The question of the day is a tough one. Biden and Trump are in a serious leap frog match over trade wars.
Trump Courts a Global Trade War With a US Privilege Tax
Trump promises a broad 10% tax on everything made abroad, leapfrogging Biden who previously jumped over Trump.
The Wall Street Journal accurately assesses Trump Courts a Global Trade War
“To bring tens of thousands more manufacturing jobs back to South Carolina, I will impose a border tariff on all foreign-made goods,” he said recently in Columbia. “So if they want to sell into our country and if they want to take our jobs by doing that, we’re going to have a tax that’s going to be a ‘privilege’ tax.”
This is worth taking literally and seriously because Mr. Trump meant what he said about tariffs when he ran for President in 2016. He imposed taxes on imports ranging from steel and aluminum to solar panels and washing machines, affecting imports worth hundreds of billions of dollars when the border taxes were implemented.
The trade deficit isn’t a useful measure of economic performance, but Mr. Trump claims it is. In his first year in office, the U.S. imported $517 billion more than it exported in goods and services, according to data from the Census Bureau. That increased to $653 billion in 2020, and this relationship holds after adjusting for inflation. President Biden has continued Mr. Trump’s tariff policies, even as the trade deficit hit a record of $951 billion in 2022.
Trump tariffs aimed at Japan and the European Union have made it harder to rally allies for sensible enforcement when Chinese subsidies, import restrictions or intellectual-property theft bend global trading rules.
The risk for the U.S. economy is that the 2024 ballot won’t have any candidate who understands how trade boosts prosperity, and how trade with allies can make it easier to manage competitors. The Biden Administration has failed to reverse most of the Trump tariffs, and the Inflation Reduction Act came larded with trade-distorting subsidies that are sparking a trade war with the European Union.
By the way, Mr. Trump for years has cited the McKinley tariffs but he appears never to have read what happened after those 1890 charges came into effect. Voters rebelled at the higher prices they were forced to pay, and Republicans were wiped out by free-trading Democrats in the 1890 midterm. Democrats under President Grover Cleveland in 1894 partially reversed the tariffs to dig the U.S. out of a recession.
Free trade isn’t popular in our dirigiste economic era, in part because our political leaders are afraid to defend it. The Trump tariff threat is all too real if he wins in 2024.
Tracking the Economic Impact of U.S. Tariffs and Retaliatory Actions
The Tax Foundation is Tracking the Economic Impact of U.S. Tariffs and Retaliatory Actions
According to the Tax Foundation model, the Trump-Biden tariffs will reduce long-run GDP by 0.21 percent, wages by 0.14 percent, and employment by 166,000 full-time equivalent jobs.
Other countries imposed retaliatory tariffs on U.S. exports, which we estimate will further reduce U.S. GDP by 0.04 percent and eliminate 29,000 full-time equivalent jobs.
Historical evidence shows tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.
2002 Flashback
Please consider Lessons from the 2002 Bush Steel Tariffs
In 2002, the George W. Bush administration placed tariffs on imports of certain steel products in an attempt to protect the domestic U.S. steel industry from foreign dumping. The failure of these tariffs to work as designed and the economic harm they caused provide a foreboding tale of what we should expect to see result from the Trump Administration’s new tariffs on steel and aluminum. A research paper titled “The Unintended Consequences of U.S. Steel Import Tariffs: A Quantification of the Impact During 2002” found that in 2002, more American workers lost their jobs due to higher steel prices than the total number employed by the U.S. steel industry itself.
Trump Tweets “Trade Wars are Good and Easy to Win”
2018 Hoot of the Day
On March 2, 2018 I noted Trump Tweets “Trade Wars are Good and Easy to Win”
An Amusing Word of Thanks
About John Bolton
“The decision to hire Bolton is already paying off. Now Trump can focus solely on starting and winning easily non-kinetic wars.”
Now that’s a real hoot.
Trump’s “Historical Trade Deal” With China Final Results Are a Big Zero
The results of President Trump’s historical trade deal with China are in. Chad P. Bown has the results in a series of Tweets.
For discussion, please see Trump’s “Historical Trade Deal” With China Final Results Are a Big Zero
With that, let’s put a spotlight on Biden.
Biden’s Solar Push Is Destroying the Desert and Releasing Stored Carbon
Biden has big tariffs coupled with huge subsidies to promote EVs.
