This ridiculous-looking question gets to the heart of tariff discussions.
A Lose-Lose Proposition
In response to my article Trump’s Proposed Tariffs Are a Tax on Consumers, Primarily the Poor I received sever reader comments that are worth discussing.
One of my readers commented: “So its ok for other countries to put tariffs on us, but not ok for us to put tariffs on them? Got it.”
For starters I never proposed I agreed with tariffs other countries place on the US. So right off the bat it’s a silly comment.
Moreover, the logic translates to “But mom, Susie did it too.”
To which my mom would reply: “If Susie jumped off a bridge, would you do it too?”
The fact is, China’s export subsidies are a direct benefit to US consumers at the expense of Chinese consumers.
Chinese taxpayers are subsidizing US consumers and we complain. Trump and Biden effectively say “I insist we pay more.”
It’s like candlemakers trying to tax the sun for the free sunlight it provides.
If China wanted to give us free solar panels, the correct response would be, please send us more. We would create thousands of jobs installing solar panels everywhere.
Instead, Biden hiked tariffs to protect US solar panel production, costs soared, and three US companies went bankrupt. And few want US-made solar panels because they cost too much.
Negotiating Tactic
Reader Serge Replies On X.
Your article is right in individual points but possibly wrong and it’s conclusion. The question is not whether tariffs are inflationary and whether they affect the poor more than the rich. The question is what is the alternative and how is that affecting inflation more.
The Democrat solution to this is to raise taxes on everybody. Supposedly on the wealthy but the wealthy always escaped these taxes through their different trust funds outride bribe of officials and all kinds of other machinations. History proves this. Even at a time when taxes were at 90% on the highest income levels actual tax collections were largely unchanged from today. [Mish Inline Comment: Taxes have nothing to do with this other than the ridiculous idea we can reduce the deficit by tariffs. More on this below.]
“Trump will increase tariffs on, steel, aluminum, cars, toys, clothes, food, literally everything on the asinine assumption it will create jobs here.”
It is not asinine in fact in many areas many of these products are created using industrial robots even in China. [This is an interesting comment because if the jobs are going to robots, then how will the jobs return here?]
It is true that a tax on steel affects the ability of American companies that use steel-based products to compete with foreign producers by increasing their cost to production. However it’s also true that many of those foreign countries have very high taxes against for example American automobiles. In Columbia a country I’m familiar with the tax is 100%. In Europe it’s significant but I’m not sure of the actual percentage amount. So asking for fair and equitable tariff treatment is simply smart. You are being disingenuous if you say that creating factories to produce clothes or anything else will not create American jobs. [Actually, it’s a proven fact.]
If an American factory worker makes 20 to $30 an hour and even higher as opposed to that same job being done for $5 a day in Bangladesh impacts the average American worker far more than a 10 to 20% increase in the price of clothing. [Totally agree. This is why bringing those jobs back to the US will increase prices.]
So a permanent tariff of 60% on all goods in the united states? Is that a good idea? Hell no. But as a negotiating position from which to reduce trade restrictions at other come countries impose on the US? Very effective.[Really? Where’s the evidence?]
Free trade works fine when there is free movements of goods and services. That is not the world of today. [Ah yes, the perpetual free trade vs fair trade silliness].
The Art of the Failed Deal
Serge and others presume to know what Trump is doing or why. I have no idea because he throws random BS out there like Mexico will build the wall and trade wars are easy to win.
However, we can say that Trump won zero trade wars in 4 years. None. Europe changed nothing and China kept no promises. So, as a negotiating tactic, how is Trump doing?
Trump-China Five-Point Synopsis
- Trump raised tariffs on China. China went to Brazil for soybeans and corn instead of the US.
- Trump bailed out farmers for their losses with taxpayer-funded subsidies.
- US consumers paid more for imports and bailed out US farmers too.
- Not a single job returned to the US.
- Trump declared a massive trade war victory.
Now, let’s discuss the revenue side.
Which of These Is True?
- Tariffs will increase revenue
- Tariffs will increase US jobs
- Neither
- Both
Revenue vs Made-in-America Jobs
If we raise revenue via tariffs, then we are still buying foreign-made goods. Made-in-America doesn’t happen, nor is there an increase in US jobs.
If we bring the manufacturing home, mostly to robots, then where are the jobs and where is the revenue?
Import Analysis and Absurd Beliefs
In 2023, the total value of imports of goods and services to the United States was $3.8 trillion.
The US fiscal deficit was $1.7 trillion in 2023.
To eliminate the deficit, counting trillions of dollars worth of Trump handouts like no tax on tips, no tax on overtime, no tax on Social Security, more military spending, and a return of State and Local Income Tax Reductions (SALT), Trump would need to collect in tariffs at least $3.8 trillion.
So, are we going to collect $3.8 trillion in tariffs on a total of $3.8 trillion in imports? $1.7 trillion? $0.7 trillion? $0.2 trillion? At what cost?
This is why it’s absurd to believe Trump can pay for his agenda with increasing tariffs.
Yet, Trump says he will simultaneously cut taxes, raise tariffs, increase jobs, and increase exports.
Tax the Sun!
Please consider Another Green Energy Company Declares Bankruptcy, Thank Biden’s Tariffs
Conflicting goals often leads to the worst of both outcomes. That’s what’s happening with solar panels and EVs.
Biden and Trump have the same plan on Tariffs but Trump wants to quadruple down.
Is Underwear Strategic?
That laughable question strikes at the heart of Trump’s put tariffs on everything silliness.
No one should care if underwear, shoes, furniture or nonessential items are made in the US. All production here will do is raise costs far more than the benefit of jobs produced.
So, instead of worrying about where we get underwear, toys, and furniture, we ought to be worried about where we get strategic minerals.
Minerals US Needs for Weapons and Technology
Please note China’s Puts Export Curbs on Minerals US Needs for Weapons and Technology
In a warning shot to the Trump administration, China tightens export controls on some dual-use minerals.
China produces an astonishing ~70% of the world’s rare earth minerals and controls nearly 50% of the global antimony supply [Used in communication equipment, night vision goggles, explosives, ammunition, nuclear weapons, submarines, warships, optics, laser sighting and more].
China controls about 90% of global rare earth processing on minerals mined elsewhere.
Trump’s worry over underwear (imports in general), is likely to resort in a shutdown of the imports we strategically need.
