Here prices could rise by 15% or more, with the 25% tariffs on Mexico and Canada. Over the last 30 years these car corporations have built integrated supply chains spanning all three countries in the wake of the NAFTA free trade agreement. Many auto parts cross the border many times, meaning that the 25% tariff might be applied not once, but multiple times.

Not only will the tariffs raise prices, they threaten economic recessions in Canada, Mexico and even in the United States. While the United States is less dependent on trade than Canada and Mexico, the Federal Reserve Bank of Atlanta revised their estimate for U.S. Gross Domestic Product for the first three months of the year down to a negative 3.5% growth. This sharp drop in production, while not officially a recession, would typically be seen in a recession. 

To make matters worse, Trump is planning for even more tariffs. On March 12, Trump will put 25% tariffs on steel and aluminum. Trump has said that, on April 2, he will start tariffs on cars, medical drugs and semiconductors. Trump also plans to announce matching tariffs for every country, as his team is searching for foreign taxes that they could label as tariffs.

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