This is NOT political, just a question

[ribeyeguy]

A bit off topic but I'm in the metals industry where the first tariffs were announced on steel and aluminum. We're already seeing mills raise their pricing on certain commodities, all aluminum products along with steel sheet, plate and structural tubing. The reason is that the U.S. simply doesn't have the current capabilities/capacity to ramp up and fill the void if imports are cut off or dramatically decreased. This will eventually affect us consumers of items made from these products in a great way with much higher prices and possible shortages of some household items.

That's an example of how the tariffs will affect us in an industry where shortages occur. If on the other hand we're currently producing more foodstuff than we can consume I'd expect the opposite to hold true, prices lowered due to a glut, at least until the market adjusts itself by lowering production.

Interesting times for sure, I just don't know if it's good or bad.

[bbqoaf]

It's very, very simple: America (along with my home, Canada) is able to produce meat more efficiently than many Asian nations due to the enormous amount of land relative to people in North America. In the same way, China is able to produce textiles, electronics and other manufactured goods due to the vast supply of low skilled labour in the country. There's no trick or complexity to trade, the same reason we don't grow bananas on the Canadian prairie, way too expensive, makes much more sense to buy them from the tropics and sell them oil, grain or beef in return.

[Frozen Smoke]

Short pains will return long gains. The trade imbalance needs to be balanced. The idea is to ramp up our production reopen factories and put more of our own people back to work in good paying jobs. All of which will result in a better trade posture for us going forward. Both my sons are working in the steel industry. They both have been on the verge of being layed off or their jobs eliminated over the last years. They've experienced benefit reductions and slow pay growth over the the last several years.

They are now extremely busy and can work as much overtime as they can. Consumers are going to experience some pain for awhile but the outcome will be better for everyone.

[BrentC]

One other thing with U.S. meat exports is what we export. Since U.S. consumers tend to prefer the higher quality cuts of meat (some of us BBQers aside), we have more of the poor quality cuts, more offal, etc., than we have domestic demand. So that gets exported — beef short plate, for example, is a big export to China.

This is is also why the USA is a big beef importer — we bring in high quality cuts from Australia, etc., to help meet domestic demand.

[Nuke em]

Interesting thoughts everyone. I call it my thirst for knowledge.

[radshop]

RustyHaines - my reply wouldn't fit as a comment:

If I understand you right, it's an economic allocation question. When a farmer grow a pig (for example), he obviously does not divide that pig up equally for all citizens of the world - it goes on the market through hands of middlemen (for better or worse) and ends up being consumed by a few people. (Lot's of variations on this, but just creating a simple case.) And even the people who eat it, don't all eat the same amount. It's not evenly divided within a family, a town, a county, a state, or a nation. The allocation is determined by supply and demand. That supply and demand can cross the imaginary lines that we call national borders. So of all the food produced, it's not equally distributed regardless of what geographic divisions you look at.

It DOES become a political question if one starts down the path of, "All the people inside this imaginary line should have xyz before we send any to the people on the other side of that imaginary line." I don't want to go there, nor would/should mods allow it here.

[smokenoob]

Well, china just put a 25% tariff on whiskey, drink up!

[SmokeyGator]

Bottom line - expect prices to go up. Farmers will kill livestock and bury it in a trench before selling it to the market, causing an oversupply and price drop (furthering loss). But even if they do that they still have to make up for that export loss. So what do you do? Sell your existing product for more. Or supply the market as usual and eat the loss.

Anyhow for now it is ops normal. Nothing is happening. What might happen later? What I just said. Or Chinese consumers don’t care and keep buying. We don’t know.

But I will not be surprised to see a price increase.

Place your bets now. You can win a lot or lose your pork butt in the futures market

[Willy]

This is how I understand it, but, keep in mind, I am not an economist. Anyone out there who is, feel free to correct me.

Let’s consider steel (into the US from China) and pork (into China from the US). Both countries impose a tariff on their imported products—the US on steel and China on pork. The immediate impact is that both countries will use less of each product since the price is higher due to the additional costs of the tariffs. The cost of each will go up—steel in the US and pork in China. Each country will look for alternate sources of supply or each country will reduce its consumption of pork/steel. Steel producers in China may suffer, as will pork producers in the US. This is because neither the China steel manufacturers or the US pork producers foresaw what amounts to a glut in production due to reduced consumption. This means that steel in China will cost less and pork will cost less in the US because the producers would rather accept a lower price than simply throwing their products away. At the same time, US steel manufacturers and Chinese pork producers will benefit from higher prices due to reduced supply.

Meantime, maybe Chinese chicken raisers can charge a bit more for chicken or tofu--LOL (unanticipated demand) because Chinese consumers are looking for a less expensive substitute for pork. In the longer run, maybe more Chinese will decide to raise pork or will find another, cheaper foreign source. It’s probably tougher to substitute something else for steel, so US steel prices will simply rise. In the case of steel, keep in mind that US steel inherently costs more (better standard of living and higher wages in the US), which is the reason that the US imports some steel rather than manufacturing more of it. Lower costs speak. I have no idea why China needs to import pork.

Going forward, US pork producers (and Chinese steel manufacturers) have to decide what future production looks like. Can they find another buyer or must they shrink production? If no other buyer exists, the least efficient (most expensive) producers of pork and steel will be driven out of business (absent government help) and prices will likely rise so the producers annual income doesn’t shrink too much. Maybe people who, say, raise chickens, will see a benefit? Personally, I’d like to see more duck in our supermarkets—again LOL.

But wait, there’s more. It seems to be widely believed that China practices shady business practices and engages in currency manipulation. Those things are WAY beyond my pay grade. I will note that, whatever China does that is shady, American consumers and American manufacturers, including those who have factories in China (think Apple) find the business lucrative enough to keep it going—right or wrong.

Finally (well probably not finally) there is the question of whether or not it is in the national security interests of the US to allow its steel manufacturing base to shrink—again, way above my pay grade but it seems like we should be able to manufacture steel if things go south with foreign steel manufacturers. What do we do to maintain our steel manufacturing capabilities? Subsidize steel. i.e., raise taxes? Just pay more for steel as consumers? Something else?

My “analysis” is no doubt simplistic, but, as you can see—the subject is complicated.

Another thought--one that may well reflect my ignorance of economics. I run a "trade deficit" of 100% with every store I shop at. The only place I haven't run one was with my employer (I'm now retired). Still, I'm happy with my "trade deficits". I buy products I need (MCS!)and they get my money. I get beef and BBQ stuff and they get paper.