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I Shot The Tariff, But I Did Not Shoot The Economy

Here’s the reasons stated why Trump started the trade war using high tariffs on penguins and US military bases as a weapon:

1. Trade balances were unfair.

2. Tariffs on US good hurt US manufacturers.

3. High tariffs on imports are good because now manufactures will come back to the US and make products here.

4. High tariffs will generate much more income for the United States, so much so that we will be able to cut taxes to our own people, thus the line “tariffs are tax cuts”.

So Team Trump raised tariffs on all sorts of countries.

We won’t get into the bizarre formula they used to calculate the amounts of the tariffs here. If you’re looking at the list of reasons for the Trump tariffs and feel like you’re seeing conflicting goals, you are. There are three main uses of tariffs:

1. To help domestic made goods compete against the same cheaper imported good in their home market by raising the price of the cheaper imported good.
2. To punish countries that deemed to be behaving badly in the world.
3. To spur domestic growth of the manufacture of a product.

On the first use: Wood and steel have had multiple tariffs place on them over the last 20 years. In both cases, domestic production has ticked up a bit. The trade-off though is that the price of both have gone up, not only on the imported product, but on the domestic product as well.

Why would that happen?

Tariffs are inflationary tools. The price of the imported product goes up. Often the price on domestic products are lower than potential market value in order to compete as much as possible with the imported good. Once the cheaper competition is eliminated, the purchase price of the domestic good goes up as well. This happened with domestic steel, which saw a 20% increase in price after the tariff took effect.

On the second use: This is long excepted practice, and historically, if you look at the lack of results, they seem to be pointless in the goal to achieve some kind of reform. But they are definitely a political necessity. Punitive tariffs are a go-to – they are easy to implement, and a quick way to wag the finger at a country, even if they don’t work.

So. Now we have the Trump tariffs. They have two stated goals – to balance the trade deficits, and to bring manufacturing jobs back to the US. I won’t bother covering how his tariffs, as laid out, were not well thought through and have no connection to actual trade relations with other penguins… I mean nations. I do want to point out the insane flaw in the second goal. Tariffs by their nature are transitory policies; they change. Building factories is a massive expense compared to business as usual. And it takes time to build a new one. Add to that the cost of US labor, and now there’s a new problem. To cover all these expenses, the product sold may be more expensive when made here vs if the factory just stayed where it is.

Here’s a bigger problem. As the tariffs are getting blasted in all corners, except the right-wing lapdog press, Team Trump is arm-waiving, yelling “HEY!!! 50 COUNTRIES ARE MAKING DEALS TO DO AWAY WITH THE TARIFFS!!!!

OK. Except, isn’t that the OPPOSITE of the stated goals? 0 tariffs don’t get rid of trade deficits on either side. More important, getting rid of these tariffs undermines the stated goal of bringing manufacturing back to the US. And is this administration even serious about making deals? When asked about a possible 0 trade deal with Vietnam, Trump economic Peter Navarro adviser stated yesterday:

“Let’s take Vietnam. When they come to us and say ‘we’ll go to zero tariffs,’ that means nothing to us because it’s the non-tariff cheating that matters”.

What? Vietnam had very low tariffs on American goods before all this came down the pike.

One might actually think they have no idea what the actual goal of all this is, except to show how mighty and powerful Donald Trump is.