Trump's New Tariff Threats

In the days following the announcement of the Trump Administration’s border security deal with Mexico, President Trump has doubled down on his use of the what often seems to be the only arrow in his quiver.

“Tariffs are the answer,” the president told CNBC.

“As soon as I put tariffs on the table, it was done. It took two days,” Trump said. “If we didn’t have tariffs, we wouldn’t have made a deal with Mexico.”

Over the weekend, the New York Times disputed that claim, citing reports from negotiators on both sides that said that the major components of the deal had been reached months before. The timetable of the asylum agreement and the number of Mexican troops deployed to the country’s Guatemala border were apparently adjusted after Mr. Trump threatened to launch a new trade war.

Regardless of how true the president’s claim that tariffs saved the day is, Trump seems determined to repeat the strategy again and again. In fact, he has already threatened another country with a new round of tariffs.

On Monday, the president threatened to impose new tariffs on China if President Xi Jinping does not attend the G-20 meeting later this month. In a phone interview with CNBC, President Trump said that he would immediately implement tariffs on the approximately 60 percent of Chinese imports that are not currently subject to import taxes. American consumers ultimately pay the tariffs on imported goods, but the higher cost of the imported goods decreases demand and lower sales ultimately hurt the foreign companies… or so protectionists hope.

China is “going to make a deal because they’re going to have to make a deal,” Trump told the CNBC host, claiming “China is getting absolutely decimated by companies that are leaving China, going to other countries, including our own, because they don’t want to pay the tariffs.”

For their part, China has threatened to shut off supplies of rare earth minerals to the US. China controls 90 percent of the world’s supply of rare earths, which are vital to the construction of electronic items such as smartphones, electric vehicles, and weapon systems.

If that weren’t enough, President Trump is already threatening to raise tariffs on Mexico once again. In a Monday morning tweet, the president said that if Mexico’s legislature failed to approve the deal, “tariffs will be reinstated!”

Mexico and the United States have a new trade treaty pending ratification by both countries and Canada. Trump’s repeated tariff threats against Mexico may make ratification difficult.

https://twitter.com/realDonaldTrump/status/1138030977521987584

President Trump’s tendency to go back to the well on the tool that he is able to implement without congressional approval is proving to be a problem. While the self-proclaimed “Tariff Man” says that “tariffs are a beautiful thing,” others disagree.

Myron Brilliant, the executive vice president of the Chamber of Commerce, warned against Trump’s use of tariffs, saying, “The weaponization of tariffs, the increase of threats on our economy, on our farmers, on our manufacturers, our consumers, is going to hurt our country. It also creates uncertainty with our trading partners.”

Trump fired back that Brilliant was “not so brilliant” and said, “He’s not protecting our country. He’s protecting companies who are members” of Chamber. The Chamber of Commerce represents American companies.

Mr. Trump’s tariff war runs risks both at home and abroad. Retaliatory tariffs by foreign trading partners hurt American exporters while Trump’s trade taxes are being paid by Americans, wiping out the gains from his tax reform. The constantly changing tax structure for imports and exports makes it difficult for American companies to plan for the future. If the trade war persists until the election, Republicans might find that businesses abandon them for Democrats who are perceived as more pro-business than a party that won’t challenge Mr. Trump’s erratic tax increases.

Originally published on The Resurgent

Trump Should Accept Mexican Concessions To Avert Trade War

In an effort to avert a trade war that could damage the economies of both countries, Mexico is reportedly offering concessions to President Trump. Mr. Trump’s threatened tariffs on Mexico are slated to go into effect on June 10 and would likely provoke a targeted response from our neighbor to the south.

The Washington Post reported on Thursday that Mexico was offering two major concessions to head off a new tariff war. First, the Mexican government offered to deploy 6,000 National Guard troops to its border with Guatemala, a major entry point for Central American migrants on their way to the US.

Second, Mexico is proposing changes to its asylum rules that would allow refugees to be returned to the first nation that they entered after leaving their home country. For example, Guatemalans would typically remain in Mexico while their request for asylum is processed and Salvadorans and Hondurans would have to remain in Guatemala.

Administration officials cautioned that there is currently no deal and cautioned that the concessions might not be sufficient to avoid the trade war. The president has not yet responded to the Mexican offer publicly, but tweeted on Wednesday that talks were progressing “but not nearly enough.”

https://twitter.com/realDonaldTrump/status/1136402982860312576

Vice President Mike Pence told Fox News on Thursday that the US was encouraged by the Mexican proposal, but that tariffs were still scheduled to be implemented on Monday. Fox cited two additional Administration officials who said that reports of an imminent deal were untrue.

In other developments, Mexican security forces intercepted a caravan of about 1,000 Central American migrants and detained more than 400 of the marchers per the AP. The migrants, who said they were fleeing gang violence, extortion, and corruption in Guatemala, Honduras, and El Salvador as well as a severe drought in the region, intended to seek asylum in the US. Reuters also reported that Mexico had frozen the bank accounts of 26 people accused of human trafficking.

As we’ve pointed out before, Trump’s tariffs actually tax American purchasers of imported products, not foreign manufacturers. Although the higher cost of imported goods reduces demand and can eventually hurt foreign companies, Americans bear the brunt of the tax increase. Decades after NAFTA, many US companies have supply lines that run through Mexico and products often cross the border several times during the manufacturing process. The tariffs would increase the cost of many products finished in the US and would ultimately kill many American jobs.

Recent polling shows that Americans oppose Trump’s tariff policies by a two-to-one margin and since the onset of the trade war the president has lost ground even in many red states. Mr. Trump’s approval in the Rust Belt states that propelled him to victory in 2016, states that would be hard hit by a trade war with Mexico, is already underwater.  Earlier this week, a new poll from Texas, another state with close economic ties to Mexico, found Donald Trump trailing Joe Biden.

The new tariffs would have to be applied by declaring a new national emergency since the applicable law was not cited in the president’s previous emergency declaration. However, more than half of voters have consistently opposed the use of national emergencies to tackle the problem of illegal immigration across the southern border. The idea is drawing widespread criticism from Republicans in Congress and could spark a backlash that is large enough to override a President Trump’s veto.

If President Trump agrees to the concessions, it would represent a major victory for his strategy of threatening tariffs to force compliance. However, if the president allows the tariffs to go into effect, he could snatch defeat from the jaws of victory. The defeat could extend beyond an embarrassing rebuke from Congress to a humiliating landslide loss next year as farmers and factory workers impacted by the tariffs abandon both the president and the Republican Party.

