Trump and Biden are in ever-escalating tariffs proposals. Let’s discuss Trump’s latest proposal and why It’s a trade war we cannot win. 
Trump Is Primed for a Trade War in a Second Term
The Wall Street Journal reports Trump Is Primed for a Trade War in a Second Term, Calling for ‘Eye-for-Eye’ Tariffs
Trump, who has referred to himself as “Tariff Man,” has been stocking an arsenal of protectionist measures for a potential second term, filled primarily with new levies on imports from China and elsewhere.
In campaign documents and media interviews, Trump has floated placing a tariff of 10% on all imported goods and matching tariffs on trading partners with higher rates “an eye for an eye, a tariff for a tariff.” He wants to revoke normal trading relations with China, a legal step that would automatically raise levies on everything from toys and aircraft to industrial materials.
If implemented, such Trump policies would jolt the U.S.’s economy and international relations, according to trade analysts. New tariffs would fuel tensions with China and upset allies, inviting retaliation. While some American industries would be shielded from foreign competition, others would face higher costs for imported materials. Inflation, quiescent in Trump’s presidency but higher in recent years, is likely to surge anew.
Of all his proposals, Trump’s universal 10% tariff, while lacking details, has attracted the most attention from business lobbies and foreign officials.
“I think we should have a ring around the collar,” Trump said in an interview with Larry Kudlow, a Trump economic adviser in term one, on Fox Business in August. “When companies come in and they dump their products in the United States, they should pay, automatically, let’s say a 10% tax.”
Biden Administration Explores Raising Tariffs on Chinese EVs
China already faces 20 percent tariffs on EVs, and Biden Explores Raising Them.
Biden administration officials, long divided over trade policy, have left in place Trump-era tariffs on roughly $300 billion of Chinese goods. But officials at the White House and other agencies are debating the levies again, the people said, with an eye on wrapping up a long-running review of the tariffs early next year.
Chinese EVs are already subject to a 25% tariff, which has helped prevent subsidized Chinese automakers from making inroads into the U.S. market.
Other targets for potential tariff-rate increases are Chinese solar products and EV battery packs, the people said. While the U.S. now primarily imports solar material from Southeast Asian countries, China is still an important supplier of EV batteries.
Raising some tariffs could allow President Biden to signal he is tough on China as he approaches a 2024 re-election campaign that could again see him face Donald Trump.
Toe-to-Toe Who’s More Stupid?
Since tariffs are a tax on consumers, Trump is proposing a huge tax hike.
Sadly, it’s not just Trump. China will retaliate and so will Europe. Costs will soar across the board.
And the stupidest thing about this is that it is counterproductive to Biden’s climate goals.
Assume China is unfairly subsidizing solar panels or anything else. What that means in practice is China is subsidizing US consumers at the expense of Chinese consumers.
Yet we bitch about that, like candlemakers bitching about the free light of the sun.
Bastiat’s Candlestick Makers’ Petition
What’s happening now is very much like French economist Claude-Frédéric Bastiat’s famous Candlestick Makers’ Petition written in 1845. His petition was sarcastic.
Bastiat said that sunlight was unfair to the candlemakers. He proposed a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds in which the light of the sun would enter houses.
Banning sunlight would increase the need for more oil from whales to make lamps. There would be more whaling jobs and more candle making jobs too.
Solar Panels a Perfect Modern Example
For some of the same reasons and one different one, the Biden administration and the Trump administration both want solar panels to be made here.
The result is we do not use them on roofs and other places to the extent we could because they are too expensive.
Made in the USA effectively means made nowhere (a relative statement not an absolute one).
Along with the solar panels not made here or there, we are killing part of our own climate push, and one that actually makes some sense.
In the process, we are also losing out on specialized roofers to install the tiles, batteries needed to store the energy etc.
Oranges and the Sun
In his petition, Bastiat wrote about oranges and the sun.
If an orange from Lisbon sells for half the price of an orange from Paris, it is because the natural heat of the sun, which is, of course, free of charge, does for the former what the latter owes to artificial heating, which necessarily has to be paid for in the market.