The best we can hope for is Trump is bluffing because trade wars are neither good, nor easy to win.
The only folks that would care about the price of underwear are those making less than $250,000 annually. And those in the underwear supply chain.
There are no laws that prevent any of us from opening up an underwear factory in the United States, instead of going on message boards 5x a day to ask why nobody is making underwear in the United States. Or anything else.
And the reason why is that it’s impossible to open a factory of any kind, let alone a mine. The lawyers and the Indian tribes and the environmentalists and the labor unions and the government bureaucrats will all line up to line their own pockets first, and make you want to kill yourself for trying.
JEPA LLM red Mish. AI identified fears, emotions and pain. Once AI realized who u are Lara Trump flooded u with massages to fulfill your needs. Trump supporters who feared rent inflation and econ distress got soothing massages and solution to reduce their pain. Those who hate Woke – mainly old voters in rural areas who felt abandoned and isolated, who were totally disgusted with Woke – got different massages. JEPA knew it all. JEPA knew if u are Trump supporter or undecided. It analyzed the strength of your emotions and pain. If u are social or not. If u will never change your mind or will. If logic convince u or strong emotional reasonings..That’s how Trump won.
Seems the key issue is whether 1) China should be viewed as a hostile power and 2) if so, would a U.S. tariff regime significantly undermine China’s economy?
As for the rest, if tariffs increase U.S. domestic manufacturing, the shifting around of cost and benefit would occur within the U.S. Absent monetary accommodation, talking about this as inflationary is nonsense.
The US being one of China’s most important export markets is actually a huge incentive for it to act responsibly, say as in not invading Taiwan for fear of losing the U.S. as a key export destination. Tariffs singling out China undermine this concept.
We already have very low unemployment in this country. If we tariffed the heck out of underwear and shifted production here, who will make it without demanding very high wages to slave over sewing machines (given the already constrained supply of labor)? Anyway, you can bet your bottom dollar that shifting production to the US will result in inflation.
Trump’s economic “plan” is ridiculous nonsense. It’s nothing but populist demagoguery.
In short, the market for underwear is elastic.
I thought inflation was a monetary phenomena. How can tariffs lead to inflation if there is no increase in the supply of money and credit to support a price increase?
I also remember many Libertarians arguing against the income tax by pointing out how the US government was funded almost entirely by tariffs until 1913.
Looks like one Libertarian axiom is in conflict with another.
I never hear an acknowledgement of this let alone a resolution.
Tariff don’t cause inflation. Tariffs suck gov printed money that cause inflation.
Well, I dont know the details but I bet the govt didnt massively overspend pre 1913 like they have done in recent decades. Real Libertarian policy is for balancing the budget and paying down the debt, so tarrifs might provide substantial revenue *if* we cut our wasteful spending. And yes, currently the money supply is decreasing but thats only been happening for a few years after huge increases over decades, and tptb have a very bad habit of reverting back to debasement, which the voters should be watching for, to vote the Republicans and Democrats out of office if they start that destructive money printing again.
SF higher wages will spread to other sector in the flyover areas and smaller cities across the nation. Income from tariffs and taxes will fill the gov coffer. The globalists will trust the US dollar. The new globalists will quenching in US treasuries. They will send the long duration under the CPI. The ratio : interest payments divided by [tax collections and income from tariffs] will drop sharply. Trump/Vance will have to reject congress pet projects. If they cont to misbehave they might impose an extended recess.
Why is there never any unemployment, currency depreciation, mass migration or trade deficits in David Riccardo’s examples defending free trade?
“If we bring the manufacturing home, mostly to robots, then where are the jobs and where is the revenue?”
That seems a little bit disingenuous.
First of all, as US manufactures automate their workforce, costs and prices will come down, and significantly so as automation becomes better and cheaper. If a robotic workforce is the future, we want it to be our workforce, not China’s. Tariffs can speed up and give the US a leg-up in the race to automation.
Secondly, even if prices only drop a little (and not immediately), not funding our biggest rival on the world stage will be worth the effort.
China will have a monopoly on robot production in 3 years, and already has a monopoly on the supply chain to build them. They, too, believe that a robotic workforce is the future, and their robots will be building everything that their human workforce is now.
Supply chain is everything, and we don’t have one.
If Globalization is the be all and end all of economic wonderment then why are there so many people unable to get their financial lives going? So much so it has lead to the populist movement sweeping the US and across the rest of world.
Could it be that taking money out of one economy and transferring it across the globe to another does something which slows the first countries economic growth. That something being velocity of money gets wrecked by Globalization.
Why if Globalization is so terrific have so much wealth transferred into so few hands?
Just observe the results of what has happened under the Globalist regime. It is not pretty for anyone.
Making economic arguments without looking at the results of this decades long project known as globalization is pointless.
Woke up this morning thinking, Do I even need to wear underwear?
At night, in the dark, no one cares.
Buy Russian!
The era of global destabilization is underway. The era of conflict is coming, which means more and more countries will buy weapons. It is already clear that the real hit on this market is Russian weapons, which have the best price-quality ratio in the world.https://maratkhairullin.substack.com/p/russian-weapons-are-a-hit-seller?utm_source=post-email-title&publication_id=2099482&post_id=152048378&utm_campaign=email-post-title&isFreemail=true&r=bzs8&triedRedirect=true&utm_medium=email
The folks employed making underwear in the US as well as those who sell products and services to these folks certainly care.
But not the hundreds of millions of people who buy underwear.
They should care if the money they spend on underwear goes to build roads and fund schools in China or America.
Because the last 25 yrs or so of diverting that money away from American cities and towns and into China has definitely NOT worked in America’s favor.
The sales taxes that fund Usonian roads and schools are applied no matter where the good was made.
So you’re just going to pretend that the Sales Tax is the only tax collected in these American cities and towns?
The workers would pay income taxes to their state and maybe their city.
The factory would pay property taxes.
The delis and diners and restaurants that sell breakfast and lunch to these workers also pay income and property taxes (either directly or thru their rent) Their workers pay income taxes. They collect sales taxes.
Their stores are supplied by route drivers (Coke, Pepsi, Frito Lays, Boars Head, etc) who also pay income taxes.
Outsourcing decimated these cities and towns and decimated the country’s social fabric and it’s budgets from the feds on down.
But you’re forgetting the people who make the socks, tee-shorts, pants, dresses, shoes, etc.