Originally published by the Resurgent

A Republican Revolt May Be Brewing On Mexico Tariffs

President Trump’s announcement of the implementation of graduated tariffs on Mexico came as a surprise to pretty much everyone last week. The announcement upended the successful completion of the US-Mexico-Canada agreement, which was nearing ratification and may be sparking a Republican revolt against the president.

On Twitter yesterday, the Cato Institute’s resident trade lawyer, Scott Lincicome pointed out that five days after the president’s announcement of the new tariffs and less than a week before the new taxes are slated to take effect, there has been no documentation from the White House about the new policies.

https://twitter.com/scottlincicome/status/1135984985716994048

“And no tweets do not count jeez,” Lincicome added. (I’ll plug Lincicome as a very entertaining and informative account to follow if you are interested in trade issues.)

As it turns out, the new policies may not have been written yet. CNN reported that Republican senators met with White House and Justice Department officials on Tuesday who could not explain the tariff plan.

“They were asked repeatedly how this will work and they couldn't answer,” said an unnamed Republican Senate aide. “They must've seen it coming.”

“What we are seeing now is a giant game of chicken,” said Texas Senator Ted Cruz. “It's like two trucks headed straight at each other on a country road. If the outcome of this is that Mexico blinks and they turn, and they actually become active, productive partners in helping stop illegal immigration, that would be a good outcome, but if the outcome is massive new tariffs that destroy jobs in Texas and the rest of the country, that would be a terrible outcome.”

The report begs the question of whether the new offensive in the trade war was planned in advance or whether the move was an example of spontaneous “Twitter diplomacy” by the president. If so, this would be a similar move to Trump’s original steel and aluminum tariffs that began the trade war last year.

CBS News reported in March 2018 that then-economic advisor Gary Cohn and Secretary of State Rex Tillerson had advised the president to wait, but that Mr. Trump “ran out of patience” and announced the tariffs to the press before US trade officials could brief a Chinese delegation or Republican congressmen. As with the current Mexican tariffs, the steel and aluminum tariffs had to be quickly written after the presidential announcement. From the looks of things, Republicans weren’t notified this time either.

Few Republicans are speaking out publicly against the president’s new strategy, but Politico reported that officials in both parties believe that the president may have to declare another national emergency under the International Emergency Economic Powers Act, which allows the president to regulate trade with “any unusual or extraordinary threat" to national security. The national emergency declared earlier this year cited a different law.

Declaring another national emergency would risk another legislative rebuke from Congress. After the first national emergency declaration earlier this year, Congress passed a resolution of disapproval with the help of 12 Republican senators. President Trump vetoed this resolution and override attempt failed in the House. Eighteen House Republicans joined Democrats in the override attempt.

The next national emergency might yield a different result. Majority Whip John Thune (R-S.D.) said that he expected more Republicans to oppose the Mexico tariffs than those applied to China, but he did not speculate on whether there would be enough opposition to override a veto.

“There is not much support in my conference for tariffs, that's for sure,” said Majority Leader Mitch McConnell. When asked if Senate Republicans would vote against the tariffs, McConnell said, “We're hoping that doesn't happen.”

Other Republicans at the meeting included John Cornyn (R-Texas), Pat Toomey (R-Pa.), and Rob Portman (R-Ohio). All three states would be hit hard by tariffs on Mexican imports. Texas shares a long border with Mexico and the many manufacturers in the industrial Midwest have supply chains that run south of that border. The president’s net approval rating is already underwater in Ohio and Pennsylvania and in single digits in Texas. After Ted Cruz’s close electoral call in 2018, many other Republicans in affected states will be looking over their shoulders.

President Trump does not seem worried that Republicans will desert him, however. Speaking at a press conference in London, the president said, “I don't think they will do that. If they do it's foolish.”

Originally published on The Resurgent

Trump Relaunches Trade War With Mexico

There is a saying that “To a man with a hammer, everything looks like a nail.” When it comes to tariffs, Donald Trump is a man with a hammer. Tariffs seem to be his tool of choice to (attempt to) fix any problem.

The most recent example is illegal immigration. Yesterday, President Trump threatened to impose tariffs on Mexican imports on an escalating basis. The president said that tariffs would begin on June 10 at a five percent and rise periodically to 25 percent in October unless Mexico stops “ illegal migrants” from entering the US.

Let’s think about the profound illogic of this plan for a moment. First, Mexico has shown itself to be unable to stop the migrant caravans from crossing its own southern border. We all remember the pictures of thousands of migrants streaming across bridges and overwhelming Mexican border security forces.

On the other hand, the migrant caravans were stopped cold when they reached the US border. After marching across Central American and Mexico for weeks, the majority of migrants stopped in Tijuana and waited for their turn to ask for asylum in accordance with US law.

The inability of the Mexican government to stop the caravans and to track down and detain smaller groups of migrants is a problem, but it does not seem that the problem is due to lack of trying from the Mexican government. In fact, the larger, richer, better-equipped US government has the same problem when confronted with migrants traveling in small groups.

Second, how are tariffs on Mexican imports, supposed to resolve the issue? As we have established before, “tariff” is a fancy word for a tax on trade. Like any tax, such as a sales tax or tax on cigarettes or soft drinks or even increases to the minimum wage, the cost of the tariff tax is passed along to the end user, which in this case is the American consumer. When we acknowledge the reality that tariffs are taxes, Donald Trump quickly becomes one of the biggest tax increasers in American history with much of the burden falling on the American middle and lower-income classes.

Of course, Trump’s hope is that the increased cost of Mexican goods will make Americans stop buying from Mexican companies. Tariffs are intended to raise prices on American consumers, hurting them to eventually hurt foreign companies. But again, it isn’t clear that Mexico could be doing a lot to stop illegal immigration that it isn’t doing already. If there are additional steps that Mexico could take, hurting the country’s economy may not be the best way to encourage them to spend more money on border security. Damaging the Mexican economy would likely result in more illegal immigrants, not fewer. 

There is also the question of how the new tariffs will impact the president’s new US-Mexico-Canada trade agreement, which has yet to be ratified. The replacement deal for NAFTA may be endangered by the president’s capricious use of tariffs to try to leverage Mexican cooperation. The real danger for the US economy is that the free trade deal will implode, resulting in higher taxes and more regulation on trade with Mexico, which is an important part of the supply chain for many American companies.

President Trump’s tweets suggest that he favors tariffs for their own sake. The protectionist president has called himself “a Tariff Man” and has repeatedly shown a misunderstanding of the economics of tariffs and international trade. He fails to accept the fact that the cost of his tariffs is being borne by American taxpayers and not multinational corporations.

There are signs that Congress, which is now reaping the bitter harvest of tariff laws that delegated too much congressional authority to the executive branch, is starting to resist the president’s tax increases. Justin Amash (R-Mich.) in the House and Chuck Grassley (R-Iowa) in the Senate have been particularly outspoken against the president’s trade policies.

“Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent,” Grassley said in a statement, adding that the tariffs “would seriously jeopardize passage of USMCA.” Grassley has suggested in the past that ratification of the USMCA be tied to the removal of tariffs, but, at this point, it is not clear that President Trump values his free trade deal more than his tariffs.

“I support nearly every one of President Trump’s immigration policies, but this is not one of them,” Grassley added.

Meanwhile, markets are roiled as a front on the trade war that was deemed quiet has suddenly flared up again. The economy has been one of Donald Trump’s top strengths and his supporters hold out hope that it will be the key to his re-election, but most of the current weakness and instability in the economy can be traced back to the president’s trade war. It is entirely possible that Trump’s insistence on interfering in international trade will weaken the economy just in time for the election.

Originally published on The Resurgent

A Funny Thing Happened On The Way To The Trade War

The tariffs designed to protect American steel and aluminum have led to lower prices. 

It has been a year since President Trump placed tariffs on imported steel and aluminum to protect American producers. Since then, the import taxes have not worked as expected. Rather than driving up the price of the metals and boosting the stock prices of the companies that produce them, prices of both aluminum and steel have declined in the past year. The same is true of the stock prices for steel and aluminum companies.

The intent behind Trump’s protective tariffs was to drive up prices. Increased costs are a feature, not a bug, of protectionism. In theory, the taxes on imports will make foreign products more expensive and allow domestic producers to raise prices and reap more profits in turn. That is not what happened.

In reality, steel prices spiked in the months after the tariffs were implemented and then crashed in late 2018 before rebounding slightly over the past couple of months. Overall, the trend has been slightly downward since the beginning of 2018.

The story is similar for aluminum prices.  There was a spike in April 2018 followed by a long decline to a current price level that is lower than pre-tariff prices.

The slump also applies to stock prices. Steel producers US Steel and Nucor both have stock prices that are far lower than their highs from last spring. The same is true of aluminum producer Alcoa.

So, what happened? The answer seems to be found in decreasing demand. As you may remember from Econ 101’s price curves, as prices go up, demand falls. Fewer goods are sold as prices rise higher.

CNN points out that expectations of rising prices and possible supply problems led to a glut of orders in 2018. This surge in demand led to the price spike last summer and helped steel companies post nice profits.

When faced with rising prices and demand, the steel producers did the logical thing. They boosted production in order to maximize their profits. Some mills reopened and others added capacity, which led to about 9,000 new steel jobs, which reportedly cost American consumers about $900,000 each. Production in the first quarter of 2019 increased by approximately 1 million tons over the same time last year.

That’s when another economic law kicked in: the law of supply and demand. The increased steel output led to another glut, this time in supply. As steel inventories piled up, prices fell drastically.

“We observe that supply exceeded demand ... over the last six months," UBS analyst Andreas Bokkenheuser said. “This explains the corresponding 25% price correction.”

There were other reasons for softening demand as well. Steel purchasers had built up their own inventories, expecting possible interruptions in supply. When those interruptions never materialized, purchasers slowed new orders while they worked through their inventories.

The Fabricators and Manufacturers Association also notes that “steel’s major end-use markets, construction and automotive, show signs of slowing compared to last year.” This softening demand may be due to the trade war’s effects on other manufacturers who use steel and aluminum as a component in their products. Other buyers are watching prices and keeping inventories lean as they prepare to place orders when the price finds a bottom.

Despite the falling prices, US steelmakers are still adding capacity. Per CNN, both US Steel and Nucor are spending billions on projects that will add a combined 2.6 million tons of production capacity in coming years. If other factors remain the same, the new capacity could drive prices even lower. Investors who would have preferred dividends and stock buy-backs voted on the investments in new capacity by selling off stocks.

With the new investments, the American companies will be more dependent on continued tariffs to protect them from foreign competition.

“We're among the lowest-cost producers. We're extremely competitive if we're operating on a level playing field. But there is massive overcapacity of steel from China, multiples of US capacity, and it's heavily subsidized by the government. That's led to a very distorted global market for steel,” said Kevin Dempsey, senior vice president of public policy for the American Iron and Steel Institute. “If we lifted the all the tariffs, I think we'd see another flood of imports.”

That is already happening. President Trump announced this week that he would lift tariffs from Canadian and Mexican imports. The US imports far more steel and aluminum from these two North American neighbors than it does from China and the rest of the world.

The bottom line is that the tariffs have failed to protect the steel and aluminum industries and, ironically, have left them more vulnerable than they were before. Steel producers invested their windfall in more capacity which will be of little use in a market with declining prices. As competition from foreign imports returns, the future of American steel and aluminum companies appears to be difficult.

 Originally published on The Resurgent

Good Trump Keeps Border Open While Bad Trump Threatens New Tariffs

Both Good Trump and Bad Trump were on display yesterday as President Trump backed off from his threat to close the Mexican border and simultaneously threatened to add more tariffs to Mexican auto exports to the US. The threat to close the border had sparked fears of a disruption in trade with Mexico that could have led to shortages and price increases on numerous products including avocados.

Addressing reporters at the White House, President Trump said that Mexico was not doing enough to stop cross-border traffic of illegal immigrants and drugs, but that he would give the Mexican government a year to improve.

“We’re going to give them a one-year warning and if the drugs don’t stop, or largely stop, we’re going to put tariffs,” on cars, Trump said. “And if that doesn’t stop the drugs, we close the border.”

When asked if his comments meant that he would not close the border for a year, Mr. Trump answered, “I didn’t say that. We’ll start with the tariffs and see what happens.”

The president did not explain how what he has described as a national emergency at the border could withstand waiting a year to take action.

Trump’s reversal on the threat to close the border was a welcome sign for businesses and economists. After decades of free trade under NAFTA, Mexico ranked as the second-largest export market for American-made goods as well as the second-largest supplier of imported goods to the US per the US Trade Representative. Many corporate supply chains are integrated within both countries with Mexican factories building components for products finished in the United States. Many consumer goods are also imported from Mexico.

Since the president made his threat to close the border, the avocado has become symbolic of the trade with Mexico that would be lost if Mr. Trump follows through. The fruit used in guacamole has become a very popular food in the United States and most of the American supply is imported from Mexico. Some supporters of the president’s strategy argue that avocados are also grown in the US and so the market would not be disrupted if the border was closed.

