Wednesday, July 11, 2018

The Tariff wars are Good for the US

Many people believe that tariffs are bad for the country. Let’s point out that the first 100 years of our country, those tariffs paid almost all of the revenue needed to run our government. And of course, we stole and abused patents back then, from all over the world, like China is doing now.

We could completely get rid of our steel and aluminum production if we cut our tariffs to zero. The only trouble is that if we got in a war, we might have to purchase the steel and aluminum from the party we are fighting. It’s a little like our civil war. The South lost because they did not have an industrial base.

In today’s modern world, any manufacturer can pick up and move to a cheap labor country for production. Every time I iron my button-down shirts, I tour the world; Singapore, India, Panama, Vietnam, Pakistan, Bangladesh to name a few. I can’t document it, but I would guess that most Ex-American manufacturers that produce product in another country get to avoid a lot of the overhead that was generated from production in the USA. What they would have paid in expenses over here, disappear over there, and surface as extra profit for the entrepreneur.

China thinks by limiting soy beans from the US with a tariff will be retaliatory. Sorry you’re wrong there. Fewer farmers will plant soy beans next year and prices will jump just because of the shortage. The Chinese government might understand tariffs, but they have no idea of what the futures market is all about. Food and raw materials are not really taxable with tariffs. If China wants to import soybeans from another country, go for it.

It cracks me up when Europe says it will put a tariff on Harley Davidson and Jim Beam whisky. Why not put a tariff on the cars we export over there? The reason they don’t is because they already have a tariff in place on our auto exports. Europe will pay for our whisky and our motorcycles whatever the tariff. Luxury items are immune to tariffs. You have to be part of the upper 10% to afford them.

The tariff problem could work out. If we don’t make the item, the tariff would imply that we should. Tariffs protect infant industry just starting up. In the past, letting imports crush our local industry with cheap foreign labor and production, changed our country in a bad way.

It scares me when everything I pick up in my office says “Made in China.” There was a time when you bought American because of the quality. If you are a frog, it has been a very slow boil, 50 years since they turned on the heat.

What we can be certain of is that before Trump, everyone was very comfy with all of the existing trade agreements. In return the US got cheaper goods and lost their industrial base. On top of that, the transition was gradual and everyone got used to it. Or so we thought. Ross Perot ran for president on the "Giant sucking sound in Mexico called the Nafta agreement." Who wanted to believe him? Give the peasants cheaper toys and they will be happy.

What happened over time? American industry moved to Mexico and then from there to China. The consumer got very little benefit. Of course, food stamps and unemployment insurance are benefits. Let’s see how Trump's tariffs work out over the next 3 years. Our industrial production over the last 30 years hasn’t been that great for the country as a whole.