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I’m a Tariff Man
From the President’s Twitter account: “President Xi and I want this deal to happen, and it probably will. But if not remember … I am a Tariff Man.”
“When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so,” the president wrote. “It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN.”
The mocking reactions were predictable enough from both the right and the left. It’s interesting, too. From the left it seems we’ve finally found a tax the Democrats don’t want to embrace and a willingness to tell unionized industrial workers in America to go pound sand. From the right, we’ve finally found an issue where they’re willing to say that Ronald Reagan was full of it.
“Wait a minute,” you say. “NAFTA had its roots in the Reagan Administration!” True enough, but Reagan’s was also a presidency full of protectionist tariffs and policies*:
- Forced Japan to accept restraints on auto exports;
- Tightened considerably the quotas on imported sugar;
- Negotiated to increase the restrictiveness of the Multifiber Arrangement governing trade in textiles and apparel;
- Required 18 countries, including Brazil, Spain, South Korea, Japan, Mexico, South Africa, Finland, Australia, and the European Community, to accept “voluntary restraint agreements” that reduce their steel imports to the United States;
- Imposed a 45% duty on Japanese motorcycles for the benefit of Harley Davidson, which admitted that superior Japanese management was the cause of its problems;
- Raised tariffs on Canadian lumber and cedar shingles;
- Forced the Japanese into an agreement to control the price of computer memory chips;
- Removed third-world countries on several occasions from the duty-free import program for developing nations;
- Pressed Japan to force its automakers to buy more American-made parts;
- Demanded that Taiwan, West Germany, Japan, and Switzerland restrain their exports of machine tools;
- Accused the Japanese of dumping roller bearings on grounds so that the price did not rise to cover a fall in the value of the yen;
- Accused the Japanese of dumping forklift trucks and color picture tubes;
- Extended quotas on imported clothes pins;
- Failed to ask Congress to end the ban on the export of Alaskan oil and timber cut from federal lands;
- Redefined dumping so domestic firms can more easily charge foreign competitors with unfair trade practices;
- Beefed-up the Export-Import Bank, an institution dedicated to distorting the American economy at the expense of the American people in order to artificially promote exports of eight large corporations.
This was not out of character for Reagan. In the 1980 Republican Platform his ideals toward trade was laid out in clear and simple language. “The [Carter] Administration’s inability to ensure fairness and equity between our nation and some of our trading partners has resulted in massive unemployment in many core industries. As we meet in Detroit, this Party takes special notice that among the hardest hit have been the automotive workers whose jobs are now targeted by aggressive foreign competition. Much of this problem is a result of the present Administration’s inability to negotiate foreign trade agreements which do not jeopardize American jobs. We will take steps to ensure competitiveness of our domestic industries to protect American jobs.” (Emphasis mine.)
As international trade agreements began to be hammered out, through the Republican Administrations of the two Bushes and the Democratic Administrations of Clinton and Obama, how did this work out? Not so well? Hey, these jobs are gone and ain’t coming back. No Reaganite worth his salt would embrace Trump’s tariffs, right?
Again, from the ’80 Reagan platform with my emphasis:
The Republican Party believes that protectionist tariffs and quotas are detrimental to our economic well-being. Nevertheless, we insist that our trading partners offer our nation the same level of equity, access, and fairness that we have shown them. The mutual benefits of trade require that it be conducted in the spirit of reciprocity. The Republican Party will consider appropriate measures necessary to restore equal and fair competition between ourselves and our trading partners.
If you asked any conservative if we should unilaterally disarm militarily they would rightfully look at you as if you had grown a second head. Yet, they will insist on complete unilateral disarmament in trade. But, Trump, right?
*Source: Mises Institute
Published in General
Are you still struggling with that old style spaghetti strainer? Isn’t it a wonder how the world ever managed to get along with those things?
I think we’re all already far poorer than we think. We just don’t know it yet. Debt can be like that. So can rot.
That would be me HW. You tend to push those who disagree with you into the farthest end of there position.
My actual position. Temporary higher coasts until an agreement on a fair deal is worked out. Tariffs is the only tool in the tool box to make an unfair trader reconsider.
My actual position is that we should reduce import tariffs to zero. If China’s government wants to harm the people of China, that’s unfortunately. But let’s not use that unfortunate fact as an invitation for Trump to harm American citizens via higher import tariffs.
I’m not convinced “Tariff man” agrees onnthe general principle. He constantly speaks of trade as though it is a zero sum competition between nations. He does not seem to grasp, let alone understand, trade as a win-win proposition.
Except of course, everyone has their own idea of the optimal course: “Protect me from competition (unfair only, of course) but make sure I can benefit from low prices on everything I wish to buy.”
That’s what these negotiations all about — creating a win-win proposition. I dare say he understands it better than you realize.
The evidence for this is?
His dealing with Juncker last July.