On May 28, 2023, I noted Biden’s Solar Push Is Destroying the Desert and Releasing Stored Carbon
Biden is so clearly wrong, even the extremely liberal Guardian sees it. But it’s full speed ahead with massive subsidies and tariffs for something counterproductive for the goal.
Electric Vehicles for Everyone?
On July 19, I asked Electric Vehicles for Everyone? If the Dream Was Met, Would it Help the Environment?
My follow-up post was What Do MishTalk Readers Think About “Electric Vehicles for Everyone?”
Math Does Not Add Up
The EV math does not add up in the EU or here. But the Economic and Monetary Union (EMU), better known as the Eurozone, has economic debt brakes and budget rules that make matters more painful for the 20 EMU countries.
In the US, deficits pile up as do the economic impacts of a massive wave of Bidenomic regulations and mandates.
We pretend that deficits don’t matter and mainstream media not only looks the other way, but is in on the act with countless fearmongering stories.
Biden, like Trump, supports tariffs for the goal of bringing jobs back to the US. The difference is Biden also has a clean energy agenda that’s hugely inflationary.
Inflationary Madness Marches On
On August 17, I commented Yet Another Biden Regulation Will Increase Costs and Promote More Inflation
A new Biden regulation that will increase the price of all government projects. Biden, like Trump, is after blue collar union support.
Rooftop Solar Panel Madness
The one place where solar energy might makes sense is roof top solar panels. But even there, we have environmental madness, effectively taxing the hell out of panels with tariffs, making them too expensive to use.
For discussion, please see The Cost of Soup and Solar Panels is About to Increase, Thank President Biden
Not having learned anything from Bush and Trump steel tariffs, Biden is using tariffs hoping to bring soup can manufacturing back to the US.
What Now?
Both parties are happy to continue tariffs.
The trade policies of Trump and Biden are in effect nearly identical and harmful.
Tariff Leapfrog
In this game of tariff leapfrog madness, it’s difficult to say whether Biden or Trump is winning.
All either of them will achieve with tariffs is to increase inflation.
“Super Imperialism” by Michael Hudson should be required reading for anyone eager to comment. (And if it shouldn’t, please let me know why so I abandon my erroneous ways.)
It seems to me that “free trade vs tariffs” separates people in to two groups:
1) Those who want to do better relative to others (in this case countries).
2) Those who want to do better relative to themselves.
When figuring out which group you’re in, it may be necessary to ignore talk like “hollowed out industry” and such. Any change causes some to be unemployed. For a time, anyway. Particular changes are a subject separate from the issue of tariffs and free trade.
On the subject of “change”, people also tend to separate in to two groups. But that’s another story best left to those who are disruptive and those who want stability and predictability in life.
There are two groups of people.
Those that believe there are two groups of people and those that do not.
Sheesh!
.
As a reformed free trader, I have to say that most of the arguments given by economists, corporations and politicians is mostly theoretical and or propaganda. I reformed when I actually worked with China, Korea, Taiwan, Japan, Singapore and many European countries to manufacture products.
Having done several source of supply analysis for large capital investment, the big impact on the decision was tax and duties. The difference between 30 to 35% tax in the US versus 0% tax in Singapore cannot be overcome with better productivity, lower labor cost or lower capital (including automation). Singapore blows China away (except when the product would go to China because of China’s enormous import duties which commonly were 50%). Thus, China’s policy of enormous duties for imported goods defeats Singapore’s zero tax. You have to make in China to sell in China. In Europe due to tax laws, a corporation will set up shop in Switzerland and get the low (I think 3% tax) and actually make the product in Germany (high labor, high capital cost country) or wherever.
Thus, for every objection to addressing acting as a free trader in a non-free trade world, ask yourself how did China or Singapore become manufacturing power houses? Ask yourself why Mexico failed with its low cost labor? Ask yourself why did the pharma companies move to Puerto Rico only to leave Puerto Rico? Ask yourself why corporations will explain that tax policy is critical, but duties are bad bad.
It is not wise to think you will win a game of cards by playing fair with a cheater and it isn’t smart to listen to a kibitzer (observers of the game versus players of the game).
