Tariffs not fit for print

The following appeared in the March 9 Business Observer:

The Donald had such a hot hand going, economically. And now he’s blowing it. On tariffs.

This was always the fear. That he actually would implement his decades of protectionist bloviating. 

So let’s see: Does Donald Trump really know more about the effects of tariffs than Adam Smith, Frederic Bastiat, Ludwig von Mises, F.A. Hayek, Milton Friedman, Leonard Read, Thomas Sowell, Walter Williams, Donald Boudreaux, Arthur Laffer, Stephen Moore, Larry Kudlow, Gary Cohn, ad infinitum?

Someone in the White House please read to the president Henry Hazlitt’s 1946 classic, “Economics in One Lesson,” Chapter 11. As Hazlitt put it: “Since the ‘Wealth of Nations’ (published 1776) … the case for free trade has been made thousands of times.”

But as Heritage Foundation economist Stephen Moore told reporters a few weeks ago in Sarasota: “It’s just dumb. It’s just so stupid.”

He was commenting on Trump’s announcement to impose tariffs on foreign steel and aluminum.

Moore, you may remember, was a senior economic adviser to Trump during his 2016 campaign, along with Larry Kudlow, now Trump’s top economic adviser. Moore said he and Kudlow tried repeatedly to convince Trump that imposing tariffs would not bring back manufacturing jobs. 

But try as they might, as we now know, they were unable to get their message to seep through the president’s hair. 

Moore said the tariffs are Trump’s way of following through on campaign promises to the “forgotten” blue-collar and middle-class Americans who voted for him. He promised to bring back manufacturing jobs.

But this promise — via tariffs and trade wars — makes no sense. We can tell you from first-hand experience. 

The Trump tariffs started well before his announcement about steel and aluminum. They started affecting the newsprint-paper industry late last summer. It’s a classic case of the adverse effects of protectionism. 

The story starts with a New York hedge fund, One Rock Capital Partners. In November 2016, One Rock acquired North Pacific Paper Co. in Longview, Wash., from Weyerhauser Co., the huge timberland owner. Weyerhauser’s sale of North Pacific was part of its efforts to get out of the paper manufacturing business — for obvious reasons. Demand for newsprint continues to decline.

By August 2017, North Pacific filed a complaint with the International Trade Commission and the U.S. Commerce Department, claiming to be harmed as a result of uncoated groundwood paper from Canadian paper mills being sold at less than fair value; subsidized by the Canadian government; and dumped excessively into the U.S. market. Newspapers use that type of paper.

North Pacific’s petition asked for countervailing duties (tariffs).

Typical. It reminds us one of Milton Friedman’s maxims from his book, “Free to Choose.” When it comes to asking for government favors, big business is always first in line.

Word of North Pacific’s petition spread quickly throughout the printing world — from newspapers to magazines to independent printers. Predictably, the users of uncoated groundwood paper mobilized. More than 1,100 U.S. newspapers signed a letter urging denial of North Pacific’s petition for tariffs, citing the deleterious effects they would have on the industry. 

The News Media Alliance’s letter to the Commerce Department went so far as to question North Pacific’s motives for the tariffs: “[I]t appears that One Rock Capital Partners may be using the petitions as a means of increasing the short-term value of this one mill,” the NMA letter said.

Put another way, North Pacific’s owners aren’t as motivated to save the 260 jobs it says are at stake as they are to get government help to boost the value of the business and flip it to make a profit and get out of a declining business.

Meanwhile, almost immediately after North Pacific filed its grievance late last summer, John Tevlin, owner of Tampa-based Newspaper Printing Co., and the printer for seven of our company’s papers and magazines, started seeing price increases and shrinking supplies. Other printers we use said they have been scrambling the past few months to secure supplies.

On Jan. 10, U.S. Commerce Secretary Wilbur Ross imposed tariffs of 5% to 10% on all Canadian newsprint exported to the United States. Those tariffs have since increased to as high as 32% — that’s how much more Canadian paper will cost in the U.S.

Good news for North Pacific’s plant. Bad news for almost everyone else. 

This is what Trump simply refuses to accept:

• Start in Canada. The Canadian paper mills and government, predictably, protested vigorously. One company, Corner Brook Pulp and Paper, which sells about half of its annual production to U.S. users, said the tariffs would cost its company jobs. 

While Trump has no sympathy for them, one of the effects of making the Canadians poorer is they will buy fewer U.S. goods, affecting more U.S. jobs. This is the old “seen” versus “unseen.” Trump sees the paper mill jobs he “saves” at North Pacific. He doesn’t see the other jobs he is killing — not just in Canada, but in the U.S. as well.

• Canadian paper manufacturers that own plants in the U.S. are shutting them and shifting operations to Canada. A spokesman for the National Newspaper Association said one Canadian company has closed paper plants in the Southeast, which obviously affects supplies and prices in that region.

Tevlin of Newspaper Printing Co. said he is bracing for prices rising as much as 14% this summer. “It’s all a bad recipe right now,” Tevlin said. “All the deliveries are running late” — more unnecessary disruption to the market.

Our printer in Jacksonville informed us last week as of April 27, it will increase our price for newsprint between and 10% and 12%.

• Higher newsprint prices cascade adversely beyond just the printers and newspapers. As with every business experiencing price increases from their vendors, we are no different than the others up the chain. You know the choice: Either eat the increase and reduce your profit margin; pass along the increase to your customers; or some of both.

It’s a loser’s game. The more we raise our print advertising rates, the more we drive our customers to other marketing platforms and the more we struggle. Digital advertising revenue won’t keep newspapers in business.

• The higher prices American businesses pay for advertising (or for their own printed materials) means less money for other purchases. This hurts other businesses. This, again, is the unseen Donald Trump doesn’t think about.

Trade shouldn’t be complicated. Businesses and consumers around the world should have the freedom to buy and sell peacefully with whomever they want.

Trade becomes complicated when governments intervene and when businesses ask for protectionist favors. The results are always the same: a benefit for the few (North Pacific Paper) at the expense of the many.

Newspapers want to buy paper at a competitive price. If Canadians can do that better than American paper mills, so be it. 

We don’t care if the Canadian government subsidizes paper mills at the expense of Canadian taxpayers. We benefit from the lower prices, and so does the American economy. To an extent, so do Canadians. 

If we buy newsprint at $500 a ton, instead of $600 a ton, we have that extra $100 a ton to spend or invest in other things, fueling economic growth. Canadians, in turn, have Americans dollars to buy more American goods and services.

If we slap a 10% price increase on all Canadian newsprint, we’ll have 10% less to spend on other things, and we’ll buy less newsprint than we did before. This hurts the American and Canadian economies.

George Mason University economics professor Don Boudreaux says it best: “Protectionism is a philosophy of plunder, thuggery and theft masquerading as ‘trade policy.’”