Several US states do grow avocados. The US produced a total of 292 million pounds of avocados in 2017. Unfortunately for avocado aficionados, Americans consumed about 2.2 billion (with a “b”) pounds of avocados the same year. If avocado imports were cut off from Mexico, the world’s largest producer. The avocado deficit means that the US would certainly suffer a large avocado shortage if supplies from Mexico were cut off.

When a product with high demand is in short supply, the laws of supply and demand take over. Prices increase and demand simultaneously falls. This has already happened as avocado markets reacted to the threat of border closure by increasing avocado prices by 34 percent.

The problem is the same for many other products as for avocados. Cars are one example. Mexico exports more than 2.5 million autos to the US that are produced by almost all major automakers, including popular Ford, Chrysler, and GM models. The application of tariffs or the closure of the border could hit American automakers and consumers hard. It would take years to move production back to the US.

Increasing prices would make it more attractive for American farmers to grow avocados, but the loss of avocado supplies could not be immediately replaced.  As with moving a factory, it takes 3-4 years for newly planted avocado trees to produce fruit. Diverting American farmland to avocado production would also mean that other crops could not be planted, causing shortages of other commodities due to limited resources.

The resources of the Mexican government are also limited. Security forces in the third-world country face a much greater threat from drug cartels than from migrants seeking to make their way to the US border. If the Mexican government gives in to President Trump’s demand to allocate more resources to intercepting and detaining migrants, those resources won’t be battling the cartels and drug smugglers.

While the decision to keep the border open will be welcomed by many Republicans and members of the business community, the president’s threat to step up the tariff war is more problematic. The Trump Administration completed a NAFTA rewrite with Mexico and Canada last year, but the new treaty has yet to be ratified by each country. It is possible that Mexico will refuse to ratify the deal if President Trump continues to threaten new tariffs.

Killing the new version of NAFTA may suit President Trump just fine. Mr. Trump blamed NAFTA for US economic woes on the campaign trail in 2016.  As recently as December, the president threatened to withdraw from NAFTA entirely. Killing the free trade agreement would allow both countries to place tariffs on US goods and could cause an economic shock.

President Trump’s erratic trade policies put the growth of the US economy at risk and work at odds with his regulatory and tax reform. Economic growth surged in the first half of 2018 following the passage of tax reform but slowed to Obama-era levels after the onset of Mr. Trump’s trade war. Growth for the fourth quarter of 2018 was recently revised downward to 2.2 percent, which is below the post-WWII average.

President Trump deserves credit for reversing his decision to close the border, but the reversal merely corrects a self-induced problem that stems from the president’s rash and ill-considered comments of a week earlier. Closing the border would be unlikely to have a significant effect on slowing smuggling and illegal immigration, especially since most new illegals enter the US legally and overstay visas, but it would have a punishing effect on trade and the economy.

If President Trump stands by his threat to close the borde next year, the debate would shift to the runup to the 2020 elections. The issue of a disruption of trade with Mexico could prove to be enough that many business leaders would see the socialist Democrats as less of a threat to the economy than an isolationist Trump Administration.

Originally published on The Resurgent

Chris Wallace Sets Record Straight On Terrorists Illegally Crossing From Mexico

A major talking point of the Trump Administration has been that the border wall is vital to national security. As part of their argument, President Trump has made the claim that terrorists have been apprehended crossing the southern border with Mexico. This and similar claims became the focal point of a heated discussion between White House Press Secretary Sarah Huckabee Sanders and Chris Wallace of Fox News yesterday.

On Fox News Sunday, Wallace cited Homeland Security Secretary Kirstjen Nielsen’s statement that CBP had stopped more than 3,000 special interest aliens at the southern border and explained that “special interest aliens” are “people who come from countries that have ever produced a terrorist.” Wallace added, “They aren’t terrorists themselves” and noted that the State Department said that there was “no credible evidence of any terrorist coming across the border from Mexico.”

Sanders responded, “We know that there are nearly 4,000 known or suspected terrorists [that] come into our country illegally and we know that our most vulnerable point of entry is at our southern border.”

Wallace interrupted, “I know that statistic. I didn’t know if you were going to use it, but I studied up on this. You know where those 4,000 people come from, where they are captured? Airports!”

“Not always,” Sanders retorted.

“The State Department says there hasn’t been any terrorist that they’ve found coming across the southern border,” Wallace fired back.

“It's by air, it's by land, it's by sea, it's all of the above,” Sanders answered.

“But they're not coming across the southern border, Sarah,” Wallace said, ‘They're coming and they're being stopped at airports.”

I had also heard the Homeland Security statistics and Trump’s claims about terrorists coming from Mexico. They didn’t ring true. Think about how the Trump Administration reacts when an illegal alien commits a violent. Both perpetrator and victim are featured prominently in talking points and the president’s tweets. Over the past few years, we have seen this pattern with Kate Steinle, Mollie Tibbets, and the recent murder of police Corporal Ronil Singh in California.

But when it comes to terrorists crossing the Mexican border, the Trump Administration has been astonishingly silent. If terrorists were being captured as they crossed the border from Mexico, it seems likely that the Trump Administration would be marching them before the media to make the case for the border wall. They haven’t.

Instead, we have a bait-and-switch. Trump surrogates like Sanders make two separate claims and link them together. On one hand, Sanders makes the verifiable claim that “there are nearly 4,000 known or suspected terrorists [that] come into our country illegally.” On the other, she offers an opinion that “our most vulnerable point of entry is at our southern border.” Sanders dishonestly leads the viewer to make the erroneous connection that the 4,000 terrorists were apprehended at the Mexican border, when, in fact, they were apprehended at airports.

Border security is a legitimate concern, both at the Mexican border and at airports, but the revelation that the Trump Administration has been purposely misleading the country about how terrorists enter the country undercuts the already shaky case for a border wall.

In fact, current security at the Mexican border seems to be working pretty well. The migrant caravan, which was pitched as an “invasion” in October, is still sitting in Tijuana where its members are waiting to legally apply for asylum. Illegal border crossings have already been declining for years, hitting a 46-year low in 2017. For more than a decade now, most illegal aliens have entered the country legally and overstayed visas rather than sneaking across the Mexican border. By 2014, two-thirds of new illegals were visa overstays.

While it certainly isn’t impossible that terrorists could sneak across the Mexican border, possibly through one of the innumerable tunnels that run underneath current physical barriers, there is no evidence that they are doing so. If conservatives want to make dispassionate policy decisions and use taxpayer money to the greatest advantage for the country, facts support the idea that border security money should be focused toward tracking aliens who enter the country legally on visas and then drop out of sight.

The Trump Administration loses more of its credibility, which is already in short supply, when they make false claims such as advancing the idea that terrorists are streaming across the Mexican border. Kudos to Chris Wallace and Fox News for setting the record straight.