The US should replicate successful policies that have worked around the world. Zero tax on new capital investment for high value manufacturing for 10 to 20 years with the option to extend the tax benefit with significant new capital investment. On duties it should simply have the policy to mirror the policy of the trading partner. If they have truly free trade, we have truly free trade. If they have import duties, we will have matching import duties. There are all kinds of loop holes, but the system doesn’t have to be perfect to eliminate the unfair Chinese practices.
By the way, the US has had import duties on many many items long before Biden and Trump. I think it is odd that now that it is China in focus, it becomes a huge issue.
Great post!
A “tit for tat ” policy comes straight out of game theory. “Generous tit for tat” beats “tit for tat”, though.
Wouldn’t a better question be, which candidates are NOT trade war idiots?
Given many people want to rule the world, every type of warfare is inevitable, and every weapon is expected to be used. Defend yourself if you want to remain free.
A mutual destruction makes no sense. Chi tantrums are going nowhere. A demure Chi might be less threatening to the US, but it might be too late. In the BRICS summit
doll face Chi charmed nobody.
US hollowing Taiwan faces a steep resistance. Taiwan might play both sides Chine and the US.
India has Free Trade Agreements with several ASEAN countries, but India imports
rose and export fell. Modi assess the value of Free Trade Agreements. Selling
rice isn’t good enough. Modi wants to sell computers, weapons and industrial products.
He wants to replace China. To achieve his goals he might raise tariffs.
After the civil war :
1) Republican : Grant 1869/1877, Hays 1877/1881, Garfield 1881/1881 (assassinated)
Arthur 1881/1885. Harrison 1889/1893, McKinley 1897/1901 (assassinated)
2) Democrat : Cleveland 1885/1889 and 1893/1897. The democrat won by suppressing black votes in the south.
3) The republican counter by using the west to buttress their hold on the senate. They
added : Montana, Washington,, North Dakota and South Dakota in 1889. Idaho
and Wyoming in 1890. They also dominated the supreme court.
4) Recessions : June 1890/May 1891 (-)22% under Harrison, Jan 1893/1894 (-)37%
under Cleveland and Dec 1895/June 1987 (-)25% under Cleveland.
5) Under McKinley US surpassed Germany and GB in economic power.
Under Obama and Biden underwater.
If we had a one world government, with a one world currency, with a one world standard of living, virtually all the pharma production would not be in China and India.
Of coarse, the world isn’t just one big happy family and with off the charts global debt, is working on Kondatieff Winter, or the Fourth turning, if one prefers. China and the USA are in conflict and China makes much of our goods. That’s the big elephant in the room.
I grew up in the Midwest and almost no one there saw the benefits of “free trade”. The profits from “free trade” went to the coasts and the social costs were left behind. Now with “free trade” finally seen as the failed policy that it is, we can see a revival of the Heartland where they actually make things and a “rust belt” on the coasts that lived off of the model of exporting our industries to countries and pocketing the fees and profits.
A wonderful dream but it’s not going to happen.
The primary reason everything left was costs were too high (union labor, compliance with environmental regulations, government taxes for social programs). None of that has gone away and if anything it’s gotten worse.
Until costs come down, nothing is coming back.
Those environmental regulations cleaned up the rivers and air. Unfortunately some used that as an excuse to export the pollution elsewhere. We paid dearly for the free trade policy and I am glad that except for a fringe everybody has recognized that it doesn’t work.
The ideal situation is free trade between nations on an equal footing. But when some countries can cut costs by poor environmental controls unsafe work conditions and slave labour then there is a problem. Put an environmental tax on everything imported at an appropriate rate. Means most western nations can export tariff free to the US and other nations will be taxed on a sliding scale based on how good/bad their environment protection is. That will encourage them to get rid of their own Love Canals and whatnot to get lower and lower tariffs.
You forgot to mention the political correctness of exporting countries.
There are no good taxes, environmental or tariff, AKA sales tax.
Maybe the “fools” are those that thought that free trade (non-reciprocal) with countries with low wages (some slave labor), no real environmental rules and nowhere near the cost structure required for operations in the US would be an overall benefit to the US.
It’s created more wealth disparity, rampant consumerism, requirement for most middle class families to have 2 wage earners and the hollowing out of our country.
Ask nearly everyone that you know: “Who pays the Tariffs?”