Where are those people? Across the border, ready to cross the river.
BYD conquered Germany. VW op margin is down to 9 millions Euros. VW will shut 3 out of its 10 plants in Germany. During Angela Merkel VW transferred knowledge to China. Between 2015 and 2020 VW conquer the Chinese market. Q3 2024 results : BYD, Neo and Geely produces EV better and cheaper than VW. Last year the German gov cut EV subsidies. The unions demand a 7% hike, management and dividends cuts. Made in China conquered Germany. Muslim and African immigrants conquered EuroArabia, The EU will raise tariffs on Chinese cars to protect 800,000 highly skilled German workers and the automobile industry, the most important in Europe. The wind, the sun and the green trashed the Euro. The pair : EURUSD is down to 1.04. It’s a currency genocide.
In the EU only 20% of underwear comes from countries outside the union. They have some fairly draconian restrictions due to what chemicals are present in the material that make it more difficult for other countries to export underwear to the EU. They also put other barriers up like ethical concerns to limit importations. Now as far as I know Europeans haven’t been complaining about the price of underwear. The price of food, gas and of course taxes are complained about but never underwear or clothes in general. If Europeans can make their own underwear, so can Americans.
If the Fed cuts rate it will ease gov payments. Germany already did since Feb 2024, All Germans rates from 10Y and up are higher than the German 2Y. The German yield curve have been normalized. Gravity with Germany pulls the US long duration down. The spread between US3M and DET 3M is 2%. That’s too high. Lower T-bills rates, lower income for the rich ==> lower spending by the rich ==> lower GDP. If we produce a little more here : rare earth minerals, pharma, high grade steel, airplanes, ships, missiles shoes and underwear – not everything – our trade deficit will shrink. Lower trade deficit, higher GDP. Demand for highly skilled workers is high. In a dynamic successful economy all income brackets will be moving higher. Gov income from tariffs and taxes will rise ==> the $36T debt might be cut by a 1/3 within a few years.
The people in the United States who could have jobs making the underwear here probably care,
Yes all 8,000 of them
300 million people who need underwear pay double for it
Interview Uncle Buffy in his Fruit Of The Loom underwear while he’s having a Dairy Queen hamburger, Mrs Sees candy and Coke at the next Berkshire stockholders meeting. Not enough fun there since Grandpa Charlie moved on.
But it’s not just the underwear
You say that like American made underwear is a bad thing! Seriously if it costs too much but perhaps better made some will buy it while others will go with the outsourced brands of lesser cost and perhaps lesser quality.
But not those hundreds of millions of people who buy underwear.
What about those that go commando?
They should fear undergarment workers with pitchforks.
Both your comments and the readers comments are pointless and missing some important points, like what is (are) the real problem(s).
First, “tit for tat” is obviously silly and tariffs are bad for everybody, when (relatively) free alternative markets exist, which is especially true in commodities, the example you use. Move away from commodities, and your simple example gets much more complex. Nonetheless, free markets are the best for everyone, but China is certainly not a free market, nor is it playing by anything resembling “free market rules and the rule of law. If “Sally got rich off selling goods to build a bridge, wouldn’t you want the same, unhindered, right to do so too?” Your example of “Sally jumping off the bridge” does not tell us who Sally is? Is Sally the US for letting goods in freely, or China because, at some point, they are going to be Sally… off the bridge?
Second, free markets are increasingly rare, even in America, the government has grown so large that everything is regulated. Why does someone need a license to do hair or nails? Around 22.4% of people have a required license from the government, with another 3% privately (Google AI). So, instead of complaining about tariffs, complain about why Trump thinks we need tariffs (without discussing his intellect!). Everyone believes (or knows) China does not play fair. Wasn’t the same said 40-60 years ago about Japan? Look at Japan today (and try not to laugh).
Third, China looks likely headed to the same fate as Japan, and the cracks in the real estate market appear to already be showing. China’s one child policy is really coming back to hurt them. People say China is our biggest threat? “LOL.” Militarily, that would be Russia. Economically, that will eventually be India, where there is more of a free market as well as the rule of law (China and Russia have neither). With our government spending, I expected inflation to come sooner but it came later. We exported our inflation to China due to trade. It is good that inflation was so long in coming back, but it was bad because it’s like treating the symptoms rather than the disease.
Forth, the disease is government spending. The reader discussing that high marginal tax rates of 90% was onto something. The 90% rate in the early 60s was when JFK cut taxes. After WW2, when the economy normalized after the creation of the income tax and the FED (1913), the Great Depression and WW2, government revenue to GDP has generally fluctuated around 18%, plus or minus 1-2%. Spending did the same, until Reagan made a deal with Tip O’neal with Reagan agreeing to tax cuts while Tip agreed to future spending cuts at a rate of three times the tax cuts. Those future spending cuts never came and the US started running a constant deficit, with spending soaring into the middle 20%s of GDP with all the Covid spending (but note that Covid and restrictions severely depressed GDP). It appears that post Reagan is when the Republicans became RINOs and the only argument with the Democrats was who was going to control the spending. Everyone forgot to try reduce that spending. In the early 1960s, Everett Dickerson, a conservative Senator from Illinois apparently is the one who said “A million here, a million there, and soon we’re talking real money.” These days people say it was “A billion here…” but that is an impact of inflation. Would anyone care to guess how fast the government spends a million dollars these says? It takes about 5 seconds. Yes, that’s seconds, not minutes. And that is only the Federal government, not state and local, which have both grown faster than the FED government in recent decades. No matter how much we “tax the millionaires and billionaires,” even they cannot afford $1 million every 5 seconds.
Fifth, who cares what tariffs do to the bottom? I sound callus, but I say this with the realization that the recent inflation, and likely inflation to come, has a much more significant detrimental impact on the poor (and I’ll ignore that Shadowstats calculates an inflation rate about double the govt stats). Mish, you talk about a 5-6% increase in tax change as a share of income for, call it the bottom 50%. Did I miss where you mention that the bottom 50%, on average, pay NO income taxes but instead get “entitlements” by filing tax returns, called the Earned Income Credit (if they earn) and the Child Tax Credits (partial even if they do not work). I had a low-income, prolific mom walk out of our tax office expecting an $18,000 refund in 2018. We have incentivized NOT working. The most recent study of a “basic income” test reached a primary conclusion that what lower income groups do with this extra income is that they primarily increase their leisure time. I’m laughing trying to figure out, if you don’t work, how do you increase your leisure time?
