Friday, June 22, 2018

Why Trump's Tariffs Are Idiotic And Will Wreak Havoc On His Own Voters

The WSJ editorial of June 13th (p. A20) was spot on in its assessment of the Trump tariffs:

"Tariffs are inherently regressive because low income Americans spend more of their income on household goods.  Wilbur Ross argued that no one will notice price increases...But people in Mr. Ross  income class are not the Trump base."

And indeed, that base is already getting clobbered by the stupid, counterproductive tariffs on steel and aluminum that this fool has already imposed.   In Iowa the Trump tariffs on steel and aluminum directed at Mexico have already cost hog producers $560 million according to an Iowa State University economist.   What do steel and aluminum tariffs have to do with pork? Well, in response Mexico has imposed countervailing tariffs on pork- with the result that hog prices are tumbling.

Next to get hit will be soybean producers in the Midwest as Trump threatens $450b in tariffs on China. China buys a quarter of American soybeans so will now pull back Many think China will be the worse off but they are wrong. The Chinese have been quietly pursuing an independent agricultural strategy for years.

American consumers will also get clobbered - given their love for cheap Chinese made stuff, including  HDTVs, cell phones etc. as the trade war ramps up.  Look for that TV and DVD player to now go up an additional $50 and that cell phone another $100.

Meanwhile, local papers across "flyover" nation are replete with tales of woe regarding value destruction and lost income from Trump's trade wars.  We can debate from now until doomsday the definition of "trade war" but the fact is that Trump's tariffs are already costing millions millions.

Then there are the stupid tariffs against Canadian goods, which makes zero sense and only antagonizes an economic partner and ally.  For reference, when one tallies up goods and services exchanged between the two countries the U.S. enjoys an $8.4 billion surplus.  But all the moron Trumpies focus on are the goods, minus the services.

The Trump bunch, including Wilbur Ross- and the Dotard himself - also don't grasp that trade itself is not purely transactional in the Trump real estate grifter sense of being a zero sum game. Trump barked at one point, highlighting his ignorance:

"Why should I allow countries to make massive trade surpluses as they have for decades?"

Well, dummy, because those  trade surpluses mean more Americans are able to buy those goods because they are cheaper!  More cheap goods =  more items bought, i.e. from the Chinese, so the Chinese run up a trade surplus.   Trump, senseless buffoon that he is, can't seem to appreciate that lower income Americans (i.e. the Trump base) benefit from competitively priced Chinese electronics, or Mexican produce, Japanese cars and Canadian steel. What does Trump want, his voters reduced to having to pay 50- 100 percent more for everything when his tariffs are already eating away at his tax cut benefits?  (The WSJ (ibid.) estimates those in the lowest income quintile "could lose 49 percent of their tax cut gains")

So who is Trump fooling? Well, his own base for sure if they fail to see through what he's doing. But hey, maybe they're ok with anything this turd does like they're A-ok with incarcerating toddlers in wire cages and pup tents.

The other aspect is that Trump and most Trumpkins fail to process that trade deficits are neither good or bad. Indeed, the WSJ's Greg Ip  answered the question of why the US. itself runs trade deficit:

"Because it consumes more than it produces while its trading partners collectively do the opposite.. Another way of saying this is that the U.S. invests more than it saves while other countries save more than they invest."

Hence,  the only way to counter that is for Americans to invest less, and save more.  If then average people-  even Trumpies - saved more, they'd be able to afford higher end U.S. goods if they wanted them, as opposed to buying cheaper Chinese, or Japanese electronics or cars.

Basically then tariffs don't solve any trade or economic imbalance problems - other than in the short term.    Trump and his lackeys may brag about the steel jobs being saved thanks to his 25 % tariffs on foreign steel imports, but left unsaid are the estimated 11,000- 15,000 job losses for the steel users. That is, those who USE steel to manufacture other goods.

So why are tariffs bad then? Because they are a tax on imports which ultimately turn out to be a tax on citizens, especially dinging those with low incomes.  By way of example, say an American retailer purchases 100 umbrellas from China for $5 each.   The U.S. tariff rate is 6.5 % on each one.  Then the retailer would have to pay a total of:

(100) x (0.065) x $5   =   $32.50 

Or the tariff the retailer would then have to pay on the shipment.   This raises the total price for the retailer to:   (100) x $5   +   $32.50  =   $532.50,

Some of which will be passed on to customers since the higher tariff amount would be unsustainable for the retailer to 'eat' over time. The same sort of calculations apply to electronics good, cars, or other import goods.

 It seems kind of dumb to enact a tax cut, then to clobber your people with a tax increase, no?

See also:



"What the American working and the middle classes will see (sooner than anyone imagines) is that actions of his sort have unexpected global consequences. They could cost the U.S. and the rest of the world big time. If he were indeed emperor and his subjects (that would be us) grasped where his policies might be leading, they would be preparing a revolt. In the end, they -- again, that’s us -- will be the ones paying the price in this global chess match."

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