 Originally published on The Resurgent

Trump To Withdraw From World's Largest Free Trade Agreement

President Trump said Saturday that he intends to use his executive authority to withdraw from the North American Free Trade Agreement. Speaking to reporters on Air Force One, Trump said that he will soon notify Canada and Mexico of the United States intent to leave the trade pact.

“I’ll be terminating it within a relatively short period of time. We get rid of NAFTA. It’s been a disaster for the United States,” Trump said, adding, “And so Congress will have a choice of the USMCA or pre-NAFTA, which worked very well.”

The Trump Administration has negotiated a new agreement, which the US refers to as the United States-Mexico-Canada Agreement (USMCA), that is intended to replace NAFTA. NAFTA is the world's largest free trade agreement and has led to dramatic economic growth in all three nations.

Trump’s intention is obviously to give Congress the choice of either the new deal or no free trade agreement at all. NAFTA reduced tariffs among the three nations so destroying the pact would have the effect of raising tariffs even further and slowing trade. Already, American agriculture, small manufacturing, and shipping have been damaged by the trade war.

The new trade pact, which is also referred to as the “New NAFTA,” has received mixed reviews. On the plus side, the deal contains increased protections for intellectual property, agrees to prevent currency manipulation, and opens American access to Canadian dairy markets. On the downside, the treaty automatically expires in 16 years unless it is renewed and, in an apparent attempt to limit US investment in Mexico, the Trump Administration insisted on limiting protection from regulatory abuse. Further, the new deal increases the percentage of domestic content required to exempt new cars from tariffs.

Rather than free trade, the Wall Street Journal says of the USMCA, “This is politically managed trade, and its economic logic is the opposite of Mr. Trump’s domestic deregulation agenda.” The paper’s editorial board added that the “auto gambit is part of the Trump-Lighthizer strategy to blow up global supply chains.”

The main attraction of the Trump trade pact is that it is better than a reversion to pre-NAFTA rules with their return to increased tariffs and regulations. Economists say that the new deal won’t boost economic growth or increase manufacturing jobs. Its new limitations on free trade will end up costing American consumers more money while giving them less choice.

There is also debate on whether President Trump has the authority to unilaterally withdraw from NAFTA. The treaty includes a provision that allows for withdrawal after a six-month notice, but opponents say that since NAFTA was approved by the Senate, leaving the pact would also require Senate approval.

A 2016 report by the Congressional Research Service addressed the question of a unilateral withdrawal from NAFTA by the president. “As a practical matter, the President’s communication of a notice of termination of an FTA [free trade agreement] to trade partners in accordance with the FTA’s terms59 appears sufficient to release the United States from its international obligations,” the report says, but  notes, the “President could not repeal federal statutes implementing the FTA in the absence of congressional action because the Constitution gives Congress the authority to impose duties and to ‘regulate commerce with foreign nations.’” In other words, the president’s notice to terminate could be a withdrawal in name only if Congress does not change the US laws and regulations to differ from what the treaty requires.

The report also points out that “the Constitution apportions authority over international trade between the President and Congress.” The legality of Trump’s move is not specifically addressed in the Constitution and there is no precedent for a president unilaterally withdrawing from a trade treaty.

If President Trump goes through with his move to unilaterally claim the executive authority to withdraw the United States from a successful trade deal with its two largest trading partners, it will almost certainly provoke a constitutional crisis as well as an economic one. The Senate is controlled by Republicans but many oppose the president’s protectionist trade policies. Republican Senate leaders may be forced to sue to overturn the president’s abuse of executive authority or choose between either a badly flawed trade deal or no deal at all.

Originally published on The Resurgent

The Migrant Caravan Is Not An Invasion

 As you may have heard, there is a caravan of several thousand migrant workers en route from Honduras to the United States. Judging from the hysteria, you might be forgiven for thinking that this caravan is a group of Mongol warriors headed by Genghis Khan or a horde of zombies rather than a collection of people looking for asylum and employment in America. Nevertheless, the panic quickly reached heights of fear not seen since the Great Jade Helm Scare of 2015.

Some Americans are so upset about the migrant march that they are ready to take drastic measures. On Twitter, President Trump called the caravan “a National Emergy” [sic]. Some, such as Michael Moates, have said that the response should be to “shoot on site” [sic]. On social media, many armchair pundits agreed that lethal force was warranted.

Stop it, America. Take a deep breath and relax.

If you’re concerned about the caravan, here are a few facts to make you feel better. At noon on October 21, a USA Today story placed the caravan in the city of Ciudad Hidalgo in the southern Mexican state of Chiapas. This is a border city. That is, it is a city on the border between Mexico and Guatemala. That’s a whole country away from the US.

In fact, Ciudad Hidalgo is 1,250 miles from Laredo, Texas. Per Google Maps, the distance between the two cities is a 27-hour drive. But wait, as they say, there’s more!

The majority of the migrants are not driving or riding public transportation. They are on foot. The estimated walking time to the US border is 409 hours. That works out to just over 17 days. Of course, no one is going to walk 24 hours per day. Assuming that the migrants walk 12 hours each day, it would take more than a month, 34 days, to make the journey. Based on these calculations, we can expect the caravan to reach the US border sometime around Thanksgiving. The majority of the group probably won’t even make the full journey as people drop out and are detained along the way. There is ample time to prepare to receive the ones that do.

If all this sounds vaguely familiar, it’s because the same thing happened six months ago and there was a similar hysteria. A smaller caravan was stopped in Mexico City last April. About 50 members of the spring caravan made it to the US border at Tijuana where Reuters reported that most were turned away by customs authorities, saying that the border station was too overwhelmed to process asylum-seekers. Eleven people were arrested for crossing the border illegally.

If the caravan does happen to reach the US border, there is still no reason to panic. Border Patrol agents are there to stop them and it isn’t as if thousands of people who are being featured on the news are going to sneak up on anyone. There is plenty of time to shift manpower and resources toward where the caravan is heading. The simplest solution is just to keep the group on the Mexican side of the border as Border Patrol and Customs agents did last spring.

This is not an invading army, as some right-wing sources, would have you believe. This is a group of refugees fleeing San Pedro Sula, Honduras, one of the most violent cities in the world. Drug violence, gang wars, and political repression make leaving Honduras to pursue the American dream attractive for many honest people.

There is no evidence that the group plans to rush the border en masse to start carrying out terrorist attacks or looting American cities. Their intention seems to be to come to the US to apply for political asylum. But, even if they did sneak across the border into the US, it would probably be to pick crops or do yard work. The evidence shows that Illegal immigrants have a lower crime rate than native-born Americans.

