The trade escalation impacts top trading partners and bolsters industries in US states key to Trump’s election.
How does it bolster industries? Canada said it would target those states. Is the reporter saying China is crazy enough to favor those states? No.
I see deflation coming. The reporter sees inflation. People enjoy the deflation from a trade war until the economic results come in.
Please explain how tariffs result in deflation. Raising tariffs slows economic growth but how does that result in falling prices?
Maybe reduced demand for commodities like grain. Oil? Then trickle down from there?
Not that I agree with Leap’s prediction, but tariffs would decrease demand (higher prices on tariffed items, plus ‘move up’ prices on domestic items which compete). If demand decreases enough: deflation.
Or dramatically increased supply (driving prices down). Tariffs seem unlikely to do this unless it results in a loss of markets. Suppose we tariffed Canadian oil and they were stuck with it (I know that’s not how it works, bear with me). Now they are swimming in oil and prices decrease throughout the manufacturing value chain. OK, not oil. Maybe corn. Or Wheat. Or something.
Dramatically reduced government spending could result in deflation, as monetary velocity and quantity crater. Unemployment, everyone pulls in the wallet, aggregate demand lowers, prices decline.
Each of these I’ve mentioned are likely short term, to move to actual economy destroying deflation that has to become secular somehow, which I suppose is possible, but I don’t see it … at the moment.
Would reduced demand result in deflation, when prices are supported by tariffs on imported goods, and “JCs” leveraging a “shortage” narrative to increase prices on domestic substitutes?
Steve
Provide the pseudo-“JCs” with another shortage: Paying customers. Then the pseudo-“JCs” will go screaming to the govt for WELFARE (sound familiar?). LOL !!!
All of the major companies have corporate planners going over IRR for current and future projects. The companies leverage to complete as many of the projects on the list that are viable.
If the inputs and other resources or whole sale goods from China, Canada, and Mexico rise in price projects are halted or called off. People are laid off. Aggregate demand drops.
We are in a demand side economy. Regardless of any policies coming out of DC. Aggregate demand falling creates deflation.
To over come the tariffs Chinese manufacturers and suppliers will lower some of their prices.
To over come their tariffs our manufacturers and raw material producers will lower some of the prices.
Place a tax on something and there is less inflation.
Shut off projects because the IRR shift and there is less employment.
Demand is critical in our economy now.
Study 1893, 1921, 1922, and 1929.
Further do not throw out 2019 as the opposite. It is very possible that inflation in 2021 and 2022 would have been worse but the tariffs were kept in place.
Also the tariffs in 2019 were flawed. Both the US and China made over 300k exceptions to the tariffs. This time we won’t be making many exceptions. Instead the tariffs are targeted to a greater degree. Enforced too a much greater degree in all likelihood.
What Goofy has stated is some of the paradigms. This can be looked at in several different ways.
At the moment, it is inflation. The results of a tariff war have not rolled in yet. We can look at the historical results.
While the results will appear in individual cases or products, the entire thing is systemic and dynamic. Just like how too much demand is causing inflation. A slight up tick in demand is causing a good dose of inflation.
During China’s rise as a manufacturer that is exactly what happened. The Chinese economy exported deflationary global pressure.
Now it is our turn but we are taking a detour for one to two years if we are lucky. There is no telling when the downturn we will experience ends.
Some of the worse mouth breathers in the C-suite say they don’t care about volume, or market share, anymore. They are all about taking more money off of each of the shrinking number of people entering their stores. Just look at the falling market share of the “big three” over the last few decades.
Steve
We have demand side econ now and GM and F are rising.
You saw Ford’s dour guidance for 25, including barely breaking even in Q1?
Steve
I can imagine. But it is not about 2025 alone. It is about 2025 to 2050.
As long as Farley is in charge, I’m pretty pessimistic, considering his track record, so far.
Steve
Until the number of buyers is insufficient to meet sales targets. Higher prices = fewer (and fewer and fewer) buyers.
Nope
Lower prices fewer people employed.
Perhaps a marketing ploy in full knowledge they simply can’t compete in the other segments?
I agree with this. But now it is reversing out.
Management doesn’t care. Right now, Ford Oakville Ontario is idle. Stellantis Brampton Ontario is idle. Stellantis Belvidere is idle. GM “Poletown” seems to be running at 10% of capacity. The Former GM Lordstown plant was sold to “Lordstown Motors”, which went BK, and the plant sits idle. Management doesn’t care. They have been closing plants and laying people off, for decades, to “right size” the company as they Welch themselves into a producer of an ever smaller variety of ever more expensive vehicles, sold to ever smaller numbers of people.
Steve
How is that working out for eggs? People are simply going to pay more. They are not going to avoid eggs so much that not only do prices not go up, but go down.
Just picking a nit but this example probably wouldn’t be deflationary for the overall economy because there are no losers here other than the oil producers. Manufacturers are still making the same profit so they stay in business and consumers have more buying power because of lower prices. They will buy more of other things.
Deflation occurs when lower prices means businesses cannot stay in business. An example is the deflation in China. The central government dictates a mandated level of economic growth that determines how much provincial and local governments are going to invest in production. However, you have an aging population that feels poor because of the real estate crash. The result is over-production relative to the domestic market, falling domestic prices, falling corporate profits, and businesses increasingly dependent on subsidies and falling into debt unless they can export.
From Google AI:
According to recent data, China has seen a significant decline in corporate profits, with industrial profits falling by 4.7% year-on-year between January and November 2024, marking a continued decrease for the third year in a row; this decline is attributed to factors like weak domestic demand, deflationary pressures, and a struggling real estate sector.
Hard to see that happening in the US with tariffs. Deflation is more likely to occur from our immigration policy. Suppose immigrants no longer want to come to the USA. I am curious to see if the current policy is going to cause restaurants, farms, construction, and landscape businesses to shut down in small and mid-sized towns where the labor market is already tight.
The United States lost 141,733 farms over the course of five years, in part due to a broken workforce system that has led to a worker shortage.
America Has a Farming Crisis - Newsweek
If we can’t get immigrants then we are at risk for the kind of deflation Japan has experienced and that is looming for the UK and Germany.
Yes, USAians are so habitually wealthy that they shriek to high heaven at price increases, but fundamentally do not change their habits one whit.
Most people’s health and wallets would be significantly improved if they cut their egg and meat consumption in half and put arroz y frijoles back on their plates at the level their grandparents considered normal.
Yes, I wrote this post after having devoured one egg with rice and beans and a half cup of very spicy extremely vitamin/minerals rich green salsa on two fresh made corn tortillas.