How can French labour withstand the competition of foreign labour when the former has to do all the work, whereas the latter has to do only half, the sun taking care of the rest?
Those paragraphs apply not only to solar panels but the sugar lobby, ethanol imports, and everything else, especially cars and batteries.
Ethanol is better produced from sugar in Brazil than corn in the US, but Trump and Biden both want the ethanol produced here despite the fact it is environmentally damaging, raises the price of corn and corn-fed animals, and puts small refiners out of business.
If China offered us free solar panels we should gladly take them, but we wouldn’t. Instead, we would bitch about getting something for free.
We cannot sell our own EVs because they are too expensive. So we block China’s EVs that are much cheaper.
Whether you agree with his policy or not, Biden’s goal is to speed up conversion to EVs. Yet, he stupidly blocks imports that might do just that.
I do not know how many US consumers would buy China’s BYD, but some would.
That would translate to more demand for EV chargers and more EV-related infrastructure at a faster pace. There would be more EVs on the road and more curiosity about them.
It would literally speed up everything EV related.
But, the UAW does not want that, Biden does not want that, Trump does not want that, Republicans don’t want that, and Democrats don’t want that.
Yesterday, I asked Are you Willing to Pay and Do Your “Fair Share” to Address Climate Change?
Fair Trade and Fair Share go together.
It’s only fair to US unions if everything is made here. Otherwise the candlemaker’s union known today as the UAW will bitch about it. And Biden is on the picket line demanding it.
Tariffs are one thing that Republicans and Democrats, agree on. It’s economic madness.
It’s Not Easy to Avoid Buying Items Made or Sourced in China
Do you look for US-made or something not made in China? It’s harder than you think because the labels don’t tell you what you need to know.
Please note It’s Not Easy to Avoid Buying Items Made or Sourced in China
The problem with thinking we are making any headway at all reducing our trade deficit with China is that trade is not bilateral.
Items stamped “made in Mexico” or Vietnam or many other places have parts and materials made in China.
To avoid US tariffs, China sends parts and materials to other countries. As long as no more than 49 percent comes from China, it can be stamped “Not Made in China” satisfying those who want something else. This is further subject to the added benefit attributed to assembly of parts made in China but assembled elsewhere.
China is responsible for producing or refining up to 90 percent of rare earth minerals. They go in nearly everything important that you buy.
If you want something totally not made in China and with no materials produced or refined in China, good luck finding it.
China’s Share of Battery Chain
That’s just battery chain supplies.
Critical Materials Risk Assessment by the US Department of Energy
Please consider Critical Materials Risk Assessment by the US Department of Energy
Rare earth elements go into weapons guidance systems, batteries, wind turbines, cell phones, flat-screen TVs, magnets, mercury-vapor lights, and camera lenses.
The US is heavily dependent on China for nearly everything in that red critical square. I list the percentages by element.
Check it out.
So, how might China retaliate?
I discussed how on May 20, 2019: Trade Hardball: China Threatens to Cut Off US Supply of Rare Earth Elements
We have known about this problem for at least a decade. But are no closer to a solution today. Environmental groups fight every attempt to open up a mine here because they environmentally very dirty.
We are more dependent on China than ever. On those grounds alone, let alone the stupidy of tax hikes ought to get us to think. But it hasn’t and apparently won’t.
Thank you Mish! Great article. Common sense can not be taught.
Not sure I agree with Mish’s thesis that tariffs won’t help the economy. The West has, using sanctions, caused Russia to (in effect) have huge tariffs on its imported goods and the result has been that the Russian economy is absolutely blooming – much to the humiliation of the West.
Russia is doing OK because sanctions did not work.
It is exporting oil to China and India Using its own ships now because no other country will.
That’s a second gain
There is a reality in free trade. We import cheap labor and bad environmental policies. Neither is good for U.S. workers or the population in general. A given rule is import non vallue added products so that the U.S. workers can be redeployed to making value added products. The problem is we do not or can not do the redeploy aspect, hense a labor problem which may help explain the 62-63% labor participation metric. Other countries seem to understand that making and selling things leads to improved economic health. We have become a consuming economy.