That is not my impression at all. I think his overarching point is that it has not been win-win in many instances over many years, and that some of those instances are due to unfair governmental practices on the part of our trading partners and bad policy on the part of our government. Seems like he’s offered the win-win in all of his negotiations, but if other nations insist on lose-win then Kevin Schulte is correct that we don’t have many tools in the toolbox to address that.
Indeed, trade could be a win-win and it doesn’t have to be zero sum. Sometimes, though, it isn’t win-win and sometimes it is zero sum. Sometimes that is because of policy and not competition.
A win-win proposition existed before Trump raised import tariffs, when I could purchase a washing machine without paying the higher import tariffs.
It was a win for the foreign business selling me the washing machine because they made money and it was a win for me because I got a nice new washing machine.
To maintain the win-win situation, we need Trump to rescind his higher import tariffs and go play golf.
No government meddling needed.
Trade exists between the two parties that trade. If the trade were not a win-win, there would be no trade.
If I don’t want to buy a car made in South Korea, no one is forcing me to.
So, when I buy a car made in South Korea, it’s a win for the South Korean automaker because they receive my money and it’s also a win for me because I get to drive a new South Korean car.
That’s win-win. Trump just needs to stay out of it.
Can you say “Limited government?”
HW, trade also exists between nations the same way “the economy” exists apart from the infinite individual transactions which comprise it. Sure it’s an aggregate, but viewing it in the aggregate is sometimes useful and often the basis for private actions and government policy (law), ours and foreign governments too. Sometimes that policy hurts our citizens unnecessarily and sometimes malevolently and with intention. Doing nothing about those instances is certainly a choice; some people will do quite well with that choice.
It seems to me that one of the actual responsibilities of our Federal government is to represent our companies internationally. Even Google has been jacked around by the Chinese, forced to install algorithms that censor the Chinese people. I wouldn’t be surprised if they haven’t let the Chinese government inside some of their secret intellectual property either. Saying that it is another case of a growing central government just strikes me as wrong in this case. This is what the Feds are for. Individual corporations do not have the power to wrangle with a totalitarian government that controls a billion people.
I was just trying to clarify the “win-win” concept. It had been suggested that Trump is trying to negotiate a win-win result with foreign governments.
But it would be better if Trump were to simply reverse himself on the import tariffs, quit shafting the American middle class consumers with his higher tariff policy and let American consumers enjoy the win-win interactions with foreign businesses ranging from Samsung to Mercedes.
If we wanted big, bloated, expensive government, we’d vote Democrat.
It would be better if the government made sure our companies had an even playing field globally rather than bailing out companies like GM that make unwanted bad product. Once the field is level, let the best company win. That is ultimately better for both our quality of life and our ability to afford that quality of life.
Similarly, tariffs are actually only between two parties too: a government and a foreign company wishing to sell goods in that country. Why should your win-win supersede the win-win between the government and the company? You’d still get your Korean car, Hyundai (or whichever) would still get a sale, and the US government would receive some revenue. Sounds like a win-win-win to me. Everyone gets what they want. Sure you have to pay more, but that’s Hyundai’s fault for passing that on to you instead of simply eating the few points on the sale. After all, our government does need to raise revenue, and no revenue scheme avoids picking winners and losers. None.
But what if the competing company is being subsidized by its government enabling it to dump product into our market below cost and, thus, putting our manufacturers out of business? Once that country has eliminated its competition, it can raise its prices at will. At least until the market can’t sustain it anymore. Don’t we eventually end up with higher prices only with no jobs? We are short term thinkers while the Chinese plan for the long haul. Dangerous.
I know what you were trying to do: avoid recognizing that specific individual transactions is not the only valid way to approach the economy because then you might have to quit using this as a weapon against President Trump.
This part made me giggle.
You mean this, “Trump did not definitively agree to suspend steel and aluminum tariffs against E.U. countries. Similarly, Juncker did not agree to reduce tariffs on U.S. car imports?”
https://www.washingtonpost.com/business/economy/trump-pushes-25-percent-auto-tariff-as-top-advisers-scramble-to-stop-him/2018/07/25/f7b9af04-8f8a-11e8-8322-b5482bf5e0f5_story.html?utm_term=.fc5942382149
Did I miss this in the Constitution?
Not at all. You seem to be assuming that when a government engages in heavy subsidies of its business, it gets to enjoy prosperity and that when another government engages in unilateral free trade, it sinks into poverty.
It’s really closer to the opposite. Back in the 1980s, many people thought Japan was just killing the American economy because so many products Americans purchased were made in Japan.
It was widely believed that if America wanted to enjoy prosperity in the future, it needed to junk its free trade ideas and adopt a system more similar to Japan’s.
But it turns out that Japan had a very stagnant economy since the 1980s. The United States, on the other hand, enjoyed a strong economy.
We could essentially just re-read all of the warnings written about how America needed to be more like Japan in terms of trade and re-write them so that whenever the word “Japan” appears, we just replace it with the word, “China.”
