Dependent on trade, Mike Pence’s hometown takes a hit due to Trump’s tariffs

One company and one family loom large over this city, intertwined for decades. Cummins Inc. is the biggest employer in Columbus, built into a $20 billon heavy equipment manufacturer with the help of Mike Pence, who as governor passed pro-business tax cuts and made trade visits to China on its behalf.

.. Pence’s older brother Edward joined Cummins after graduating from college and worked there for four decades, running one of its most lucrative engine plants

.. According to the Brookings Institution, the Columbus area is the most export-reliant region in the country, with just over half of its economic output linked to foreign purchases.

.. Pence’s hometown oozes internationalism: 40 foreign companies have a presence, more than half of them Japanese engines and auto-parts plants, employing almost 10,000 people. The area’s schools collectively speak 51 languages. The city ranks second in the nation in the per capita percentage of H-1B visas for foreign workers.

.. Cummins plants produced the drill that powered the famous rescue of Chilean miners in 2010 and the emergency generator at the Statue of Liberty.

.. The Cummins plants, which produce engines, generators and other equipment, epitomize how deeply international trade has become rooted in cities and towns throughout the nation. Cummins alone has 25,000 different suppliers and also its own chain of distribution, both of them largely international. Its U.S. base is bolstered by operations in the United Kingdom, China and India.

.. Linebarger said the president’s trade war hits the company in two ways, affecting both its incoming parts, which will be subject to tariffs, and its own products, on which retaliatory penalties will be assessed by countries targeted by Trump.

.. For Cummins, the two most corrosive tariffs will be those assessed on steel and aluminum

.. one of our biggest projects in recent times was canceled because of steel prices

.. “It would take some time to produce our materials here. We fear Taiwan will swoop in and take the competition away from us,”

.. Cummins has applied to the White House for an exemption from the tariffs. Three GOP House members in Indiana — Reps. Jim Banks, Susan Brooks and Jackie Walorski — joined more than a hundred House Republicans in expressing “deep concern” about tariffs in a letter to Trump in March that requested a series of exemptions.

.. “Tariffs are not just hitting people in places like Columbus, it’s also farms which make soy beans and corn,” she said.

.. Pence has run a muted campaign, refusing to attend candidate debates and declining to release a public schedule. His most public comments so far came when he defended himself after it was revealed that his gas station company’s bankruptcy had cost taxpayers $20 million in contamination costs.

.. His views on tariffs are nevertheless clear: his website says he fully backs the “Trump-Pence agenda” and favors a “level playing field” when it comes to international trade. Neither Greg Pence nor the vice president responded to requests for comment, but the administration in the past has said the tariffs may produce pain but are necessary for future economic growth.

.. Most of our parts come from China. I think we’re gonna feel this trade war a whole lot faster than what people are saying. There’s a saying, ‘Trust God, everyone else bring data.’ I don’t think we’re doing that.”

Merkel’s Comeuppance is Europe’s – and the World’s – Misfortune

No one who was paying attention to Greece’s predicament three years ago should be surprised by the position that German Chancellor Angela Merkel and Europe find themselves in today. But only a dangerous fool would celebrate.

.. today’s defenders of the European status quomust fight on two fronts: against Trump’s encroachments and, within Europe, against the likes of Matteo Salvini and Luigi di Maio, the rising stars of Italian politics who, despite their parliamentary majority, were denied the right to form a government by the country’s besieged pro-establishment president.