So far, NO ONE that I know has said, “WE DO!”
The ignorance is DEEP in America.
Much of a tariff is absorbed by the manufacturer. It is a split actually.
Totally agree. The Chinese exporters definitely absorb some if not most of that tariff on a lot of goods.
Again, tariffs don’t work because they’re not high enough and aren’t implemented long enough.
It’s easy for Mish & the WSJ to lambast tariffs & sanctions without actually giving viable alternatives which free trade isn’t. Everyone knows this, especially when dealing with unequal trading partners like the US & China. Even today, the difference in wages paid is staggering.
By and large Germany does extremely well because they manufacture so much of their goods. Japan is the same way. They’re a major creditor nation, so it’s not as financially risky for them to run high deficits, especially when they suppress rates to the negative whenever needed.
Don’t forget to mention the Trump tariffs on Canadian lumber helping fuel house inflation. One little thing these populist morons don’t mention is how are they going to find people to work in these millions of high paying jobs they are supposedly reshoring?
This will only lead to higher prices to domestically produce everything higher interest rates and in the end prove completelyl counterproductive. One thing neither party address’ is how to increase and streamline immigration to bring in people who want to work , pay taxes and become productive citizens. Seal the border an old democrat doctrine but now competely reversed on the subject since Donald liked it. Morons in both parties. God help us.
Manufacturing will be done by automation. There is no need to increase immigration, that only increases aggregate demand. Look at what has happened with hotel room rates. There is simply not enough housing.
There are many things that will still be made by people because the steps are too complex or they don’t make enough to warrant an investment in automation.
1) Counter-intuitively, automation generally increases employment.
2) Tariffs are a simple consumer tax. An approx. guide would be a 10% tariff is close to the same as a 3% sales tax.
3) We have known for approx. 200 years that tariffs are a means to the impoverishment of the importing country: see Ricardo, Bright and Adam Smith.
4) The 1930’s are possibly the best argument against protectionist tariffs, against MAGA nationalism and against socialism, AKA fascism, communism, Marxism, etc. in general. USA is clearly a socialist society already.
“2) Tariffs are a simple consumer tax. An approx. guide would be a 10% tariff is close to the same as a 3% sales tax.”
Providing, of course, that the taxee can shift another 3% to shareholder losses, another 3% to worker wage reductions and a little bit to tax deductions/credits.
If our population doesn’t grown the economy will stagnate. This is the demographic cliff China and Japan are going to face. We need more taxpayers to reduce the massive govt debt we have painted ourselves into the corner to.
Alternatively, we could eliminate a lot of parasitic employment (governments).
You can’t have endless growth forever. At some point you need to stabilise things. Stability is not stagnation.
When you get to 400 million will you stabilise or stagnate? What about 500 or 800 million, will you stabilise or stagnate there? And even if you never want to stop the population growing do you want a country where you have to book ahead and cue up to be crowded 30 deep for an allotted 5 minutes to see Mt Rushmore or the Yellowstone geysers? How about standing room only at the beach? Would you like ti live in a city with over 100 million people? I have an apartment in a city of 25 million that is expected to grow by a million a year for the rest of the century. That is what endless growth is.
“30 deep for an allotted 5 minutes”
Hey, no problem. That’s what VR is made to fix! 🙂
Biden increased those tariffs I believe
Crazy
You reform the education system and stop trying to send any able-bodied person with a brain to college, you moron.
Brain unnecessary.
Can their breath fog a mirror?
FOR GOD SAKES, MISH!!!!
FOR ONCE, GIVE US YOUR TRADE MANIFESTO! I’VE ASKED 5 TIMES ALREADY.
STOP YAMMERING ABOUT HOW TARRIFS ALA TRUMP, BIDEN, OBAMA, BUSH ET AL HARMS AMERICA AND START PUBLISHING SOLUTIONS.
I can tell you this. It’s not freed trade, because on mother earth here, there’s no such thing as free trade.
Try this! Put a 100% tarrif on all iPhones imported into the US from any nation and see how face Apple starts building manufacturing in the US. Granted, it would be highly automated, but it would still create a lot of jobs.
Tariffs don’t work, in general, because they’re not high enough and don’t last long enough when the next administration just ends them.
