Dr. John Rutledge
Summary: Trump tariffs on steel and aluminum have more to do with Europe than China. But a trade war would be a disaster for Boeing's 137,000 workers. My old friend Larry Kudlow may be just the man to keep that from happening.
John Rutledge, Safanad CIO, and Simon Lester, CATO Institute trade policy expert, discuss the effect tariffs will have on the steel and aluminum industries and what impact Larry Kudlow could have on the Trump administration. (You can watch the video clip of the segment by clicking this link or clicking the image above).
Old friends are the best friends: As I was sitting in the CNBC studio waiting to talk with anchors Tyler Mathisen and Michelle Caruso-Cabrera about trade and tariffs, I heard the Producer's voice in my earpiece say "We have a new lead--the White House just announced Larry Kudlow will be taking Gary Cohn's job as head of the National Economic Council." Don't need notes for this, I thought. After 42 years, I love Larry like a brother. He is the perfect man for the job.
A tsunami of messages hit my inbox in the first hour. Some were love notes but a fair number were hate mail so I thought I would explain my logic in making this, apparently, contentious statement. The first reason is easy: I am happy for my friend. Larry and I first met in 1976 when he was Chief Economist at Paine Webber and I was a professor at CMC. Larry had read my book on interest rates and wanted to discuss the ideas. Later, we wrote the Reagan Economic Plan together. I don't mean we worked on the project--we actually wrote it with our pencils on yellow pads. Over the years we have worked on more projects than I can count, in good times and bad. When people ask me if I know this or that thing about Larry I say of course I do. But I don't demand that my friends agree with me, and I don't demand that they are perfect (a test I would sadly fail myself.)
Second, he really is the perfect man for this job at this time. Larry is loyal to a set of principles, not to his boss. He believes in markets and free trade and is very knowledgeable on tax and monetary policies. There are areas where we disagree, of course, including China and the Middle East but that's OK. The most important thing we need in this job today is someone Trump will listen to. Larry is the only guy I know who may be able to walk Trump back from a trade war. He will help on tax policy. He will be a good influence on Fed appointments. Good enough for me.
Now back to tariffs and trade wars: The steel and aluminum tariff announcements were a terrible idea. After likely escalation, they will reduce global GDP by $550B per year. Companies like Boeing will not only see higher materials prices; they will also be the targets of retribution. 80% of Boeing's airplanes are sold to other countries; 25% go to China. Boeing employs as many people as the entire US steel industry--twice as many counting tool and parts makers.
2% of steel imported are from China...
The saving grace is that, although Trump said the tariffs were to punish China, they won't be unaffected. China is not even in the top 10 exporters to the US. Only 2% of US steel imports come from China. The bulk are from Canada, Mexico, Brazil and, you guessed it, Russia. Canada and Mexico have already been exempted. The big question is the EU. We have already seen push-back against Harley-Davidson and Levis. If Trump imposes tariffs on EU cars (including the BMWs made in Spartanburg South Carolina?) they will do the same. That's where it gets ugly.
...but China buys 60% of US soybean exports
So, where does China come into the picture. Steel tariffs won't move their needle, as I argued above. The way to draw China into the game is to restrict Chinese investments. Trump's veto of the Broadcom/Qualcomm (headquartered in Singapore) is closer to what I am talking about. the next time a big Chinese company is blocked from investing in a US company, stand by for a ram. China buys 60% of our soybean exports. They are produced by farmers wearing MAGA hats.
JR