Kindergarten Arithmetic 101
If Trump extends his wall to cover the entire border, instead of just the one shared with Mexico, and then bans or punitively tariffs every single good that uses steel as an input, recursively, as well; he just may succeed in driving up the domestic price of final goods, to the point where both nominal labor compensation and nominal raw materials prices can be increased at the same time.
In doing so, he will ensure that not a single American made product of any kind, will be internationally competitive over time. This is exactly what the Latin American import substituting “structuralists” did, back in the 50s and 60s.
The above analysis from reader “Stuki” is obviously correct.
Disappointingly, there is debate over the obvious. And that’s not the only flaw of economic illiterates.
Mathematical Explanation of Deficits
For a mathematical explanation of trade deficits, please see Trump’s Tariffs Show He’s “Clueless About Trade”.
Mike “Mish” Shedlock
Bush did a 30% tariff on steel, too, and the world didn’t end. He did cost a bunch of American jobs, but before it did too much damage, he repealed it. Once every few generations, though, it is time to be really stupid and seriously damage the economy. Is now the time?
Mish wrote: “If countries want to subsidize US taxpayers it is silly to object. If they gave the world free cars only a fool would object. Same with solar panels. It is like arguing about free light from the sun. Free stuff raises standards of living. This is undeniable.”
That’s where I have to disagree with you to some extent if the purpose of said “incredible deals” are to destroy local industry (by selling below cost), only to raise prices later.
It’s called dumping and we should pursue trade actions against it vigorously. But that also means doing thorough reasearch and implementing specific actions against the offending actors — not an overall nuclear strike against the entire world. Doing that hurts American consumers and pisses off those foreign trading partners of ours who are playing by the rules.
“Free stuff raises standards of living. This is undeniable.”
First off. it is not free. Second, Americans cannot afford to buy it even if it costs less because their jobs are gone.
What is undeniable is your loyalty to the status quo.
“Trump looks at complex problems and can only see simple solutions”
excellent analysis
The problem with most anti-protectionist screeds is that they emphasize goods. Protecting intellectional Rights is just as important as the US is the intellectual properties leader of the world. The cost of focusing only on goods and not include intellectual costs is in excess of a trillion dollars per year.
If countries want to subsidize US taxpayers it is silly to object. If they gave the world free cars only a fool would object. Same with solar panels. It is like arguing about free light from the sun. Free stuff raises standards of living. This is undeniable.
The problem is that we can’t have our cake and eat it too. We can’t put up barriers and think that the other side will just lay down and take it. Instead of prosperity when we put up not-well-thought-through trade barriers, the most likely result is going to simply be that other countries will put up barriers against us in return, and then everyone loses. And this is not a new concept. Perhaps Trump should read this little-known book called “The Wealth of Nations”… oops, I forgot, he doesn’t really care much for reading.
What we know for sure is that what we have tried in the last 40 years, with unilateral disarmament on trade, has not worked. Maybe it is time for realists to try a different approach?
What we know for sure is that what we have tried in the last 40 years, with unilateral disarmament on trade, has not worked. Maybe it is time for realists to try a different approach?
Realist — it could end up that way, but not necessarily. Remember President Trump’s earlier admonition to the German automobile manufacturers — If you want to sell your cars in the US, then build them in the US ! One of the big problems in the past has been the extreme layer(s) of job-killing redundant & contradictory regulations and arcane tax rules, which made it very difficult to build a new plant in the US. Notice that while all the smartest people have been telling each other in loud voices that the President is an idiot, he has been assiduously removing some of those pointless regulations. Maybe this time the tariffs will result in more investment in the US, more jobs created, more people working, more taxes paid. Maybe !
I hope we can agree that the equal enforcement of the rule of law is good. After all, the exponential increase we have witnessed in corruption and hubris is the direct result of the perpetrators believing they can get away with their behavior.
If countries believe they can take advantage of our consumerism without consequences, they will continue their behavior. How is it helpful for our products to be taxed and made less competitive? If we can stop them from taxing our products by imposing a reciprocal tax, why is this bad? If the consequence is some of the products that we don’t need anyway become to expensive and keep us from buying the crap and save instead, then I call that a twofor.
Good point. But the so-called free-market adherents have their heads so far up Ayn Rand’s two-ton… book(!) that they think that is the real world.
Anyone who is being reasonable would agree that there are no “Free Markets” between countries – never have been, and probably never will be.
The difference of assessments expressed here seems to depend on what a particular individual values. Some people look only at today’s consumer – and whatever can get that consumer the cheapest price today is the right way to go. Hence, drop your own trade barriers, regardless of how high others put their barriers to your exports. And ignore any longer term consequences.
Other people take a broader view – both in terms of people (human beings are producers first, before they can be consumers) and in terms of timeframe. (Crack cocaine can make a guy feel good today, but the long term impacts are serious).
Detroit was the “Arsenal of Democracy” in World War II. Today – not so much. There are many factors involved in that downfall, but it would be hard to point to Detroit as an example of the long-term benefits of decades of the US having relatively low non-reciprocal tariffs.
Of course, if someone does not care about his fellow citizens or about the long-term survival of his country, then unsustainable unbalanced trade would definitely be the way to go.
I agree with you completely. A free market only works when all parties play by the same rules.
Supporting a free market while others don’t cooperate is like being a vegetarian and not getting expected to get eaten.
We dont live in that world and never did. A free market never existed anywhere. It is and was always a myth. All governments are interventionists starting with the creation of money.
No one said there was a “free market” – so what precisely is “free market nonsense”?