Six (and 5b), everyone is talking about income and wealth inequality, even you indirectly, and y’all get it wrong in my opinion. There is inequality, if that is what you want to call it, don’t get me wrong. The Tax Foundation analyses the numbers and the top 1% has an average 25.9% tax rate, not this BS about Warren paying less that his secretary. While that specific “meme” may be true, if so, is due to his wealth being from capital gains and not dividends or salary, but taxing unrealized gains would be a disaster and makes no sense whatsoever. It only makes sense to DEMs (and their minions) who need more tax revenue to maintain their outrageous spending. The ta foundation calculates that this top 1% pays 45.8% of all income taxes. Talk about inequality if you want, but be sure to talk about this inequality of the top 1% paying about half of all income taxes! This is while the bottom 50% pay NO income taxes. Rather, they get refunds. The BS about Warren is only that, a meme-like BS comment that is only used for ignorant, useful idiots, which, sadly, are numerous. It is a misrepresentation of the facts, a known fallacy of logic of taking a single example and trying to say (or infer) it applies to the whole sample size. By and far, most of the top 1% pay a lot in income taxes. “If you don’t eat part of your kids ice cream,” how are they going to understand taxes? Nonetheless, this focus on inequality, especially and specifically on wealth inequality is shortsighted. Finance 101 teaches the inverse nature of interest rates and asset prices. When interest rates are high, asset values are low, and vice versa. Interest rate cycles are very long term. The last peak was in 1981, and the last low was in the 1920s. Remember the history of “The Roaring Twenties?” Ever see the movie “My Man Godfrey?” The last time the wealth inequality was wide, like now, was, surprise, surprise, the “Roaring 20s.” Inequality was near lows in 1980, but much of our data about inequality begins around then. People are trying to pass you a one-sided coin, discussing only the trends in equality from 1980, or, in other words, trends when the only trend was increasing inequality. Again, for the useful idiots. And who is most to blame for the inequality today? For “real” inequality, blame the FED. The interest rate cycle likely should have turned up after the Tech Bubble crashed, which is a sign that capital had lost control and it was time for rates to start rising. Instead, the FED held rates too low for too long and created a real estate bubble. And another inequality people do not talk about is that the Tech Bust affected about 20% of the population, with about 15% employed in the tech sector and the other 5% being the upper middle class who thought they were great investors, until they lost most or all of it in the crash. And this 5% was mostly today’s enemy, old rich white men. Rest assured, when the “Everything Bubbles” crashes, I am sure old rich white men will suffer greatly (but so will everyone else). When the FED created Real Estate Bubble, people living in owner-owned households was in the low 60s% of the population, and the bubble to this percent to the upper 60s%. Most people wealth accumulation and concentration is through home equity. When the Real Estate Bust happened, it seriously impacted almost 70% of the population (with over-lap) because 5% of the population worked in construction related industries. So, the free-market tech bubble, driven by a “real” economic boom of the internet, impacted 20%, but the “fake” FED created RE boom impacted over 70%, devastating most. What is equal about that?
Sixth, in talking about inequality, people talk about the minimum wage and “a living wage” as if the problem is “businessmen exploiting workers” (said with a Marxist accent). The power of Labor versus Capital is also reflected in the nature of the long cycle of interest rates. As interest rates rise, Capital loses value (because capital produces income and assets, and rising interest rates diminish that value: Fin 101). So, as interest rates rise, Labor gains value, but near the end, since rising interest rates are typically accompanied by rising inflation, labor can lose all or much of the gain it saw during the rising interest rate cycle. Again, interest rates peaked in around 1980, so Labor power was at it’s peak, especially when you look at stats like real median wages and income, etc. As a side note, to “WIP” inflation (LOL), Reagan confronted the Labor at their peak, and fired all the striking airline traffic controllers. The importance of this turning pint cannot be underestimated. Capital began its cycle of increasing power as rates declined in the 1980s. And at the end of that cycle (the Tech Bust), there was so much malinvestment that capital got severely burned. So, again, who has been the biggest impediment to the beginning risk of Labor power? The FED, of course; they’re trying to delay the cycle of rising interest rates (when labor gains power). If you just look at some of the recent Labor contract agreements, well, it certainly is not a free market, while it is also a sign of the beginning of the rise of the power of labor. AI fear of job losses? Same as the fear at the prior century’s turn, when horse breeders, trainers, and buggy whip makers all lost their livelihoods, whereas a significant multitude of people gained employment in the new technology of auto and manufacturing jobs. Labor will return to power and it is obvious it is beginning. It is just the nature of things that people are screaming the loudest at turning points because they are too ignorant to realize the turning is occurring. And too ignorant to understand the FED is currently labor’s enemy.
Seventh, our whole system of taxation gets it wrong. We tax productive capital AND labor. We need the capital to finance innovation, to produce goods and services, and grow them, which also produces jobs. Note, labor is also a productive activity, and we tax it. The one thing tariffs get right, indirectly, is to tax spending, which is not truly a productive activity. Is there any way we can tax government, for it certainly has become the most unproductive activity of all?