Free trade isn’t a favor we do for other nations. It’s optimal trade policy to let your own citizens spend their money the way they want to, not the way some business-lobbyist wants them to.
We need more freedom, not less, when it comes to trade. We need less government meddling on trade, not more.
A free trade policy might not make some incompetent American CEO happy. But it will make America prosperous, assuming, of course, that we retain the tax cuts and the deregulation that Trump and the GOP have enacted as well.
No I mean like this:
https://www.independent.co.uk/news/world/europe/trump-juncker-eu-deal-trade-war-tariffs-stock-dow-jones-subsidies-a8463946.html
And remember, Trump opened these negotiations with language very much like “I’m a Tariff Man!”
What I’m saying is that the panic is silly. Negotiations take time. Let it play out.
We had tariffs before Trump was elected and we’ll have them after he’s gone. So I’m not going to tear my hair out over them – even though I oppose them. And oppose new ones generally.
Nevertheless, as has been pointed out, they have their uses.
They hurt their target – the other country – and they hurt us as well, but as with medicine and weightlifting there are times when you have to endure pain to make a gain.
Sure that’s easy for me to say; it is @spin whose ox is actually being gored. And presumably @HeavyWater since he buys so many washing machines. Nevertheless, the plan is to not keep these tariffs.
We believe David Ricardo? Free trade makes everyone better off?
Ok. Everybody agrees that A and B will be better off if they trade freely.
Lets begin is a state where A and B trade freely.
Suppose B imposes tariffs and subsidizes producers. Maybe they are dumb. Maybe they are obstinate. Maybe the force of Ricardo’s arguments are lost on them. Maybe they have other priorities than economic utility. Whatever. They no longer trade freely with A
A still trades freely with B.
Is B worse off than if they traded freely? Sure. Is A also worse off? Yes.
Lets call the amount of A’s loss LA. But that’s not the end of the story. A loses LA not only this period but in Every period going forward, for as long as B imposes tariffs and subsidies. So A’s true loss is today’s loss, LA…PLUS the discounted present value of that stream of future losses. That total depends on the number of periods and the interest rate.
Just to give some scale, let’s call LA -100. That’s -100 this period and every period going forward. If interest rates are 4% and we look 25 periods into the future, the total present value of A’s loss is about -1500. ( I did this on the subway on my phone … I could have a fat finger error in there)
Suppose A could take some action to induce B to trade freely. If that came about, the benefit would be that A would no longer lose LA each period. Suppose further that that action is itself costly, but temporary. As long as the present value of the temporary cost is less than the present value of the future benefits, A should take this action. It is the exact same calculation one would make to analyze whether or not to forego some present consumption and invest that forgone consumption into some interest bearing investment. As long as the present value of the cash flow from the investment is bigger than the present value of the cost, one forgoes the consumption and makes the investment.
Don’t get fixated on a static, one period analysis. The proper analysis is done over a longer time horizon.
The one thing that is certain is that we are faced with a situation where other countries engage in unfair trade practices against the US. Ricardo is silent on what should be done to move them closer to free trade. That too is certain.
What is certain is that doing nothing will leave the situation unchanged and perpetuate the US losses.
Any action aimed at changing their behavior is risky and uncertain. But so is any investment. Sometimes they don’t pay off. But it is possible for temporary tariffs to be a long term benefit if they succeed in levering counter parties closer to free trade. It is not the slam dunk cinch that tariffs are always and everywhere a net loss.
Ok but in that example B is hurting itself as well as A. If B is China, and China is a growing economic and military rival, should we really be concerned if China repeatedly shoots itself in the foot?
That seems very different than what Trump is alleging when he talks about countries coming “in to raid the great wealth of our Nation.” When people complain about China eating our lunch, presumably they are talking about unfair trading practices that they believe benefit China at the expense of the United States. They are not alleging China is doing things that are “dumb” because they are “obstinate,” they are claiming China is outsmarting us, playing us for suckers.
But that is I think the crux of the whole debate: what “might be considered” unfair practices by some are dismissed by others as largely rationalizations invented by lobbying firms to justify tariffs to protect the industry they represent from cheaper foreign imports.
I don’t think there’s a consensus among conservatives that such a thing as “unfair trading practices” actually exist.
Just so, well put.
I am one such: I’m not convinced there’s a problem with global trade in the world today, but I’m willing to listen to arguments for that claim. I’m willing to be convinced by sufficient facts and evidence.
It’s a bit like global warming: I’m not convinced it’s a serious problem, so I’m not even ready to consider any of the draconian “solutions” proposed by the left. You need to convince us (free traders) that there is a serious problem before we get to debating whether tariffs are an appropriate remedy.
It might be more a difference of values than of facts and evidence.
That’s always possible. There’s also confirmation bias, we all tend to interpret facts according to our prior theories and worldview.