Archive for May, 2019

Truth About Tariffs

Friday, May 17th, 2019

via GIPHY

Trump is the ONLY person who is claiming that China pays the tariffs. Even officials in his own administration admit that this is a tax which the importer in this country pays to our government. That importer either covers that tax by reducing their profit margin, or they pass that tax along to whomever is buying the goods. Often that tax is reflected in higher prices paid by the consumer.

Even Trump KNOWS that his claim is a lie because he has agreed to a program where IMPORTERS can apply for waivers. Those waivers relieve the importer from paying the tax that they would otherwise pay on the goods that they are importing from China. If China was in fact paying the tariff, why would there be ANY need to provide ANY importer a waiver?

Trump is claiming that he will be able to use the taxes which he is collecting from China to provide some relief from the business which US exporters are losing because of tariffs that China has placed on US goods, in particular agricultural products.

This is another LIE. Instead what he is really doing is shifting dollars around in our own domestic economy. He is taking dollars from importers but mostly paid by consumers and using it to prop up farmers who are being bankrupt by his trade policies. This is not a formula for economic success.

This is VERY dangerous stuff. That’s because a portion of the country believes these lies and supports a policy that has been proven ineffective.

The reason why the world has moved to multi-lateral rather than bi-lateral trade agreements is to avoid trade wars. That’s because trade wars sometimes lead to REAL wars as both sides try to ramp up leverage on each other or retaliate for what they perceive as an attack on their country.

In the case of China, we are dealing with our major global economic competitor who has recently taken a dramatic turn toward authoritarianism under Xi Jinping. Here’s how Bret Stevens characterizes them.

Domestically, it has shifted from one-party to one-man rule and become a surveillance state that locks up innocent people by the hundreds of thousands in concentration camps. Abroad, it snoops, steals, kidnaps, cheats, pollutes, undermines, corrupts, proliferates, and bullies. The goal of “Xi Jinping Thought,” the party’s new official dogma, isn’t stakeholdership. It’s dominance: “Why question the Communist Party,” goes its message, “when the alternative is chaos and corruption?”

Worse, they may already be facing internal problems which may become increasingly desperate because of a declining economy, exploding debt, aging population, shrinking workforce, and flood of its most successful citizens leaving.

Trump seems oblivious to all of this. Instead he has characterized this as a war of wills which he has to win in order to demonstrate that he is the Uber strong man in the world. In simplest terms his calculation is that he is better positioned to ride out the pain that his trade war is causing in this country compared to a defacto dictatorship where people don’t have a vote.

Even if Trump could somehow prove that trade wars result in better bi-lateral trade deals than would otherwise be available to us, it still doesn’t address core geopolitical issues.

Trump has been silent on the subject of human-rights abuses. His administration has shelved sanctions intended to punish China for mass incarceration of Chinese Muslims. Trump has failed to sanction the Chinese entities who are stealing our intellectual property. China is expanding its military and economic influence around the world. Trump is weakening or abandoning the military and economic alliances which would provide an alternative to those who might see some benefit to aligning themselves with China. Even longtime allies like Japan and South Korea are considering closer ties with China because of Trump’s America First policies.

The facts are that Trump has failed to deliver the significant economic benefits that he promised from his go-it-alone trade strategy.

The new NAFTA is not a whole lot different from the old NAFTA.  Lawmakers in all three countries refused to ratify the new deal unless Trump dropped the steel and aluminum tariff’s that he put in place to force Canada and Mexico to come to the table.  Trump had no choice, particularly given the pain that the China tariffs are causing.  He caved.

This outcome is virtually certain in all of the trade wars that Trump is engaged in, or may start in the future.  There are no winners because, in a global economy, everyone needs everyone else.  Virtually everyone is trading with everyone else.  There are very few countries that have a monopoly on a particular good or service.  There are also very few countries that can sustain themselves exclusively on what they produce domestically.  For example, the trade war was bad news for US soybean farmers, but great news for Brazilian soybean farmers who were happy to get a bigger share of the Chinese market than they had previously had.

Trump will of course claim that he won the trade war, but there is precious little in the new plan that he can point to which will justify the economic pain his policies caused.  The new NAFTA deal has already been criticized for weak environmental protections, weak unfair labor practice rules, and language which allows US pharmaceutical companies to continue to charge higher prices in this country for drugs that are available at much lower prices in Mexico and Canada. 

Finally, though it is clear that Trump’s policy is ill conceived, we still don’t have an answer to the question of why Trump continues to lie.

All we can do is speculate. But often the simplest answers prove to be the closest to the mark. The simple answer is that Trump is lying because he can. He has successfully created an atmosphere where his core supporters believe everything that he says and discount any criticism as politically motivated.

Trump campaigned on the tariff lie. He knows that if he told the truth about how tariffs really work his base would reject his plan. If he told his base that they should be willing to accept significant increases in the cost of consumer goods and farmers should be willing to accept the risk that they will go out of business before the deals get done, in return for some much better deal in the future, he would be accepting accountability for all of the pain that he is currently causing.

Hopefully, those in his base who are dealing directly with the harsh economic realities that tariffs are causing them have figured out that he is lying. Hopefully they, their families, and their friends will finally realize that they can’t afford the cost of another conservative Supreme Court justice. If so, democracy will render an appropriate judgement on the Trump administration in 2020.