Finally, to the relief of all I am sure, I’ll just call this my last point. I said government is the disease. Treating this disease is certainly a necessary goal. We need this disease to go into remission, to return to our roots of truly free markets. Nonetheless, just treating the disease is not enough. We must understand what causes the disease. The left blames free markets and capitalism, and has been even blamed democracy. In Europe, German and France are actively trying to outlaw the conservative parties, which are on the ascent, winning elections, before the coming elections. The UK is in a socialist fantasy like none other, releasing criminals to make room for people using social media to critisize the government and/or leftist policie. It is beyond 1984! The left in America have called Trump Hitler, which is ironic, because all these socialists and other political parties are ganging up on the conservative parties, becoming Hitler-like fascists themselves. How can people fail to see this? America was leading this movement, well, the left side was, basically through lawfare and smear tactics. America’s left decided to use memes and sound bites and take these into the courts. It did not work. The court of public opinion has spoken. America may not be totally populated with useful idiots. America’s “intelligentsia” has failed, something I never expected, even being a Schumpeter disciple. And now, if we get everyone to understand Schumpeter, we’ll discover the cause of the disease. Long story short, when Keynes was debating Mises about the future of economic policy during the Great Depression, people wanted answers. Schumpeter, a disciple of Mises, was well known in his belief that the questions were more important than the answers. In the Great Depression, people wanted answers, so they chose Keynesianism. Keynes “promised” the economy could be controlled, with the standard analogy of driving a car. When the car slowed down, the government (and the FED) were to step on the gas. Conversely, when the car started going too fast, the government (and the FED) was to tap the brakes. During the Tech Bubble, Greenspan, formerly a hard-money guy like the Mises group (and like many prior FED chairmen before they became FED members), who converted to Keynesianism upon joining the FED (again, like all FED chairmen do), tried stepping on the brakes. The almost immediate result was a mini-stock market crash, so Greenspan floored it again and said he could not control the economy. Ultimately, he was proven right when the economy crashed, along with the stock market. So, the cause of our “disease” is that everyone, as Nixon remarked, is a Keynesian now. And as for politicians, I promised I won’t get started, because that could be an even longer discussion; however, what politician do you know who actually wanted to step on the brakes? Most recently, Newt, of course, but like most politicians, he could not keep his “Johnson” in his pants. Reagan, maybe, be he let Tip drive the car. Before that, Eisenhower warned us of the military-industrial complex, but only in his farewell speech. And while Eisenhower believed in free markets, he continued the New Deal policies and expanded Social Security, and as a general, was likely more concerned with containing communism than he was about advocating for and maintaining a free economy. Silent Cal was one of the greatest, but that was 100 years ago. No modern politician wants to step on the brakes, even Trump. Trump wants to cut regulations and the size and reach of government, so I give him a little credit, but on the other hand, he’s a real estate man. RE people LOVE debt, and asked about the debt on 60 minutes years ago, he said (paraphrasing) “Why should I care. I won’t be around when it becomes a problem. I’m sorry President Trump, $1 million every 5 seconds? You’re a useful idiot because that is a problem. So, the cause of the disease America, and most the world, is facing, is “We’re all Keynesians now.” And the intelligentsia among us, they are outright socialists and fascists. To defeat our disease, we must defeat and remove Keynesian economics, and the replacement is Mises’ Austrian economics. Trump’s tariffs are not a wonderful idea, but he is onto the root of the problem even if he does not understand it. So, give Trump his tariffs because he will be useful, even if he is, well, you know.
That’s a lecture. I don’t read any comment longer than 4 inches.
When I attempt to educate, admittedly, I can come off as angry or lecturing. I just get so frustrated that: Schumpeter was correct that the wealth generated by a capitalistic society would create socialists (“intelligentsia”), and since economics is “the dismal science,” hardly anyone understands the dynamics of the debate between Keynes and Mises/Hayek in the early 1900s and how the result lead us down the wrong road. Thankfully for me, Forbes had a great cover story on Schumpeter (I though around 1975 but maybe the early 1980s), which inspired me to learn more (sadly, Forbes has become another liberal rag). Here’s a great discussion, but it is much longer then “4 inches” = https://www.forbes.com/2007/10/10/schumpeter-keynes-economics-biz-cz_pd_1011schumpeter.html In short, the US has abandoned the principles that made “it great” in the first place. Regardless, you can check my statements, which are based on facts.
Very interesting read, with many points to sort through. What I did like, is that as I was reading and comprehending, I was gathering thoughts/questions and then slowly as I went along, many were getting answered. I must read it again to digest it all.
Thanks for your time and efforts, on a provocative post!
Thank you. Here’s a great article that I am now rereading… https://www.forbes.com/2007/10/10/schumpeter-keynes-economics-biz-cz_pd_1011schumpeter.html
I agree with you about Trump and his tariffs. I also agree with you about Coolidge, he had faith in his principles when it came to economics. Hoover did not have the courage to stick with his,
Balancing the budget and paying down debt with big spending cuts is whats needed. Trying to save the overvalued stock market is socialism. Vote out any Republican and Democrat money printing debt mongers. Get rid of the federal reserve and their dollar debasing interest rate manipulation.
Tariffs are bad for the supply chains. Most of the production supply chains we have now were caused by Big Corporate greed. Example is Automotive sector. All Auto OEM’s lined up to get into the China auto market. The bulk of the auto parts were transferred to China in order to sell vechicles in China. Like it or not but most vechicles produce in the USA use a very large content of parts made in China. Due to quality standards imposed by the OEM’s it is very difficult to change supply chains. Changing just one component in an autopart causes thousands of hours of paper work and testing to valid parts made at a different location. This all takes time and money. Kaos to pursue. Agents of Kaos at work.
It is my sincere hope that Trump follows through with his tariff plan. Then, instead of wasting all this time arguing about whether it will work, we can see the results for ourselves over the next four years.
60% on all Chinese goods 10% on goods from everywhere else.
And eliminate taxes on SS, overtime, tips etc.
Then we can see if tariffs and tax cuts will bring in the revenue as promised, and create the jobs. What a great real world experiment!
I am looking forward to the new Golden Age!
In addition Mish, I am wondering what your take is on China issuing USD-denominated sovereign bonds in Saudi Arabia. Potentially a big story; or maybe it’s nothing.
Also; The newest LNG facilities are coming online and allowing the US to export a lot more LNG. And there’s a lot of new facilities in the works which will allow us to double our LNG exports from 14bcf to 28bcf per day. That will help our trade numbers.
The 60% tariffs are subjected to negotiations with China. It’s a starting point for a trade deal. Higher CL is bad for China, but momentum might takedown CL, before taking off.
I am eager to see if they work or not too. I was also wondering why China floated USD bonds also. It doesn’t seem to make sense.
He’ll focus on revenge. The rest is BS for the rubes.
No tarrifs on foreign services and products work, until the rest of the world figures out the US produces nothing but debt
A 1929 event is our last real hope, but the country could not withstand the civil unrest.
2008 was our last chance to produce underwear in the US.
Hopelessly, we have no hope of being the leading producer of underwear ever again.
That’ll be a shame if the SHTF, because everyone’s going to need and extra pair or two!
McConnell is all over this underwear – tariff thing:
https://m.youtube.com/watch?v=MLcYAy3xOJk
Hopefully he’ll soon be caucusing with Feinstein.
McCain is welcoming him down.
“Don’t worry Mitch, it’s a dry heat!”
I like the tariffs. China makes too much junk and people buy too much of it. Things need to be made more modular, easy to repair and cost effective to repair.
