Lobsters were once prison food but are now associated with a high-end meal with a certain snob appeal, which beautifully illustrates just how malleable is our sense of the relationship between class and materialism; capitalism is forever making a mess of any entrenched sense of what is fancy and what is plain.
That aside: get this. I was languishing at the grocery store, looking at the fish counter as one does, and saw a sign: lobsters $5.80 per pound. There they were in a tank, mildly moving around, as lobsters do, with grave frustration that their claws were tied shut with rubber bands. Each of these prehistoric crustaceans lugging around clean meat fit for human consumption looked to be about a pound and a half. Which put their price at $9 each, which is about what one spends at Chipotle for a rice-packed chicken burrito.
Next thing you know, I’m tearing into this sea creature while watching the sunset at the end of a perfect day, but still thinking about what the fishmonger told me at the store. The reason these sea creatures are suddenly so affordable is because of Trump’s trade war. Vast amounts of American lobster stock used to be sold to China, where people love them so much. But because of the brutal imposition of tariffs against imports and the retaliation they elicited, exports of lobsters to China have collapsed 70%. China is still eating lobsters but now they get them from Canada.
“We just can’t compete with Canada right now on price,” Hugh Reynolds, the owner of Greenhead Lobster in Stonington, told Maine’s Times Record. “Between the tariff and the strong dollar, the China market is over and done for Maine, I’d say. Our China numbers are way down. I don’t know anybody selling there.”
American lobsters are looking for markets and the sudden surplus has taken the form of downward price pressure. At last, some good from the trade war! But it probably won’t last. Supplies will adjust, which is to say that American lobster farmers could face very tight margins in the near future and some might float like a dead shellfish in short order. In which case the price push will go the other way. Maybe Americans too will end up buying their lobsters from Canada, which seems to be basically the opposite of what Trump intended.
And speaking of unintended effects, did you get a look at the new manufacturing numbers? “The Manufacturing Purchasing Managers Index from the Institute for Supply Management fell below neutral for the first time in almost three years, registering a 49.1 percent reading in August, down 2.1 points from 51.2 in July. The index is at the lowest reading since January 2016.”
Robert Hughes explains the consensus on the reason for the weakness: “Today’s report from the Institute for Supply Management suggests the manufacturing sector may have contracted in August and extends the current period of weakness for American factories. The report highlights the growing negative impact of poor trade policy on business confidence and adds support for a more cautious outlook.”
The parade of errors in trade policy over the last year and a half is, at this point, tedious to type. As for the trade negotiations with China, it’s round and round again with the same old story, which goes like this:
China: We can reform but first end the trade war.
US: You reform first then we’ll talk about tariffs.
China: Will you pledge to end tariffs?
US: No, we must fix the trade deficit
China: You give us no reason for reform.
US: You are impossible! We’re outta here.
Markets crash again, a few weeks go by, negotiators get worried and come to the table, and the cycle repeats itself again. The problem each time is that world trade is being held hostage by the ideological convictions of the US executive, who imagines that the USA is one big firm and that he is out there negotiating on our behalf, even as American producers keep begging him to stop helping.
The difference between today’s approach to international trade and that which ruled the global economy for the last 85 years was beautifully explained by Robert B. Zoellick, former World Bank president, U.S. trade representative and deputy secretary of state.
His words in the Wall Street Journal are worth quoting at length.
What have been the effects of Mr. Trump’s return to protectionism? First, the U.S. has lost markets for exports because it dropped out of deals like the Trans-Pacific Partnership. The TPP lowered trade barriers in Asia for others, but not, thanks to Mr. Trump, for the U.S. The European Union has gained preferential access to Japan and other markets. China has lowered its average tariff for others to 6.7%.
Second, the tariffs have provoked world-wide retaliation, hurting America’s most productive businesses and farmers. For Americans, China boosted its average tariff to 21.8%. Congress now doles out tens of billions of dollars to U.S. farmers to compensate for lost sales. U.S. exporters will pay a price for years because of supply-chain shifts.
Third, the president’s protectionism costs American businesses and families. The administration raised taxes on 15% of U.S. imports even before the upcoming tariff increase on almost all Chinese goods. Mr. Trump started by raising tariffs on intermediate goods—on aluminum, for example, even though 97% of U.S. jobs in the sector use aluminum as an input. The Peterson Institute for International Economics estimated that the cost paid by steel users for each steel job gained by tariffs was about $650,000. As U.S. firms pay more for inputs, some are regretfully moving operations abroad to remain competitive. In two years, the president has increased the average tariff on Chinese goods to 24%, up from an average of 3%. Americans will end up paying these in the form of higher prices.
Fourth, with increased costs and uncertainties about doing business in the U.S., foreign direct investment is falling. This suppresses job and wage growth and disrupts international supply chains.
Fifth, President Trump’s trade policy ignores how the U.S. has used free-trade agreements to write pro-U.S. rules for cutting-edge sectors such as medical and financial services, intellectual-property rights, and data access and security. Trade agreements also allow the U.S. to establish best practices in anticorruption laws, border procedures and transparency. Because U.S. businesses have been leaders in innovation, past American negotiators have been at the forefront of international rule-making. This president disdains rules; he acts as if governments control purchases like in old-style mercantilism.
Mr. Trump counters that these costs are the price Americans must pay for his deal-making. But his record is pitiful. His administration renegotiated with South Korea, adding a steel quota that hurts U.S. users, raising a quota for U.S. autos that companies had already failed to meet, and extending a 25% tariff on trucks. The USMCA is a mixed bag at best. It weakens protections for investors in Mexico at a time when that nation’s government is making investors nervous. The deal enfeebles pledges by governments to allow foreign companies to bid for procurement contracts, thus raising costs for government purchases.
The new Nafta even has an expiration date and is subject to review every six years—a recipe for uncertainty. The heart of the renegotiation is a maze of new requirements for how companies should build autos. It will make the North American industry less competitive globally. Ironically, the agreement’s useful modernizations are drawn from the TPP, which Mr. Trump trashed. But the USMCA may never become law; Democrats in Congress want changes and time for action is running out.
Negotiations with the EU are stalled. India and the U.S. have each raised barriers to one another. Mr. Trump is even struggling to strike a small deal with Japan to recover some access that he lost by dropping out of the TPP. He has passed up opportunities to capitalize on China’s need to liberalize. Chinese retaliation carefully excluded almost one-third of U.S. exports because Beijing recognizes, as Mr. Trump does not, that higher taxes on inputs hurt a nation’s global competitiveness. The president’s apologists have retreated to arguing about which country has been hurt more, a sure sign of trade defeatism.
Mr. Trump has even threatened to leave the World Trade Organization. Reagan, George H.W. Bush and Clinton administrations fought to create the WTO, including its dispute-settlement procedures, because they knew Americans could compete successfully with fair, enforceable rules. The current president, by contrast, has blocked appointments to the WTO appeals body to try to put it out of business by year’s end. The U.S. sabotages or ignores efforts by other countries—even China—to tighten rules on state-owned enterprises and developing countries.
Amazingly, even amid such a record of failure, the Washington Post last month referred to the administration’s “mixed success” on trade. What success? Even by the president’s own measure, the U.S. trade deficit, he’s losing. If the U.S. slides into recession, his policies will make conditions worse. Congress needs to wake up and push back. Business executives should support them before the trade smashup leads to an economic breakdown.
No one knows for sure when or how this will end. But in the meantime, trade warriors in the White House can at least adapt the words of Marie-Antoinette: let them eat lobsters.
[Originally Published at AIER]