God forbid anyone manufacturing in America makes a sufficient margin to run a profitable business with valued employees making a middle class wage.
Look at what all of this free trade has done to prices of things. Even with exploited workers manufacturing things in other countries: prices have gone up dramatically on everything.
Free trade with other countries that undercut reasonable returns has done nothing for the American worker who actually produces something. It has mostly benefited the Merchant class.
It is easy to see what is happening/will happen because the same scenario played out in the 1930’s, with well-known results.
We have known for around 200 years that free trade is the best way to wealth, while high tariffs and other protectionist/nationalistic (Nazi ?) ideas are the way to poverty.
Another big plus for free trade is that it takes politicians out of most economic decision-making because there are almost no decisions to make. There are far fewer paths for corruption.
Take the example of UK in the 1840’s with the repeal of the Corn Laws, by simply stating “there will be free trade: damn the consequences, there was almost free trade to the great benefit of the people of UK .
I’ve wondered how much of a tariff lover Trump is. When you evaluate the guy, first you must subtract out his go-to strategy, tit-for-tat. Notice he operates straight from the game theory handbook.
Trump is a nontradable sector guy. He has no clue how and why a really competitive sector works. And he certainly doesn’t know anything about game theory.
To put this in perspective, Chinese products may have a 10% tax on them, but in my location, Amazon products have about a 9% tax on them.
So tariffs, aside from being a fairly simple tax, are anti-Amazon, pro-Alibaba. Right? 🙂
https://www.msn.com/en-us/news/world/uk-to-send-warship-to-guyana-amid-venezuela-tensions/ar-AA1lXKPf
UK sends navy to Guyana.
“It comes after neighbouring Venezuela renewed its claim for a disputed part of Guyanese territory that is rich in oil and minerals.”
Very strange military decisions at the moment….Peak Oil (Nov 2018) cough cough!!!
What is old, becomes new again. Once upon a time Mr. Smoot and Mr. Hawley teamed up on a tariff act. Decades later, congress returned to days before Glass-Steagall. Lessons of the past manage to get undone, as it is to someones advantage at the time, for it to happen.
It goes to show us STUPID never dies when it comes to Politics. I am actually offended that Trump and Biden BOTH think that we do not KNOW that tariffs are paid by US. AND, that includes PHARMACEUTICALS. Thus, we have NO hope for improvements in PRICE inflationary problems.
According to the latest news, Samsung Electronics Co.’s $17 billion chip plant in Taylor, Texas will be delayed till 2025 after a similar delay at Taiwan Semiconductor Manufacturing Co. in Arizona.
People don’t seem to realize that when we start building those fabs across the globe now and are everywhere, that skill has been refined over the last couple of decades in only a few places on the planet — predominantly in Taiwan and in Korea and a bit in China.”Getting access to the requisite skills and skilled workers to keep the construction plan on time is a challenge,” Peter Wennink, chief executive officer of ASML, said earlier this year.
There you have it. If your dad was in chip manufacturing and had his job outsourced, the son is going to be a lawyer at best, then become a politician. How many of the political class have technical degrees? Probably could find more snowflakes in hell.
Americans will be paying the tariffs. Sometimes politicians think they smart, when in reality, they can be dumb as a sack of hammers.
That is deeply offensive to sacks of hammers.
Trump’s tariff’s ideas suck, Bidenomics sucks, inflation reduction act sucks, the whole Democratic progressive left sucks, the entertainment industry sucks, educational system sucks, the justice department, FBI sucks, progressive churches suck, rejecting traditional values for subjective views sucks as evil woke ideologies and DEI a decadent cultural concept sucks, all continuing to take down the country.
And its still the best country in the world to live in if you want to make a better life for yourself.
For now, I can’t disagree, but it’s starting to get sketchy as to what things will be like in 5-10 years. I know you’re good for the “I’ve heard this all my life” saying, but at some point, crying wolf eventually turns true.
I certainly wouldn’t want to swap places with the people of Gaze, that’s for sure.
Papa Dave…I like some of your ideas but your knowledge of the world is likely limited to your lack of mobility or lack of desire to get out there and take a look around. I will not say where my wife and I live part time, but I can tell you that the FOOD there is more wholesome, organic, cheap and delicious. I would recommend, if you are mobile and of means, to get out of the USA and look around a bit.