The irony is that the US is facing a shortage of labor. The US is currently considered to be at full employment and jobs are going unfilled because there aren’t enough workers. This applies to both skilled and unskilled labor. In a perfect world, the American need for labor would be matched with the immigrants’ need to work and a solution would be found to satisfy everyone.

This is the real world, however, and the migrants are just political pawns to be used by both sides. On the one hand, the organizers of the caravan are goading desperate people into marching thousands of miles, against the advice of their national leaders, when they know that they will be turned back at the US border. On the other hand, President Trump and right-wing organizations are using news of the caravan to stoke fears of an immigrant invasion and rally the base to vote in November.

The migrant caravan is real, but the threat that it represents is greatly overstated. There is little reason to fear and no reason to at all to start shooting innocent people, many of them women and children, who only want a better life in America.

Originally published on The Resurgent

A Tale of Two Treaties

The United States and China are taking a very different approach to international trade. President Trump is intent on renegotiating or canceling American trade treaties such as NAFTA while the Chinese are creating a broad new trade alliance in Asia that excludes the United States.

One of President Trump’s first official acts was to withdraw the United States from the Trans-Pacific Partnership negotiated by the Obama Administration. Trump’s act, which fulfilled a campaign promise, shattered the trade agreement and allowed China to pick up the pieces.

In November 2017, less than a year after Trump’s order withdrawing from the TPP, a summit was held in Manila to negotiate an alternative, the Regional Comprehensive Economic Partnership or RCEP. Talks progressed quickly and the 16 nations are expected to sign an agreement at a November 2018 summit in Singapore. The White House announced this week that President Trump would skip the meeting as well as the Asia Pacific Economic Cooperation forum in Papua New Guinea.

The RCEP includes many of the same Asian nations that would have participated in the TPP. These include Australia, Brunei, Japan, Malaysia, New Zealand, and Vietnam. In addition, it adds a host of others such as Cambodia, India, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, South Korea, and Thailand. The biggest addition to the TPP countries is China.

With the country in a growing trade war with the United States, participation in the RCEP gives China an opportunity to find new markets for exports that would have been sold to the US. President Trump’s tariffs on Chinese goods can be at least partially offset by the free trade agreement that encompasses a large swath of Asia and the Pacific.

President Trump is taking a different approach. The president recently threatened once again to withdraw from NAFTA if he cannot get a “fair deal” from Mexico and Canada. In a Sept. 1 tweet, Trump said that there was “no political necessity to keep Canada in the new NAFTA deal” and added, “Congress should not interfere w/ these negotiations or I will simply terminate NAFTA entirely & we will be far better off….”

Last week, the US and Mexico reached a preliminary agreement on a new trade deal, but negotiations with Canada appear to have stalled. Mr. Trump sent a letter to Congress on Friday announcing his intention to sign a deal with Mexico in the next 90 days. The timeline would allow an agreement to be signed before Andres Manuel Lopez Obrador, Mexico's new left-wing president takes office on Dec. 1.

The Trump Administration is also under pressure to show results before the midterm elections in November. Showing that the Trump approach to trade deals yields results would provide a boost to beleaguered Republican candidates and help to stem chances of a blue wave.

“With goodwill and flexibility on all sides, we can get there,” Canadian Foreign Affairs Minister Chrystia Freeland said. “For Canada, the focus is on getting a good deal and once we have a good deal for Canada, we'll be done.”

The end of President Trump’s tweet shows the fundamental difference between the Trump approach and the Chinese approach. The president, who last month tweeted that “tariffs are the greatest,” seems to see international trade as more of a threat to the US economy than an opportunity for growth. On the other hand, China sees the opportunity to expand international markets as a way to both bring wealth back home and grow Chinese influence around the world.

The irony is that Donald Trump does not see that his retreat from the world, his building of both literal and figurative walls between America and the rest of the world, does not make America great again. To the contrary, Trump’s trade policies not only hurt American companies and consumers, it also diminishes American influence around the world. That is apparent in the new Asian trade deal that will be written for China’s benefit instead of America’s.

Originally published on The Resurgent

Trump trade war starts tomorrow

Commerce Secretary Wilbur Ross announced that the US will impose tariffs on steel and aluminum products from Canada, Mexico and the European Union starting on Friday. The close US allies had previously been given exemptions from the tariffs that the president imposed on other countries last March.  

All three trading partners vowed to impose retaliatory tariffs on the US in return. The Wall Street Journal reports that the European Union has prepared a list of $7.5 billion worth of US exports that could begin to be subject to increased tariffs on June 20. Mexico said that it will target US products “up to an amount comparable to the level of damage” that US tariffs inflict on Mexican exports. Canada did not make a specific statement, but had previously vowed to retaliate if the Trump Administration imposed new tariffs.

Canada and Mexico are parties to the North American Free Trade Agreement (NAFTA) with the US, which eliminated tariffs on much trade between the three countries. They were exempted from the earlier tariffs as negotiations to revise NAFTA proceeded. It is uncertain how the new tariffs will affect the trade pact.

“Those talks have been taking longer than we had hoped,” Secretary Ross told reporters.

The EU also had a temporary exemption as trade representatives tried to reach a permanent agreement. “We continue to be quite willing and indeed eager to have further discussions with all of those parties,” Ross said.

Additional tariffs on China are slated to go into effect next month. The Trump Administration called a truce to the Chinese trade war in May, but then announced it would proceed with the tariffs. The Chinese government has also vowed to retaliate.

The new tariffs on Canada, Mexico and Europe have the potential to be much more damaging to the US economy than the previous round of tariffs. Canada and Mexico rank first and third respectively in steel exports to the US. The two countries send more steel to the US than the rest of the top five countries combined.

Canada and Mexico also rank second and third, just behind China, as America’s top trading partners. Four European countries, Germany, the United Kingdom, France and Italy, are also among the top ten trading partners.

The trade war is already expanding beyond the steel and aluminum industries that Trump originally set out to protect. The Washington Post reports that European retaliatory tariffs include products as varied as Kentucky bourbon and Harley Davidson motorcycles. Mexican duties will be imposed US pork bellies, blueberries, apples, grapes, cheeses and steel.

If the tariffs go into effect, the result could be a slowing economy in the months prior to the midterm elections. This could give Democrats a desperately needed issue with which to attack Republicans. If trade becomes an issue in the election with Democrats embracing free trade and Republicans defending big government tariffs, politics will have officially turned upside-down.

Originally published on The Resurgent

The Good, The Bad and the Ugly of President Trump's First Week

As President Trump’s first week on the job takes its place in the history books, we can take a moment to look back on the good and the bad of the new administration. I was not a Trump supporter. I did not vote for Mr. Trump or for Hillary Clinton. Nevertheless, as a conservative, I can find things to applaud in Mr. Trump’s effort. Unfortunately, I can also find some of the things that made it impossible for me to vote for him in the first place.