Aren’t tariffs just consumption taxes on foreign goods? I thought that consumption taxes were better than income taxes. This seemed to work pretty well to establish the US before we switched to an income tax scheme.
If you tax something, you get less of it, so which should we tax? Tax the consumption of foreign goods or American incomes?
If you put 100% tariff on an iPhone all that would happens is consumers would just order directly overseas from the manufacturer or take a trip to Mexico, Canada etc and buy directly there.
Consumers are no longer captives to local markets. You can get anything anywhere in the world these days via a few clicks on a website or a vacation out of the country.
What about a 20% tariff? Would that make it worth buying it on the black market in Mexico? Probably not.
Doug, A 20% tariff on an iPhone is a yes. That’s because its a rare purchase (every couple years) and it’s an expensive one. So 20% of 1000 dollars is 200 bucks. For that kind of savings, you shop around and order from Mexico.
For a 1 dollar item that you frequently buy (many times a year) adding 20 cents via tariff the answer is probably not because you have undergo that hassle many times for a small amount.
I assure you. There’s a means by which the government could collect tariffs from these overseas producers. CBDC comes to mind. And you can get the big banks to report back to the government on who purchases certain goods overseas, like iPhones. And then they can send a tax notice. The banks are already reporting back to the government gun purchases. All it takes is a law.
Hell, the easiest thing of all is to force Apple to report how many iPhones they sell and then tax then directly on those amounts.
There’s all sorts of approaches that can be taken, including increasing corporate taxation.
And no, most people are NOT going to drive or fly to Mexico or Canada to buy a damn iPhone.
Externalities, like China’s cold war need to be taxed…
” One little thing these populist morons don’t mention is how are they going to find people to work in these millions of high paying jobs they are supposedly reshoring?”
You get people off well fair, you moron!
good luck with that ahole
also learn how to spell welfare moron
When governments collect fees on transactions, it’s called taxation. Calling it “tariffs” doesn’t lower the prices we pay. Anyone imposing tariffs is doing financial harm to their constituents.
What’s the difference between tariffs and corporate taxes?
The disguise.
Because there’s not much difference.
Ultimately the consumer pays both.
Just tax the consumer directly and see if it gets their attention.
If I put on my Marxist hat I could add that profits too are a tax on consumers.
True.
But ultimately, all the money collected by governments via taxes and corporations via profits goes to *somebody* (ie it doesn’t vanish into thin air).
So the question is whether one thinks that money is better in private productive hands (corporations) or public unproductive hands (government).
Then the question is not whether taxes, tariffs and profits are ultimately paid by the consumer but how these three be allocated to produce the maximum benefice. If you see taxes and tariffs as illegitimate but profits not then you see that they should be allocated for your personal maximum benefice. Others may see that taxes and tariffs should be allocated for things that produce a public good. The two views are extreme ones and most people see themselves somewhere in the center so politics oscillates between the two poles. In my opinion we should let the pendulum swing but put a buffer so it doesn’t swing too far an break off.
You can decline to buy the corporation’s product. You cannot decline taxation. Marxism is slickly disguised slavery.
That’s why I don’t wear my Marxist hat except at Halloween. Trick or treat!
Is that the hat made with the foil of tin?
You got me. I can’t think of a witty response. I have “l’esprit d’escalier”.
Yes, so are my undies when I stand near the mircowave.
A free trade agreement with Great Britain will be a big benefit for all. The same for Australia, Japan or Korea. They are not big enough to harm US bussiness.
The US Auto industry would like to disagree with you on Japan. Tariffs were put on Japanese autos decades ago to prevent the collapse of the US auto industry. The same goes for the Korean auto industry. Why do you think Biden EV rebates are only going to US built cars and not Japanese / Korean EVs?
That said, free trade is great for consumers and I’m all for it. But you have to be prepared to lose certain industries entirely or find a way to relocate them to where wages can be competitive with foreign wages + shipping costs.
Japanese don’t make EVs. They sell very few that are made by Chinese companies.
Isn’t the Nissan Leaf a full EV that is produced in Japan? Our city has a boatload of them for the city inspectors, etc. Maybe there are other Japanese EV cars marketed in the US that I am unaware of.
Not sure. Along with the Prius, I don’t think they’re still being manufactured. Although you may be able to buy one made in previous years. They’re both obsolete and have no future.