Actually, I travel extensively. I’ve been pretty much everywhere, except Antarctica. I just don’t mention it very often as that is not my reason to be here. I am here to gather and share info that relates to investing.
There are many wonderful places to live and visit in the world. But after seeing most of them, I still think that the US has the best environment for entrepreneurs, skilled workers, and investors. Which is why many of the most successful companies in the world had their start here. Apple, Amazon, Microsoft, Alphabet, etc. I thought that China was going to move in that direction (AliBaba, Ten Cent, Huawei etc) until Xi cut them off at the knees.
Sure, many places have better food, beautiful views etc. But my purpose here is not to discuss where I like to visit.
Thanks for your reply though.
It’s not because we’re good it’s because we’re lucky despite a malevolent and incompetent government
I completely disagree. It isn’t luck that resulted in the majority of the world’s greatest companies have their start in the USA for the last 100 years.
Currently, the 10 largest companies in the world by revenue are: Apple, Amazon, Alphabet, Berkshire, Microsoft, Aramco, Exxon, United Health, CVS, Meta.
9 of them are from the US. That isn’t luck. That’s an environment that breeds success.
If you don’t like it here, you have the freedom to leave by the way.
It is also, at least partly, due to the fact that in the US you have access to very cheap capital and have a populace that saves little but splurges via debt. Having the world’s reserve currency helps a lot too.
I am sure we can come up with a multitude of reasons. But regardless of how many reasons there are, they exist in a combination that results in the US being the best place in the world for entrepreneurs to be successful with their companies. And that’s all I really need to know. This provides the opportunity to invest and earn significant returns from these companies. One of the best examples of this is Warren Buffett. Shares in Berkshire went from $7.50 to $543,635.
Other people can spend a lot of their time complaining about the government. I prefer to spend a lot of my time improving my life, in a wonderful country that provides me with that opportunity.
Open borders suck
That’s for sure, and all the bad associated with it is going to reveal itself over the next 3-5 years. Outside of cheap labor, I can’t think of an upside, and I’m willing to be openminded.
The Pope sucks
Do you know of anything that doesn’t suck?
My ex-girlfriend.
She treated me very well and sucked. OH, ouch and humor hurts at times.
Yes check out CS Lewis’s books in his search for truth, especially Mere Christianity The Great Divorce and The Problem of Pain. If you’re in a hurry start with P of Pain and skip to chapter on human pain to the end of the book. Amazing understanding of human condition-chapter on Heaven-longings, desire he talks about cannot be satisfied by any wonderful earthly human experience, its that further shore for me longings and desire inspired by beauty, music and the scriptures of course……
The big problem is STUPID SLEEPING Z ombie people with poor functioning brains.
Kerry and Gore suck
Mish, why worry about Trump? Biden will get 81,000,000 votes in Illinois alone –
More migrants arriving in Chicago by train after City Council’s recent bus ordinance – CBS Chicago (cbsnews.com)
Fox River Grove only 20 miles from Marengo. Prescient move to UT for you!!!
I grew up in Crystal Lake and FRG was where we had Steaks and good food. It kills me to know this.
Gov debt is rising. Trump wants to cut taxes and raise tariffs to reduce the gov
deficit. Blue collar workers in the flyover country will have high paying jobs at the expense of Mexico, China, Canada, Germany…They ==> Mexico, China, Canada… and everybody else will cut the budget deficit, pay for the wall and the border patrol.
Lol! Good one!
I assume you are being sarcastic? You never know in this comment section.
1st statement is definitely true. Not sure about the rest of it. The Trump tax cuts do sunset at the end of 2025.
Everything will work out fine. Who would have imagined that Gorbachev would be doing Pizza Hut commercials at the end of his life?
Michael Every of Rabo Bank had an interesting take on this in a recent interview on Thoughtful Money. He said that, given our extreme political polarization, high debt, horrible education system, and hollowed out manufacturing sector, among other factors, the U.S. has become an emerging market economy and should act like one by utilizing the protectionist strategies championed by Alexander Hamilton at the nation’s founding. These include tariffs and incentives focused on industries deemed to be important. I’d be interested to hear thoughts on this. Thanks very much.
trump’s only consistency is recklessness.
