Expect Yelling From China, Mexico, Europe, Importers

by Mish

I firmly believe such tariffs will destroy jobs in the US and Globally, but my opinion does not matter. Others will soon be yelling as well.

“I do expect China and Europe and Mexico to yell about this,” says Kevin Brady.

Kevin Brady, the chief tax policymaker on Capitol Hill, launched a robust defence of his proposal to tax imports and sought to tie it to President Donald Trump’s “America first” economic agenda just as the new president appears to waver on the idea.
The plan to penalise importers and incentivise American exports has emerged as the most contentious part of the biggest proposed overhaul of the tax code in 30 years, a process that begins in Mr Brady’s Ways and Means committee in the House of Representatives.
“I do expect China and Europe and Mexico to yell about this,” Mr Brady said. “They have a tax advantage built in because America voluntarily gives them and their products a significant tax advantage over ours here in the United States and gives them a tax advantage in their own country as well. That unbalanced approach will not continue.”
Today foreign competitors “adjust” their taxes at their borders by adding taxes to American-made products and taking taxes off their own, he said, but the US did not.
By killing that “completely backwards” feature — which he would do by not letting US companies deduct import costs from their taxable income — Mr Brady said he would eliminate the price advantages of Chinese steel, Mexican cars and foreign oil.
But he faces a fierce battle over his plans. Big importers including retailers, apparel makers and the billionaire Koch brothers have united against the proposal, arguing it would cripple businesses that cannot source their products in the US and force them to raise prices for consumers.
This month Mr Trump called Mr Brady’s idea “too complicated”, telling the Wall Street Journal: “Anytime I hear border adjustment, I don’t love it.”
But he backtracked soon afterwards, telling the Axios news service that the report did not accurately reflect his views and that the border tax adjustment was “certainly something that is going to be discussed” in White House negotiations with congressional Republicans.

Not WTO Compliant

For starters Brady’s plan is not WTO compliant. Brady, Trump, and Paul Ryan likely know that.

However, given that WTO complaints take years to settle, the trio can pretend for years that the plan is WTO compliant.

Then, assuming it does get that far, the US can simply ignore the WTO. However, if this legislation passes, it is pretty naive to believe other nations will not act similarly.

Can Trump Win a Trade War?

At the recent world economic forum in Davos, Anthony Scaramucci, a Trump advisor proclaimed Trump would win trade war with China.

Perish the lunacy.

No One Wins Trade Wars

At the recent world economic forum in Davos, Chinese President Xi Jinping stated No One Can Win a Trade War.

“Many of the problems troubling the world are not caused by economic globalization. Whether you like it or not, the global economy is the big ocean you cannot escape from,” said Xi.

“We must remain committed to free trade and investment. We must promote trade and investment liberalization,” he said. “No one will emerge as a winner in a trade war.”

In a Trade War, No One Wins

The Hoover institute claims In a Trade War, No One Wins.

1. Trade is the opposite of a zero-sum game.
2. The solution to economic frustration is to help American workers, not stifle trade with tariffs or protectionism.
3. A trade deficit is nothing like a firm’s bottom line.
4. Americans actually strongly support foreign trade.
5. The “threat” from China is not just overblown but out of date.
6. Shrinking from world trade will hurt Americans in the end.

The above points from Douglas A. Irwin, a distinguished visiting fellow at the Hoover Institution and Professor in the Social Sciences in the Department of Economics at Dartmouth College.

The only debatable point is #4. But even that depends on how questions are phrased. If the vote is for cheaper prices undoubtedly they do. If asked about “fair trade” they probably don’t.

But in reality, the only fair trade is free trade, whether or not any other country does the same. Ultimately, if it’s good for the consumer, it’s good for the US.

If other countries act differently, it’s simply too bad for consumers in those countries.

Paying higher than necessary prices is never a good thing.

Mike “Mish” Shedlock