The system we have is an environmental disaster, mainly for China but also for us. It should not cost 75% of the cost of a new item to replace one part. It should also not be made damn near impossible to take apart either. I don’t know if tariffs will fix some of that but it seems like it would eventually if businesses here want to make money.
Pray, tell, how tariffs lead to the modularization and repeatability of products.
That is a design problem and why would any company want you to be able to fix their product when what they really want is for you to buy another? Does the term “Planned Obsolescence” ring a bell?
So, the question is really whether this is inflationary.
We know the answer to whether any of the tarifs are going to bring jobs back to America. No, it is too expensive to produce here regardless.
So… if we impose tarifs on China on … underwear.
It gets more expensive. US consumer (Walmart including, because they care about sales volumes) says… Too much.
Option 1: buy from another provider (e.g. Equador) for the same price [Equador is a sample name, but Equador would love to step in, instead of China). Consumer spends the same money, no effect on economy.
Option 2: buy from US producer. Consumer spends more money on underwear, spends less money elsewhere – deflationary
Option 3: consumer does not buy at all. Walmart sales drop – deflationary
The only places where it is going to be felt are areas where demand (US economy demand) cannot be fulfilled elsewhere for the same amount of $$. E.g. steel? But then again, China is the largest steel producer, seconded by Japan and US. So… We go Japan? They would love us, as it would boost their economy..
Thoughts, comments?
Stop with that madness about how complex the world is! The Donald and his disciples like the world simple… and yuge!
Mish : The Covid mess proved that most our medical supplies moved to CCP China as we experience shortages and crappy products. Afterwards our Congress held hearings about this and concluded we need to manufacturer here in the USA. Its my understanding Trumps whole purpose is to get our nation back into manufacturing by building plants here , so the tariff is more of a economic weapon to entice activity in USA. I believe in fair trade not free trade , with that said since the early 1990s we have made all these trade deals at the expense of our people (expendable). The only people that benefited are elite politicians , lobbyists , Sam Walton Walmart , and CCP China. Prior to WWII my grandfather told me that just like China most products were from Germany , Japan. So, I guess another war will be with China !
I propose an outright ban on all Chinese electronics. One electronics board manufacturer I had build a board to told me about another client who ordered components directly from China. None of the boards worked. The manufacturer put one of the boards under an X-ray machine and found there was no circuit in the processor package. Another time a component package was mislabeled. These are issues of outright fraud and theft. The component companies in China can’t be tried in the US. China is unlikely to allow a lawsuit brought against these companies by a foreign customer, let alone win. My former manager explained this is EXPECTED business behavior. Trying to deceive is an integral part of Chinese business culture.
You realize that you posted this on Chinese made electronics, don’t you?
He is not wrong on either of those accounts. Why do you think the most reputable electronics circuit boards are from Taiwan and not mainland China? Cost, consistency of quality and accountability.
That’s the ticket: a 3rd world war (Trade).
By the time America is done; 1) Korea, 2) VietNam 3) Iraq. 4) Libya 5) Yemen 6) Syria 7) Palestine. 8) Iran 9) Libya again.
COVID and the BIRD FLU and the WAR ON FOOD and HEALTH.
Rinse and repeat. America is at war with COVID, too!
Tariffs are the inevitable outcome of the real issues. The real issuesare the exchange rate, capital controls and government intervention of China. China manipulates exchange rates so US goods are more expensive. Capital would flow to the US without capital controls. In a free and fair system, the trade balance would be zero. This only works for so long before market forces correct malinvestment and unbridled borrowing. Yuan will be half the dollar, along with the YEN is two years.
“Should Anyone Care Whether Underwear Is Produced in the US or China?”
Umm yes, because it employed people here who lost jobs, now sitting on unemployment in the Carolinas while the textile cities rot. And for what? “Same quality, but cheaper” was the mantra then – in the end a total lie.
Mish, IIRC, back when you spoke to what happens when a chip factory moves overseas (Silicon Valley). It’s not just the actual employees, but the engineering, the maintenance, the QA, the supportive disciplines that were needed to support the chip factory not to mention the city all those jobs supported in taxes, schools, entertainment, etc
All gone when it moves away, and it’s terribly hard to re-establish it. To save a few bucks on a shirt or a CPU?
So yes, IT MATTERS
$1 output of manufacturing equates to $7 of GNP vs $1 of Service output translates to $3 GNP. Its long studied and is basic economics.. Additionally, why would we allow the country to be strategically compromised? How could we fight a hot war with China when we couldn’t even supply facemasks, syringes and other basics for a virus??? As a country we need to manufacture at all levels again. This includes simple t shirts ( yes Mike Bloomberg- you were wrong again) to next generation microchips. This is more important for our long-term survival as a country then a CDO squared bs financial product.. Cut regulations, build, and produce. Give dignity of livable wage employment to rust belt areas and watch drug use and suicide plummet. YES IT MATTERS
At what price?
Not sure what you mean? Let’s say Trump blocks trade from China? If it’s assume that sticks, the free market will see an opportunity to make things here. Yes, in the meantime there will be scarcity, and consumers will also adjust accordingly. Maybe Walmart goes under and people start shopping locally, for local benefit.
What’s there to understand about the tariffs , with no understanding whatsoever there’s already low paying jobs and they are done by the emigrants Tyson chicken lawns hotels fast food restaurants stop the nonsense. Tariffs are bad for the poloi case closed . The orange wave coming is no good for America. Never expect government to solve anything related to the people problems.
If only life were so simple. We don’t live in cartoons.
Try living without police, courts, public water distribution, public roads. No regulations for bridges, elevators, the airwaves, airplanes, railways food quality. Health inspectors, bank regulators, medical standards, disaster response. Where your misused term emigrants has no meaning anyway because there are no borders……
A little off topic, but yesterday the US debt is now $36,034,994,586,981.97.
Debt to the Penny | U.S. Treasury Fiscal Data
[1W] DJI and BTCUSD closed at a new all time high in front of Fed minute next Tuesday Nov 26 and personal spending on Wed. DX moved higher. It’s a warning sign.
“Rare earth minerals” are in fact not very rare at all. They are found virtually everywhere. What is rare is that China is one of the few countries that both mine and process them. We can’t here due to environmental rules.