He didn’t get us into any new foreign military conflicts.
Timing is everything. If trump was president he would be dealing with the same thing biden is.
If Trump introduces a 10 percent import tax on consumers, the nominal dollar exchange rate will simply appreciate to restore the equilibrium real exchange rate (foreign holders of U.S. assets will get a windfall, while U.S. consumers get saddled with a new tax). But the real damage to the US could come through a massive change in global trade relations. Both China and Europe could see the U.S. as a highly unreliable trading partner and seek to intensify trade with each other (Europe happens to be the largest economy in the world, and the size of China’s will pass the U.S. soon). And if Trump on top pulls out of NATO, that could accelerate a Europe-China rapprochement. The U.S. would find itself in splendid isolation.
“Yurp” as the Americans call it, is not one place, it’s a collection of different national economies with different strengths and weaknesses, and only the top 7 or so matter. More to the point, countries don’t trade, companies/people do – and across borders.
When it comes to trade, Europe is one place. Even the Brits will pivot away from us if a complete idiot like Trump becomes US president.
Clearly, NO trade at all is a disaster in terms of economic growth and standards of living. Not only would we be unable to produce “everything” domestically, we would also be unable to sell anything to anyone else outside the US as well.
And completely Free Trade is an impossibility, given the animosity between countries.
So, what we are left with is a sliding scale of partial free trade. A scale that tends to move in one direction or another depending on the politics of the day.
For several decades we were sliding towards more free trade, and more globalization. This played a part in an extended period of relatively low inflation and improving living standards amd economic growth in many countries around the world.
That period ended because of politics and animosity between nations, religions, races, political systems etc. No need to list them all here.
This is moving the sliding scale back towards less trade. Which will result in less economic growth, lower standards of living and more inflation.
I am not here to advocate for anything. I am here to gather info to make my investment decisions. Less economic growth worldwide will reduce demand growth for energy. Which means I may eventually reduce the weighting of energy stocks that I own in my portfolio.
There are multiple sliding scales, as many as there are electromagnetic frequencies.
With potential looming military conflict with China, Russia, Iran, NK et al, America needs to produce or find friendly nations for things like pharma, rare earth elements, computer chips, solar panels, battery production and a variety of other products that are within the realm of national security. These things don’t happen overnight, so we’d best get to achieving that end game.
I certainly agree with your general assessment. Figuring out the best industries & companies to grow one’s wealth may get harder as time passes, assuming less trade does actually occur.
Part of the trade war is competitive devaluation of currencies. In that regard the dollar is “winning” versus the Euro and Yen. The stock market survivors of hyper inflation will revalue themselves in the debased dollar. Minimum wage, social security, and transfer payments do not adjust for worthless dollars. With any luck at all the USS could become a magnet for low cost labor. If so we could see a boom in construction of sweat shops everywhere outside of high the tax and union states.
Dollar Milkshake theory 101. Regardless of which it is or where it is, the winning currency will always be the one with the largest consumer market, which is why China is never going to win – it’s domestic consumer market is pathetically small for it’s GDP.
The more you consume the more you will be in debt.
The more you manufacture the more you will be richer.
Consumption and manufacturing should be balanced at least.
How can the poor country consume more than they earn?
US can consume more because it can print.
Speaking of Trump, CIA news network (CNN) reports: “Trump channels anger in harsh holiday messages”
I actually listened to Trump’s “Merry Christmas” message and it was the exact opposite of harsh (but sappy as it was, it was clearly a political message directed at his base.)
CNN is way too crass, and low quality and low circulation to be of interest to the CIA.
CNN has a lot of ex-CIA and presumed CIA assets working for them. It’s the television equivalent of WaPo.
Eliminate all imports – problem solved!!!!!
