This will date me, but remember another controversial president who’s own VP referred to his boss’ economic policy as “voodoo economics”? We are still paying the price of that gargantuan boondoggle. When a politician claims that he or she has a strategy to balance the budget, or reduce the trade deficit or some equally cockamamie claim, especially one based on “cutting taxes,” you know you’ve entered la la land…
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The silly thing is that trade deficits are not primarily caused by trade barriers, real or imaginary. Actual trade barriers can influence the distribution of the aggregate trade deficit with the world but have very little effect upon the size of that aggregate deficit. The real cause of trade deficits is our people, corporations and governments being, in total, a net borrower. If a nation consumes more than it makes, it must be a net borrower – either because it is reducing its assets or because it is increasing its debt, or both. That is the overall trade deficit.
So, if one wants to reduce that, how? Well, not running budget deficits would be one thing. Not having a lot of households in a condition where they are short money, or where they are encouraged to overspend, would be another. There are policy measures that can be taken – for example, the creation of IRAs was a big incentive for people to increase their rate of savings.
But this idea that if we have a trade deficit with a specific nation, that nation must be engaged in some sort of predatory practice – that’s quite insane. There are structural reasons, to start with, why even in a situation where our aggregate trade balance was zeroed out, we’d run trade deficits with some countries and trade surpluses with others. A trade deficit is not a measure of how much another country is abusing us; not even remotely.
And, of course, we’re not just punishing nations with which we have a trade deficit; we’re raising tariffs on nations with which we have a trade surplus, too.
One of the core facts about tariffs is this: they almost invariably harm those who impose them much worse than they harm others. We have the gun to our own heads, and we’re demanding that others negotiate with us to put it down. If they know what’s good for them, they’ll just let us shoot.
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Yeah. I’ve always considered Orange Man a dullard—but even he surely learned some basic economics concepts somewhere along the way. So he has to know that “Other nations pay the tariffs” is a lie. And surely somebody at least tried to tell him that autarkies and hyper-protectionist regimes don’t work.
I’ve always considered the “Trump is a real-life Manchurian candidate” obviously far-fetched. But considering that virtually everything he does is damaging to the economy, NATO, U.S. geopolitical alliances/trust, etc., sometimes one has to admit that one could hardly sit down and “design” a more destructive way to sabotage the USA.
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I have learned not to assume that he has surely learned anything.
Part of what I find very strange is this: I went to college at the height of the monetarist wave, when Milton Friedman was being talked about everywhere and free-market economics had become a huge ideological thing on the right. One of the objections to “big government” and its market-directed actions was, in fact, to tariffs: why should a free people be ordered about by its government, as to who to buy from or sell to?
And while my subscription to some of that free-market ideology has waned in some areas, I still very much believe that. Short of some overarching political or humanitarian goal, why the hell SHOULD the government be able to tell you who you will and won’t trade with? What business is that of the government’s?
Now, as it happens, in my post-law business, I am involved in import/export work. I have a pallet of goods coming in from Taiwan, hitting the Port of Seattle today. Duty on this, at previous rates, would come to just over a thousand dollars. It’s now over five thousand. And who is the seller? A company founded by a man who wound up in Taiwan because he was with Chiang Kai-Shek’s army. It’s unreal. These people not only have been our political friends, but have been our allies since before mainland China and Taiwan split. And THIS is who we need to punish?
The cost of those high tariffs, of course, comes first straight out of my bank account; I have an account with US Customs, and every month they withdraw all of my accrued duty and fees. And then the cost, inevitably, winds up being borne by my customers.
Why not buy American, instead of Taiwanese? Simple. There’s literally not a single company in America that manufactures comparable goods. The nearest American substitutes are seriously inferior and would cause production inefficiencies AND a load of customer complaints. And the likelihood that similar goods will become available in the next few years? Basically nil.
Winning. I’m tired of winning.
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After Trump heard references to “a Manchurian candidate”, he announced an even higher tariff on Manchuria.
(“And they’re eating the dogs! In sweet n’ sour sauce!”)
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Trump also does not talk a lot about trade in services, where the US enjoys some very lopsided surpluses. Entertainment, IP licensing, tourism and conventions, financial services anchored with the dollar standard, engineering, software, social media, branding and head office management, these are huge financial flows back to America which are imperialistic in scale.
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Very true. And a lot of those services are responsible for a good deal of highly-paid employment.
That’s part of what’s a bit weird to me. As a small electronics-industry manufacturer, I actually employ people in domestic manufacturing. I like to think this is a good place to work, and the employees seem to think so. But a manufacturing employee in a place like this at best can hope to pretty much have consistent employment for many years at decent wages and benefits, and not more. It’s not a path ever onward and upward and it’s never going to be terribly highly compensated.
I restored a 1939 Philco console radio a while back – lovely thing, in a walnut-veneer cabinet, with that warm glow when the tubes get going, and decent sound for the era. This radio was almost certainly made in the Philadelphia Storage Battery Company’s main plant in Philadelphia, PA. Assembly workers built that cabinet and hand-soldered every component to the terminal strips, tube sockets, switches and so on. Those people didn’t make a lot of money, but it was decent employment to have. The resulting radio, though simple electronically, cost $69.95 at the time. That may not sound like much, but it was about 5% of the average American worker’s annual wage.
When we manufacture labor-intensive goods in the USA, that’s what we get – decent but not lucrative assembly jobs, producing goods that are really quite expensive in real terms. I run an operation which is like that, because we sell specialty goods where the labor costs can be covered by realistic pricing. And I know other small niche manufacturers like that. Their goods aren’t cheap, but they are top-quality, and they sell in markets where the customers are willing to pay for that.
But if the whole economy were this way, we’d all be a lot poorer. If we couldn’t buy imported electronics that are more cheaply made, the cost of everything from a table radio to an Ethernet hub to a flat-screen TV would be much higher, while our average wages would be lower. Yes, perhaps some people at the very bottom of the wage scale would be doing better than they now are – there’d be more demand for entry-level factory work – but the overall picture for personal wealth and well-being wouldn’t be great.
It’s just the nature of comparative advantage that we aren’t the best people to manufacture everything we need. Trade isn’t a seller victimizing a buyer (well, okay, it CAN be, but generally not). Trade is a willing buyer and seller cooperating to improve things on both sides of the transaction. But our president just does not see that. Perhaps being an ethics-free person as he is, he really does think of all profitable economic transactions as involving a perp and a victim – but our world would be a hell of a mess if that were so.
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He appears to understand the bond market well enough to have postponed the tariffs when it sent a message in April.
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Just about every time I have visited a Walmart on a weekend, I see people with a Roku TV in their cart. And some are even picking up HUGE TVs. (At least to me they are huge tvs because I’m a dinosaur.) So I have wondered if many people realize that those super-low prices on such goods are going to come to an end due to high tariffs.
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Perhaps it’ll stop them from buying the ones that are actually too big for the size of the room they’re going in. Alas, it’s unlikely to keep them from putting it above the fireplace, or using a soundbar instead of a proper sound system.