.. Just as it is Trump’s aim to overturn the global system from which Germany has benefited for decades, Salvini and di Maio see the disintegration of the euro as a welcome development and a boon to their anti-immigration campaign.
.. If you insist on policies that condemn whole populations to a combination of permanent stagnation and humiliation, you will soon have to deal not with Europeanist leftists like us but, instead, with anti-Europeanist xenophobes who see it as their vocation to disintegrate the European Union.”
.. Germany’s establishment media are now referring to the Italian economist whose appointment as finance minister was vetoed by the president as “Italy’s Varoufakis.” That moniker obscures a fundamental difference: I wanted to keep Greece in the eurozone sustainably and was clashing with Germany’s leaders in favor of the debt restructuring that would make this possible. By crushing our Europeanist government in the summer of 2015, Germany sowed the seeds of today’s bitter harvest: a majority in Italy’s parliament that dreams of exiting the euro.
.. Trump understands one thing well: Germany and the eurozone are at his mercy, owing to their increasing dependence on large net exports to the US and the rest of the world. And this dependence has grown inexorably as a result of the austerity policies that were first tried out in Greece and then implemented in Italy and elsewhere.

.. a condition of agreeing to bailout loans for distressed governments and banks. Then note that this pan-European austerity drive took place against the backdrop of massive excess savings over investment.
.. large excess savings and balanced government budgets necessarily mean large trade surpluses – and thus the increasing reliance of Germany, and Europe, on massive net exports to the United States and Asia.
.. In other words, the same incompetent policies that gave rise to the xenophobic, anti-Europeanist Italian government also bolstered Trump’s power over Merkel.
.. the US will aim to force China to deregulate its financial and tech sectors. If it succeeds, at least 15% of China’s national income will gush out of the country, adding to the deflationary forces that are breeding political monsters in Europe and in the US.

Trump Tariffs May Threaten U.S. Auto Jobs, European Executives Warn

Raising duties on imported cars could prove trickier than on steel and aluminum imports

Volkswagen AG , BMW AG and Daimler AG, which makes Mercedes—have built factories in the U.S. and Mexico in recent years that are geared to export to Europe and China, not just to sell to Americans.

The German manufacturers employ around 36,500 Americans at their factories in South Carolina, Alabama and Tennessee. If U.S. exports face retaliatory tariffs and it becomes more difficult or uncompetitive to export cars from the U.S., European auto makers would likely have to shift those jobs to Mexico or bring them back to Europe.

.. Fears of a global trade war is leading Volvo Cars Corp., the Chinese-owned Swedish auto maker, to reconsider the scope of a new plant that it is building near Charleston, S.C

.. “If the factory in South Carolina could not export, it would be half the size. It would not employ 4,000 people anymore but just 2,000,”

.. Steven Armstrong, president of Ford’s European business, dismissed Mr. Trump’s claims that American auto makers were blocked from selling cars in Europe.

“He obviously hasn’t seen our booth this morning,” Mr. Armstrong said on the sidelines of the Geneva Motor Show. “If the product fits the market, consumers will buy it.”

The Macroeconomics of Trade War

diverting demand equal to 3 percent of GDP from foreign to domestic products would not increase US output by 3 percent relative to what it would have been otherwise, let alone the 4.5 percent you’d expect if there’s a multiplier effect. Why? Because the US is close to full employment.

.. a 3 percent rise in output relative to trend would reduce unemployment about 3 times that much, 1.5 percentage points. And that just isn’t going to happen.

.. What would happen instead is that the Fed would raise rates sharply to head off inflationary pressures (especially because a 20 percent tariff would directly raise prices by something like 3 percent.) The rise in interest rates would have two big effects. First, it would squeeze interest-sensitive sectors: Trump’s friends in real estate would become very, very unhappy, as would anyone who is highly leveraged (hello, Jared.)

.. Second, it would drive up the dollar, inflicting severe harm on U.S. export sectors. Greetings, farmers of Iowa!

So protectionism wouldn’t do very much to reduce the trade deficit, even if other countries didn’t retaliate, and would inflict a lot of pain across the economy. And that’s without getting into the dislocations caused by disruption of supply chains.

.. Add in the fact that other countries would retaliate – they’re already drawing up their target lists – and the fact that we’d be alienating key allies, and you have a truly terrible, dumb policy idea. Which makes it quite likely, as I see it, that Trump will indeed follow through.