Biden’s EV rebates go cars built in North America, not the United States. A VW built in Mexico can qualify for the full rebate.
As for the Korean EVs, they’re also able to leverage the rebate because ALL leased cars qualify regardless of price or origin under a loophole originally intended for commercial vehicles. Under the rebate program, personal leases are considered commercial and eligible for the full $7,500. Senator Joe Manchin was pissed about this workaround.
The leasing company can decide whether or not they want to pass the credit on to the lessee in the form of lower monthly payments or not — most do.
But they went bankrupt anyway.
On target Mish. We went from a small trade surplus decades ago with Mexico to a deficit of 65 billion today ushered in on a couple of “trade deals”. There are no no deals for Americans. These are deficit creating agreements. And it does not matter who’s the President. Now why is that? I think we all know why but that’s another conversation.
Americans got lower prices.
Along with abandoned towns, lower wage jobs, destruction of the middle class and drugs.
Somebody here 😉 had a post about Danville Illinois ~ 50 years ago to today. They are all over the country,
Y
To match the lower salaries.
One of the big problems with tariffs is they only apply to the US. The countries we apply tariffs to can sell everywhere else. And the companies we protect are stuck only being able to sell in the US. The companies never attempt to be competitive outside the US. This is like what Russia had for decades. No western goods. Only Russian made goods.
Which Russian made goods?
Oh, you means those three over there?
China must really have an issue since it has the highest tariffs of any larger economy. It is hard to figure out what Japan’s tariffs are because they use a variety of procedural methods to increase the cost of imported finished goods.
Weird how if the US uses any tax or tariff it is terrible, but China is never used as an example of the terrible consequences of anti-free trade policies.
China’s policies are counterproductive as well.
It’s export mercantilism as a means of growth led to savings fueling a property bubble that just imploded.
No one benefits from these trade wars.
China Exports and Imports Collapse, Harbinger of the Global Economy?
https://mishtalk.com/economics/china-exports-and-imports-collapse-harbinger-of-the-global-economy/
Purchasing Power Parity Silliness and the Myth China Passed the US in GDP
https://mishtalk.com/economics/purchasing-power-parity-silliness-and-the-myth-china-passed-the-us-in-gdp/
All of these things are related to counterproductive trade wars
Yes and when the Russian economy opened up on 1990s their industry all shutdown as could not compete.
Higher asset prices are the result because the balance of payments is balanced by foreigners acquiring net holdings of our equities, bonds, and real estate, and capital outflows (interest, dividends, rentals, etc.)
“Question of the Day: Is Trump or Biden the Bigger Trade War Fool?”
Yes.
But the real fools are the people that vote for these people hoping to be “saved” from themselves. It ain’t gonna happen. No one is going to save you, it’s time to save yourself.
Losers require a savior. It’s why they’re losers.
The cost of utility scale solar is 40-50% less than rooftop. But I guess you are concerned with the environmental impact of solar farms?
He’s fixated on solar panels destroying plants. Every solar farm I’ve seen has lots of weeds growing under the panels. If anything, the panels increase plant life in hot sunny environments by providing shade.
Not all plants are the same. Some store vastly more amounts of carbon than others do.
Also, most plants prefer sunlight not shade. What happens when you get panels blocking the ground is you change from sun loving plants to shade loving plants so the panels are not increasing plant life.
You grow mushrooms under them.
Trees hold the most carbon, but trees aren’t being cut down for solar farms. Solar farms are mostly put in arid places.
In arid regions shaded ground holds moisture for longer periods of time thus increasing plant growth. And many sunny plants do well with strong indirect sunlight. If you look at areas with the most plant growth, it’s usually at the edge of forested areas because the soil holds more moisture and there’s a lot of sun, both direct and indirect.
Nothing can grow in thick forests except trees. A good burn promotes wildlife to come back. On top of it when they burn all that carbon goes back into the atmosphere sooner or later so planting trees and preventing fires is acting like Don Quixote. Evidently you have to avoid doing stupid things like in Maui but other than that don’t expect planting trees will change anything whatsoever.
Trees also create shade, and perspire water from the stabilized aquifer of a forest.
Bezo and Waltons etc etc etc wouldn’t be where they are today without China.
Didn’t Sam Walton have some sort of ‘Buy American’ policy in the 1980s?