For example, the U.S. is the world’s largest consumer of lithium, but only a small percentage of the world’s supply is mined domestically. Most of the lithium used in the U.S. comes from Latin America or Australia, and is processed in China and other Asian countries.
Lithium mining in the U.S. has raised concerns about:
Groundwater depletionThe Silver Peak mine has been criticized for depleting groundwater aquifers in the arid region where it’s located. Environmental impactSome environmentalists are concerned about the potential impact of lithium mines on rare desert habitats. Tribal concernsSome tribal leaders have expressed concerns about the impact of lithium mines on reservation economies. So, the reason we can’t solve any of our problems is the gigantic bureaucratic state and all the bedwetters that wouldn’t be satisfied until the Chinese are coming over the horizon and the US dollar is worth even less than 1 cent.
But Trump, of course, will be pilloried for not delivering on his promises and the Deep State, fueled by their Chinese bribes will continue business as usual. Kamala may just win in 2028.
We dump many rare minerals to the rivers bc they are “radioactive”. Their half life are billions of years, meaning that they aren’t radiating, they are less dangerous than flying at 30,000 feet
I don’t think “radioactive” means what you think it means and only if you are speaking in the general sense of it. So are we talking “alpha, beta or gamma emitters” and at what level? I can assure that none are dumped into the water supply unless they already exist naturally in the environment and are part of the naturally occurring “background radiation that exists in nature itself. Most radioactive elements are man made and not naturally occurring in the first place.
Headboard is being put out to pasture….. that’s code for she’ll be governor of CA in 2026. She’ll take over once Gov French Laundry terms out and will turn into his Aunt Nancy’s liquor store errand boy.
Did you happen to see the county results of the last (2024) election? Cali is getting more red by the second and “Heels Up” will have a rougher go of it than a hooker on her third pimp.
No, rare earth mining in China is cheap and efficient because its deposits are mingled with other minerals, so rare earths are mined alongside other minerals. It’s a blessed geology that cannot be reproduced elsewhere even by sheer willpower.
I am going out on a limb, but I wager Trump wasn’t elected on hopes ones underwear will be made in America.
Right. One minute it’s the jump off a bridge example vs underwear. Both are extreme examples to prove a very debatable point about the effects of tariffs on prices.
I think it’s much more likely that Trump plans to be more strategic. For example, I read there’s a growing consensus on Canada to cut out Mexico from a US – Canada bilateral trade deal.
I could see Trump putting a 10% tariff on everything from China & Mexico and then more targeted higher tariffs on specific goods. I seriously doubt he’ll put 10% on everything but he might. And if he does, I’m fine with it. They can always be removed.
People are really struggling to get the simple concept America First. None of what Trump wants to do is going to be easy, but living under the status quo isn’t an option. Big changes are needed across any number policies.
Can’t say.
All the textile mills and clothing plants closed up and moved out after Bill Clinton signed the NAFTA deal.
Lots of small towns dried up and damn near blew away when they shut down. I know my hometown did.
The first textile mill was developed by Michael Shenck in NC in 1815. The south produced cotton for their bros in England during the industrial revolution.The North raided the south to extract raw materials for their infant industries in New England (source : president Wilson). In the early 1900’s New England’s mills took over. When the cost of labor was too high wall street moved the mills back south. In the early 1990’s NC and SC mills moved to other countries : China, Pakistan, Egypt….Warren Buffett mill was dying for years. New England shoes industry is also gone.
Air Jordan made in China cost $220. Nike cause bunions.
Free and Democratic Republics and States should not have trade relations with countries where the Communist Party governs or they are communists. Simple.
So, trading with Italy this year, but not the next year and resuming a couple of years later for three months?
How much are we willing to pay for underwear? US made underwear is available….. starting at around $30/pair. Let’s say some enterprising person decides they’re going to mass market a la Hanes Made in the US underwear and can get pricing down 20% to $24/pair.
A four pack of imported boxer briefs is about $20.
We need to be honest with ourselves about this.
If I have to pay underwear $1-2 more a pair and it means that they are manufactured here creating employment for low skilled workers and creating employment in related suppliers such as trucking etc, I am good with that.
Thanks for your honesty.
Would you also be OK if someone else decided for you that he would tax the hell out of foreign oil being imported here such that gasoline went up $1-2 per gallon? Or Canadian lumber such that each 2X4 cost $1-2 more? Or Australian cattle so hamburger cost $1-2 more per pound? or Brazilian soybeans? Etc.
If so, good for you and thanks for your personal choices on behalf of the general American worker out there. Seriously, I mean that. I try to make personal choices like that myself.
But I also make and spend more money than the typical low-skilled American worker. And I wonder how they will cope with all these separate $1-2 daily increases from this simple tariff strategy. You should be concerned, too.
US made underwear is available….. starting at around $30/pair. A four pack of imported boxer briefs is about $20.
Not everyone cares about luxury underwear garments.
Please stop mentioning “tax the sun”. In many western US states they already confiscate the rain… don’t give them any more ideas!
I could see the sun being taxed via solar panel mandates…
It costs for air at the service station.
That’s why I bought a portable tire inflator.
unless you sneak over to the semi side, where its free
We are losing the underwear race with China. We need to ensure that our national security isn’t endangered by an underwear gap.
I hate gaps in my underwear.
If China cuts us off you will not have any underwear at all. We will have to go to war to secure our underwear supply seeing as we do not have the technology to make our own.
Sounds like something that General ‘Buck’ Turgidson would say.
“Holy crap Batman!”
Thanks for your analysis, Mish.
One thing I’d like to add. I feel like I’m in a time warp of sorts. If you posted this same analysis 20-30 years ago, you’d hear more screaming from the Democrats about the good use of tariffs and trade laws – keeping us from killing American jobs, the environment, promoting slavery, etc. And Republicans talking about the values of consumer choice, fiscal frugality, corporations making the best use of valuable resources, etc. to remove as many tariffs and trade restrictions as possible.
Now we have the followers of the Republican nominee and President-elect chomping at the bit to install as many and as high of tariffs as he sees fit because it’s in ‘our’ best interests.
It’s like I woke up in Bizarro World!
The Free Trade Republicans are gone now because their policies helped the coasts and hollowed out industry in the Heartland. They failed and they were thrown away by the electorate as they should be.
Anytime prices go up on anything but luxury goods the poor are impacted the most. Biden/Harris’ inflation hit the poor the hardest.