Wait, what? The F-35 contains 2,350 parts made in China, some 1,500+ of which will never be able to be made in the USA,, and the few hundred that can may take a decade to be switched to domestic production, according to the CEO of the company that builds it. By that time, the F-35 will cost $300 million each, up from the present $200 Million bargain price, and the new B-21 Bomber will be a modest $1 Billion each, up from the projected $750 million each – and still I bet using parts from China.
So it makes perfect sense, in The Idiocracy of Washington, to restrict trade with China as much as possible, immediately, because that will demonstrate our strong resolve to defend dumbocracy and freedumb, just like arresting all domestic political opponnents of The Imperial Olligarchy of Dumbocracy shows off our free and fair elections..
And if anyone doesn’t agree , we’ll have to bomb them into dumbocracy and freedumb, for their own good..
Despite all that, the CCP is a major ideological inhibitor of global economic growth.
China bought thousands of airplanes from Airbus and Boeing which will need maintenance long into the future, and Chinese built airplanes also use engines from Rolls Royce and Pratt and Whitney.
It’s a checkmate where both sides will depend on each other for some time.
“in practice is China is subsidizing US consumers at the expense of Chinese consumers.”
That’s not the full picture, is it… if subsidizing US consumers means undercutting US wages and relocating jobs from the US to China to produce all those goods, there are losers as well as winners in the US. Protectionism is usually aimed at winning over the working class vote, because free trade tends to benefit the middle class voter.
If there are reciprocal exports of a different class that can mop up working class unemployed in the US (or any western country), then there is a qpq benefit; but what we observe is China stealing IP to make unearned gains to grow it’s middle class, and undercut middle class jobs as well as working class jobs. The solution, is as necessarily complex as the problem – there are natural advantages and disadvantages that each economy has over another, and tariffs do serve a purpose where there are clashes in having similar pros and cons, and national security concerns. Nobody really wants China to be dominating US software and electronics, for example. US and the west has little to worry about from China in many service sector and some white collar industries. There’s more nuance needed here. “all tariffs bad” is not much better than “all tariffs good”, is it?
I was wondering forever why nobody sees it this way – especially Mish. China won’t be giving us cheap subsidized stuff – they will be literally stealing whole industries. At the end we will loose all the skills and the supply base to make anything and when that happens China usually raises the prices ten fold. Fir example the rare earth magnets.
I have commented on this aspect a dozen times.
Here’s two questions:
1. Who forces US businesses to manufacture in China?
2. should understand the risks by now?
1A: Nobody, they do it willingly
2A: US businesses
If US businesses do not want that risk, no one forces then to do business in China.
iPhones are made in China (not really but that is how some are labeled because they are assembled there)
All of the critical design work is done in the US. The chips are not made in China.
If China could steal everything it would have happened by now no matter where anything is made.
Is there a threat?
How do you stop it?
If you think the answer is tariffs, you are nuts.
BTW – US sanctions forced China to make its own chips. It now is. This was not supposed to happen but it did.
Finally, all this is a result of Nixon killing the gold standard. With gold, trade imbalances soared along with debt everywhere. So, what’s the solution? Tariffs or something else?
You mean without gold trade imbalances soared? There are plenty of good solutions to get to external balance without a gold standard (tariffs are actually not even a “solution” if you have a flexible exchange rate).
I personally see big problem in the globalisation. Eternal peace doesn’t exist and to get the materials and some components for your weapons from your potential enemy is crazy. I’m not sure if the fix is in the gold standard but definitely we can’t continue this way. And you are right – the companies choose to outsource to China but only because there were no rules to control what can be outsourced and what can’t and now is too late. We have now the same problem with the border – you can’t open it and invite everyone to come. Everyone would love to move to a country with higher living standard and we can’t just accept everybody. The disballances in the world became so great I think the globalisation is done.
The sanctions that forced China to make its own chips were not implemented right and the machines anded up in China anyway.
So we have a trillion dollar infrastructure bill and a trillion dollar IRA that is supposed to stimulate the US economy and you’re OK with spending at least half of that money on foreign products?
You talk as if currency just slides from one side of a fishtank to another by tipping it.
Maybe in Bitcoinland, but in the real world, currency circulates – and it has to, because it’s debt-derived, and has to be exhaled as well as inhaled for it to work.