The only thing that’s “nonsense” is not supporting a free market, and that holds true whether any other country cooperates or not.
link to vimaxmedan.xyz
Nowhere did I defend it. I’m purely stating what the Trump administration intended vs what was done. The problem with tariff free world is it doesn’t exist. Kind of like free market nonsense.
“You can’t fix stupid, quite clearly.” even in these messages – so sad
If this was targeting China it was poorly designed. For the novices who don’t understand, china has been dumping steel in Canada and Mexico and driving steel prices down globally to put competitors out of business. They are state run enterprises. Canada and mexico are trading partners but Chinese steel comes through those countries. This is why the
source matters. Putting a tariff on Chinese made steel would have made more sense.
It makes more sense to open the borders than close them. The population of Mexico is about 1/3 of the US, the immigration problem is backwards. Many many US citizens would love to emigrate to Mexico, but for restrictions.
Trump wants to help, but attacking our trading partners won’t do it. His guns should be trained on K Street, with it’s 25,000 lobbyists, Congress with it’s irresponsible, profligate spenders and an 80,000 page tax code that now occupies more of our smart people than all our police and fire departments combined.
Is that third example from the left in the top row, the method by which the FED determines its dot plot for the future FED rate? /sarc
link to market-ticker.org
Either follow Denninger’s plan, or do a 10% across the board tarrif, but they must be indexed to the currency.
The biggest problem is not tariffs, but high and varying tax rates, unions, and the subversion of our education system, which are all the direct result of govt largess and career politicians. Maximum freedom and equal enforcement of the rule of law is all that’s needed, but these are antithetical to the needs of govt.
The other issue that is important to understand is the way trade is measured, which looks at the total dollar value and not the quantity of goods. For example, China could buy gold in Chicago and sell it in London to improve their trade imbalance.
link to armstrongeconomics.com
Nobody says you HAVE to join the WTO, it’s completely voluntary to join. We’re in it though so we are obligated to follow its rules. If we don’t like it then we can leave. Now whether that’s a smart thing to do is a different story. Apperantly doing smart things isn’t in vogue anymore.
Basically what he is saying is that we should all bow our heads to the Gods at the WTO. How nice!
So the World Trade Organization is an entirely non-political body composed of the best & brightest people in the world, totally immune from cronyism? Have a chat to Realist — he can probably tell you something about the real world.
It looks the Canadians investigated the situation, did some research, and went through a structured evaluation and decision-making process to come up with tariffs against selected bad actors. That’s good governance all-around. We have a guy in a bathrobe who woke up constipated in the middle night, pulled a blunt-instrument tariff against the entire world out of his @ $$ and announced it through twitter.
Eventually these type of actions go before the WTO. If you can make a good argument for dumping the WTO may back you and those foreign entities will suffer. If you can’t make a good case (likely in the case of the Twitter-tariff) then the WTO will rule against you and you will suffer.
There are processes that can help ensure you come up with good, actionable ideas but apparently those don’t interest our incompetent, right-hand-doesn’t-know-what-left-hand-is-doing current administration.
That’s a strawman argument. The point is not about trading with oneself. It is about how the other countries put up trade barriers and tariffs and we should accept them but we should not do anything similar because that would be “mathematically wrong” or some crap like that.
The US will probably relent when this issue goes to the WTO. Too much to lose if a trade war starts and the WTO goes against the US (which it probably will since this tariff is not well thought out).
He is just a tool of the Wall Streeter status quoists who have benefited immensely while parts of the country have literally rusted and people have died in the resulting opioid crisis. There is no incentive for him to be either honest or even to make sense.
These guys have benefited from the status quo. That is why they create all the scaremongering stories about the US going over a cliff if we stop exporting our jobs. What a load of crock!
Good point. These so-called free trade experts have ravaged the country. The Rust Belt has that name for a reason. Jobs have been lost by the millions while these guys sit in Manhattan or Si Valley and pontificate and insult the average Americans. On top of that, they support things like “right” to work for next to nothing. It has now come to the point where 63% of Americans cannot afford even a $1000 emergency without going into debt. And all that these guys advocate is more of the same.
link to vimaxmedan.xyz
enough said.
The net result may be $50 shoes selling for $120 or going to walmart and only affording the 3-pan cooking set as opposed to the 5-pan set, but someone at a stamping plant in the middle of the country gets to work and feed his or her family and pay taxes.
In a country where we are experiencing a non-adiabatic economy, not all people will have a chance at gainful employment relative to their tax and living cost burden.
The controversy is probably not about the math. It’s about the concept.
OMG. Despite it being spelt out, people still defend tariffs! You can’t fix stupid, quite clearly.
Government and Trump picking winners and losers. Crony capitalism… Wish they would stop.. Let’s start with sugar tariffs, corn subsidies, ethanol mandate.
tedro1 – It’s common place. Everybody did it when they were on the inside. Meetings are a primary source of front running the game when you work for a large manufacturer. As far a government, remember Birdflu/Roche/Tamaflu?
We know this much. Most Chinese companies don’t provide health care benefits to their employees so you have a point.
Btw Think Progress is a liberal news site. They are not very objective or have much common sense when it comes to reporting the news.
Like the Democrats don’t? Give me a break please. I doubt Carl Icahn would be stupid enough to be involved in insider trading. He has to much to lose.
Politics lesson #1. Always reward your supporters: link to thinkprogress.org
Many factors helped cause the Great Depression including a major banking crisis. Many banks failed. A stock market crash didn’t help.
This is usually the case. Will be interesting to see how this plays out.
Shortage means it is a temporary issue. Industry follow the money so businesses will create a supply to match.
providing health insurance .