On the other hand, unskilled manufacturing jobs, such as making clothing, help the poor the most. Mrs. Rockefeller is not going to be working in a underwear factory if that industry comes back to our shores, but a poor woman will gain employment.
Do all nations have the same labor and environmental laws? I can see western nations having higher costs due to these.
Watch some youtube videos on how items are manufactured in places like India and Pakistan. No safety regulations whatsoever. Throw away labor in those places.
100% and this is why tariffs make sense in some cases.
How do tariffs improve the labor conditions in sweatshops, pray tell?
If tariff is based on documented chain/of-custody treatment of goods inputs, byproducts, and labor …. it could be used to promote better labor and environmental practices worldwide. Take away the incentive to externalize costs in the overseas suppliers, end the tragedy of the commons.
But that would be a high-regulation option, prone to all kinds of abuse.
Then again, all tariffs appear to be sort of executive fiat taxes, which leaves room for trillions of dollars in political mischief.
The real budget monster lives in the Centers for Medicare and Medicaid. I am very interested to see how all this promotion of Make Americans Healthy Again (MAHA) plays out. In terms of metabolic health and physical fitness, we spend vastly more that any other nation per capita with far worse outcomes. Few remember that Eisenhower warned of not one but two MIC’s, Military and Medical.
I had a 5 day stay in intensive care (in a regional trauma center) a few years back. No surgery, just a bunch of tests. The “official” invoice (aka the bullshit invoice) was $116,000. After they ran it through insurance, it turned into $14,000. Insurance paid $8,000 and I paid my full annual deductible of $6,000. Insurance isn’t saving $102,000 because they’re “buying in bulk”. The outrageous $116,000 sticker price exists solely to scare people into having (force people to carry) insurance.
Nothing can get fixed until fake billing is outlawed. The price should be the same whether paid by insurance or by the patient.
Healthcare system in US is FUBB. Health insurance is legalized extortion. They take premiums and don’t pay what they are supposed to pay to healthcare providers. I have conservative values but we need single payer. That is the only intelligent comment cameltoe made ever. In addition I did like her comment of seeing all the healthinsurance companies go out of business.
Health insurance is indeed like a Mafia protection racket. Pay the yearly premium or there is a real risk of having all your assets taken away.
Nobody should care where their underwear is made.
But they should care whether there are enough of the kind of jobs for those not inclined to mind work in the US that all can afford the ability to have a home and a family.
May not care “where” underwear is made but definitely allowed to care “how” and “with what” and “to whose profit”.
Mish is advocating (without realizing it) they the U.S. should continue paying rent to the CCCP.
Forget tariffs. Close all military bases in Europe and send the 30,000,000 migrants there with a one-way ticket on The Love Boat.
“The lady doth protest too much, methinks. ” The American consumer has been most modest in its protest. Look at Japan and the products that flooded into this market. If the Japanese worker wanted to buy a market with long hours and low wages, that would be okay. But let’s also remember that the government there actively fought labor unions. The economy flourished for a while, and now, even more so, they are starting to step back.
However, I have experienced Chinese actions beyond pure labor costs. The rule of law does not exist in that country, and intellectual property and commercial law are heavily weighed in one direction. Beyond intellectual property and all the other gamesmanship [my apologies to Clinton, who fixed intellectual property], that focused on industries to drive out US products. They declared it was a national technology focus, eliminated taxes, and subsidized it. That happened to me and will continue until some action is taken.
Ask German companies about their intellectual “property” in the US in the last century.
Intellectual property is even more fictional than most legal fictions.
Specifically speaking about the steel industry I think Trump was correct in placing tariffs on foreign steel from a national security standpoint. It is one tangible example of successfully saving an industry by spurring capital investment and creating more good paying jobs. Biden passed an infrastructure bill with the intention of creating more jobs by investing billions in the US. It would be silly to me to spend a significant portion of that money to stimulate China’s economy. Underwear? NO…Steel yes. Same for rare earth elements and essential drugs.
A study was done looking at the effects of steel tariffs on employment and wages and the cost for each steelworker job “saved” was about $800,000. Not all the steel that the US imports comes from China. In fact we get about 1% of our steel from China. They’re not even in the top 10 for steel.
https://www.voanews.com/a/top-us-import-sources-steel-aluminum/4277212.html
Many of these studies do not or undercount secondary and tertiary effects on the industrial tissue. The demise of our shipbuilding industry has caused negative reverberations decades after.
National self-reliance. Uh, hello?
So, in any kind of global disruption we have no underwear?
What stupidity.
Everybody will have to go ‘commando’
You answered your own question. China limiting selling us their rare earths is a good reason to dig for our own and slap a heavy tariff to keep them underselling us in own market. If we broaden the underwear and shoe story into textiles in general then we do find that having an unfriendly country building a monopoly on those is not a very good policy either.
The EU is now saying to China that if they want to do business in Europe they have to build their factories in Europe and agree to technology transfers to European partners as well.
As for the tariffs, we will see soon. We will have real-world examples on if, how and why they work or don’t work. This transcends economic theory.
This isn’t economic theory; economists have already studied tariffs and taxes forever and are putting forth the reality results from the past. Trump’s proposed tariffs are no different from the ones that were imposed in the US a century ago, and since.
It just doesn’t match with your political POV
Give me a list of countries without tariffs. You will see that they are very few and very small so all you can say is that a no tariffs policy seem to work for only very small countries and economies except of course where it doesn’t work. To me since the experiment is so small, to apply that to a large country and economy is in the realm of theory and not practice. A century ago the US was in the same position vis a vis the world as China is today. We were generating high surpluses with the rest of the world. When the Depression hit world demand had already collapsed well before the US tariffs were put in place. They certainly didn’t help but the damage was already done. As the surplus country, the US was hit the hardest. The UK, France and Canada had milder depressions than ours. Germany got hit more but that is because of the WW I reparations sucking all the money out of the economy.
To get back to what you said, tariffs a century ago have little to do with the situation today. If you knew your economic history you would know that.
Tariffs are a clear case where economic theory and economic history align almost perfectly.
So financing the US government during the 19th Century using almost exclusively tariffs was a great mistake in your book? Tariffs work or do not work depending on the circumstances. They can be appropriate in some situations and bad in others however what is truly terrible is to continue to adhere to an economic theory when it is clearly not working as it is now.
Economic theory is based on history. No, this time is not different. It never is.