Let me say first that many of Mr. Trump’s appointments have been very good. It seems that his appointments for military and security jobs are particularly sensible. Most of the issues that I have with his cabinet and staffers relate to economic positions where it seems that the president and his advisors lean toward a Keynesian viewpoint.

On his first day in office, Mr. Trump issued an Executive Order that directs the Department of Health and Human Services to “waive, defer, grant exemptions from, or delay” parts of the Affordable Care Act that place a financial burden on individuals, health care providers or states.” The order effectively tells the HHS not to enforce the Obamacare mandate. This is a partial fulfillment of a major campaign promise.

On Monday, President Trump began with an assault on free trade pacts. President Trump, in keeping with his campaign promises, signed a memorandum to withdraw from the Trans-Pacific Partnership and signaled his intention to reopen negotiations on NAFTA, the free trade agreement with America’s two largest export markets. Scuttling NAFTA could lead to major problems for the US economy while the dissolution of the TPP could give China a major window for expansion. Neither would be good for American businesses and consumers.

Other new policies are better news for conservatives. The president ordered a hiring freeze of nonmilitary government workers in an effort to reverse the growth of the federal government. The order “prevents filling vacant positions and creating new positions except when necessary to meet national or public security responsibilities,” press secretary Sean Spicer told CNN. The order also states that “contracting outside the Government to circumvent the intent of this memorandum shall not be permitted,” closing a major loophole of previous hiring freezes.

In another move that should please pro-life conservatives, the president restored the Mexico City Policy which prohibits international groups that perform or promote abortions from receiving federal funds. The policy was implemented by President Reagan and rescinded by President Obama in 2009.

On Tuesday, the president signed memos that would revive the Keystone XL and Dakota Access pipelines. The Keystone pipeline would run from the Canadian Oil Sands of Alberta to Nebraska while the Dakota pipeline would go from North Dakota’s Bakken oil fields to Illinois. Both projects languished under President Obama and are important for the economy and energy independence. At the same time, Mr. Trump ordered federal departments to help streamline permitting and regulations for manufacturing projects.

On Wednesday, Trump fulfilled another campaign promise with two Executive Orders. The first established the “construction of a physical wall on the southern border” as official US policy and called for hiring 5,000 new Border Patrol agents. ABC News reports that Republican congressional leaders will back Trump’s plan for the wall with plans to authorize $12-15 billion for its construction. Last July, Politico wrote that many Border Patrol agents, even those who supported Trump, consider the wall “an expensive, pointless boondoggle, [that] wouldn’t solve the main problems with border security.” Trump’s second immigration order sets priorities for deportation of illegal aliens and aims to strip federal funds from sanctuary cities.

The Trump Administration continued to maintain that Mexico will either pay for the wall or reimburse the US for its cost. On Thursday, press secretary Spicer suggested that a 20 percent tariff on Mexican imports could be used to fund the wall, prompting Mexican president Enrique Peña Nieto to cancel a planned meeting with President Trump. Millions of Americans whose livelihoods depend on trade with Mexico doubtless hope that relations between the two countries can be patched without a trade war.

On Friday, Trump signed another Executive Order, at least parts of which will please many conservatives. President Trump suspended the Syrian refugee program and halted immigrations from the countries of Iran, Iraq, Syria, Sudan, Libya, Yemen and Somalia for 90 days. The Order also suspended the US Refugee Admissions Program for 120 days until it is reinstated for refugees that can be properly vetted. The total number of refugees that the US will admit will be reduced from 110,000 annually to 50,000.

The order also gives the Department of Homeland Security the ability to prioritize Christian refugees from the Middle East. According to CNN, the Order allows DHS to give priority “on the basis of religious based persecution” as long as the person applying for asylum is “a minority religion in the individual's country of nationality.”

The Mexico kerfuffle is probably the ugliest aspect of the week, but Mr. Trump’s penchant for taking his eye off the ball and making off-the-cuff remarks and tweets also caused damage. Among the things better left unsaid were Trump’s unsupportable claim that 3-5 million illegal immigrants voted in the election, the pointless argument over the size of the crowd at the inauguration, his apparent endorsement of torture and his threat to “send in the Feds” to Chicago. That the new administration is now indelibly linked to the phrase “alternative facts” is disconcerting.

Though well-intentioned, there are obvious problems with President Trump’s use of executive actions to advance his agenda. Using Executive Orders to bypass Congress was a major complaint of conservatives about President Obama. Additionally, these orders may last only as long as President Trump’s term. Mr. Trump’s successor could change these Executive Orders as easily as Mr. Trump changed President Obama’s. Many of them do chart a course that will please Republicans, but ultimately Mr. Trump will have to make these changes permanent by working with Congress and persuading some Democrats to back his agenda.

Even though I didn’t support Trump as a candidate, so far he has proven to be a better president than Hillary Clinton would have been. Admittedly, that sets a very low bar. I still can’t consider myself a Trump supporter, but I will support and encourage him when he makes the right choices as he did on several of his executive actions this week and with many of his appointments. On the other hand, when he needs to be criticized, as he does on trade, some aspects of his immigration policy and saying things that are not thoughtful or presidential, conservatives should nudge him in the right direction. 

Originally published on The Resurgent

Trump declares war on trade pacts

It’s only the beginning of his first week as president and Donald Trump is already moving to keep his campaign promises to trash free trade agreements. Before the coffee was cold Monday morning, President Trump had already announced his intention to withdraw from the Trans-Pacific Partnership and to sign an Executive Order to renegotiate the North American Free Trade Agreement.

“We will be starting negotiations having to do with NAFTA,” Trump said Sunday at a swearing-in ceremony for his top White House advisers covered by NBC News. “We are going to start renegotiating on NAFTA, on immigration and on security at the border.” The Executive Order withdrawing from the TPP was expected to be one of Mr. Trump’s first acts on Monday according to CNN. As I write this, the TPP page has already been removed from the US Trade Representative website.

During the campaign, Trump was critical of trade agreements that he called a “bad deal” for the United States. Trump blamed NAFTA for the migration of many US companies and factories to Mexico and other countries.

In spite of Trump’s claims, the website of the outgoing US Trade Representative shows that NAFTA has benefitted the US as well as Mexico and Canada. US exports to Mexico have increased by 468 percent since 1993 when NAFTA was implemented. Contrary to the popular belief that free trade is a one-way street, Mexico is the second largest export market for the US, accounting for almost 16 percent of all US exports. Only Canada imports more US goods.

While President Trump and the anti-traders among both parties blame cheap Mexican labor for enticing American companies to relocate, the real story is not that simple. When Trump negotiated a deal to keep an Indiana Carrier plant in the US, the company ended up eliminating many jobs due to automation anyway. The high cost of labor in the Indiana plant was not cost-effective for the low-tech products made there. Reneging on free trade agreements will not make American labor more cost-effective than machines.

The Carrier deal also hinged on tax credits for the company. The United States has the highest corporate tax rate in the free world. Only the United Arab Emirates and Puerto Rico, a bankrupt US territory, are higher. At 30 percent, Mexico’s corporate tax rate is above the international average, but still far lower than the US rate of 38.9 percent.

Ironically for Trump’s anti-trade agenda, another part of Mexico’s economic success is the country’s commitment to free trade. Mexico has numerous free trade agreements with countries in Central America, South America and Europe as well as with Israel and Japan. The ability to make products in Mexico and ship them abroad without taxes that would be incurred on US exports has attracted some US manufacturers.  When Ford announced that it was moving small car production to Mexico, a key reason was that most of those vehicles would be sold in countries where Mexico had free trade agreements.

If Trump can wring a few concessions out of other countries to improve trade deals, then the US may benefit. If he ultimately plans to scuttle NAFTA as well as the TPP, then it will be bad for US companies, workers and consumers.

According to Yahoo News, Trump claims to favor trade treaties with individual countries rather than multinational trade pacts. Trump’s plan would, for a similar amount of effort, craft a trade deal with one country rather than a dozen. It would also leave US businesses to navigate a patchwork of trade regulations that vary from country to country rather than a consistent set of rules for North America and the Pacific countries.

The Center for Automotive Research estimates that withdrawal from NAFTA or implementing punitive tariffs could cost 31,000 US automotive jobs. Prices for cars sold in the US would almost certainly rise due to both tariffs and the higher cost of manufacturing in the US. As a result, fewer cars would be sold.

An additional factor is that if the US withdraws as a free-trade partner, it is likely to be replaced by China. In addition to loss of market share for US companies, that would entail a loss of leadership in setting regulatory standards since, without NAFTA, the US small car market is smaller than that of China and the European Union. American standards and engineering would have less influence on auto design and construction as the American market for small cars shrinks.

By rejecting the TPP, the Trump Administration may well be pushing other nations of the Pacific Rim toward a free trade agreement with China. CNN Money reports that the Chinese are already inviting many countries that would have been in the TPP to form a Regional Comprehensive Economic Partnership (RCEP). The RCEP may ultimately include staunch US allies like Australia and Japan as well as allowing China to make further inroads to Latin America.

Overall, there is a large potential downside to tinkering with a free trade agreement that has been an enormous success and scuttling another that will open a door to Chinese expansion. Edward Alden, a senior fellow at the Council on Foreign Relations, told CNN Money that he was “baffled” by Trump’s protectionist hostility to the trade treaties.

Alden questions Trump’s penchant for deal-making. “Trump has single-handedly given away an enormous source of leverage over China,” Alden said. “The first rule of negotiating is don't give away something for nothing, and he's done that right off the bat.”

Originally published on The Resurgent

Carrier deal isn't all it was cracked up to be

Donald Trump’s vaunted deal with Carrier to keep jobs in Indiana seems to have been less than it originally seemed. The president elect had celebrated the deal that he claimed would save “over 1,100” manufacturing jobs in Indiana. Now a union leader is saying that Trump “lied his a-- off” about what the deal accomplished.

Chuck Jones, the president of United Steelworkers 1999, told the Washington Post that he was optimistic when he heard the announcement about the deal in late November. Now Jones says that the claims that Trump made were misleading and that the number of jobs saved includes positions that Carrier never planned to transfer Mexico.

According to Jones, only 730 manufacturing jobs would be retained in Indiana and 550 production workers will still be laid off. Jones said that Trump apparently counted 350 research and development jobs that Carrier had never intended to move to Mexico as well as 80 nonunion clerical and supervisory jobs.

Jones said that when Trump addressed Carrier employees on Dec. 1, he waited for an acknowledgement that the 550 workers would still lose their jobs. Instead “he got up there and, for whatever reason, lied his a—off,” Jones said.

Jones, who says he voted for Hillary Clinton as the “better of two evils,” said, “Trump and Pence, they pulled a dog and pony show on the numbers. I almost threw up in my mouth.”

Still, more than 700 American jobs saved should be worth celebrating, right? After all, manufacturing jobs are well-paying, union jobs and keeping them in the US benefits the whole country. Or does it?

According to Business Insider, the week before Trump’s deal was announced, the company made another unilateral announcement. In a surprise move, Carrier announced that a five percent price increase would take place on January 1. Since the price increase was announced on Nov. 23, before the deal to keep the jobs in Indiana was reached, some doubt a connection between the two events, but Carrier was obviously in negotiations at that point and had been the butt of Trump’s criticisms throughout the campaign.

The price increase can be reasonably assumed to be an unintended consequence of Trump’s interference in the company’s operations. It was previously reported that Carrier employees make as much as $26 per hour which equates to $70,000 per year with overtime. Using Mexican workers at $3 per hour, Carrier would save a whopping $65 million per year.

On CNBC’s “Mad Money with Jim Cramer,” the chairman and CEO of United Technologies, Carrier’s parent company talked about the reasons the company had planned to move. “We have a very talented workforce in Mexico,” Greg Hayes said. “Wages are obviously significantly lower. About 80% lower on average. But absenteeism runs about 1%. Turnover runs about 2%. Very, very dedicated workforce.”

Hayes went on to say that Carrier’s American workers were very experienced, but these high levels of experience were not required in the production of Carrier’s heating and air conditioning products in Indiana. The company had offered many workers transfers to its aerospace divisions where decades of manufacturing experience would have been a more valuable asset.

The reported details of the deal with Carrier included $7 million of tax credits from Indiana over 10 years. The financially astute reader may have calculated that moving to Mexico would have netted Carrier more than 92 times the savings of staying in Indiana, even with the new tax credits. To keep the company profitable and shareholders happy, something had to give.

The experience with Carrier comes with lessons for American voters as well as the incoming Trump Administration. First, Trump’s tendency to stretch to the truth until it broke in the campaign does not appear to have disappeared with his electoral victory. Trump’s statements will need close scrutiny and should be taken with a grain of salt.

Second, even Donald Trump cannot rewrite the laws of economics. Central planning by a Republican president does not work better than central planning by a Democrat. When government interferes with markets, it is subject to the law of unintended consequences no matter who is making the deal.

Originally published on The Resurgent