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Posts Tagged ‘Tariffs’

Why we all need education in economics and international trade

Posted by M. C. on July 8, 2022


What has not changed, however, are the fundamental truths by which economies operate. And the benefits of free trade are more than just access to higher-quality, lower-priced goods — a point underscored by the recent baby formula shortage, caused in part by a limited number of domestic formula companies under strict government policies designed to keep out foreign producers. Studies show that globalization actually boosts the American economy by reducing inefficient domestic industries and providing resources and opportunity for innovation, in turn raising wages and improving living standards.

As prices at the gas pump and on our store shelves rise, President Biden recently mentioned he would consider lifting some tariffs on China in an attempt to combat exorbitant inflation. It’s an issue he has addressed before, noting that inflation is his “top economic priority.” And while doing away with tariffs is a start, there’s more to be done to encourage international trade — the real solution to combating rising costs. Simply stated, all barriers to free global trade limit competition and allow domestic producers to increase prices, a contributing factor to inflation. But somewhere along the way, elected leaders have forgotten this basic economic concept and have turned to policies limiting an international marketplace.

A global pandemic and subsequent runaway deficit spending have contributed to a historic level of inflation. Now, Republicans and Democrats alike are questioning U.S. participation in international trade and suggesting that weaning ourselves from a global free market is the right answer. In doing so, they are ignoring a basic economic truth: voluntary trade creates wealth.

Look no further than the president’s State of the Union address: “Instead of relying on foreign supply chains, let’s make it in America,” Biden said, receiving applause from both sides of the aisle. And Democrats recently revved up support for this effort, including Sen. Tammy Baldwin (D-Wis.), who introduced the Supply Chain Resiliency Act. She noted, “Our ‘made in America’ economy has been neglected, exposing us to shocks that leave us unable to produce or acquire the things we need, putting our health, economy and security at risk.” 

However, it isn’t just Democrats who want to curtail international trade. Others, such as Sen. Mike Crapo of Idaho, the ranking Republican on the Senate Finance Committee, have said the need to domestically produce critical items such as computer parts and semiconductor chips “was there solidly before, but the Russian invasion [of Ukraine] just puts an exclamation point on it” — making it clear that both parties have experienced an abrupt change on this issue over the past several years.

What has not changed, however, are the fundamental truths by which economies operate. And the benefits of free trade are more than just access to higher-quality, lower-priced goods — a point underscored by the recent baby formula shortage, caused in part by a limited number of domestic formula companies under strict government policies designed to keep out foreign producers. Studies show that globalization actually boosts the American economy by reducing inefficient domestic industries and providing resources and opportunity for innovation, in turn raising wages and improving living standards. In fact, the Bureau of Economic Analysis notes at least half of America’s imports are inputs for U.S. manufacturers, not consumer goods. These imports reduce imported-input costs, ultimately lowering a manufacturer’s production costs and facilitating economic growth.

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Conservatives and the Free Trade Straw Man | Mises Wire

Posted by M. C. on December 18, 2021

Today, we get something quite different, a set of beliefs based upon the notion that because something was “American,” it was exceptional by nature. The limits of time and space only applied to other people, not Americans, and that included laws of economics. In fact, there were not real “laws” of economics, according to these conservative historicists, just epochs of history that came and went and set their own rules.

William L. Anderson

When Ronald Reagan officially announced his candidacy for president of the United States in November 1979, he called for the establishment of a large free trade zone encompassing the USA, Canada, and Mexico. Not surprisingly, the so-called free trade agreement better known as the North American Free Trade Agreement (NAFTA) resembled the usual “managed trade” that falls much more into the category of what Randall Holcombe calls “political capitalism.” Politics has a way of doing that.

For all of the logic of theories of free trade and for all of the prosperity that has come about as international trade has expanded in the past few decades, freedom of exchange over international borders will always have its enemies. On the progressive Left, we have seen the political candidacies of Bernie Sanders and Elizabeth Warren, both of whom are hardcore protectionists.

Conservatives, however, have opposed free trade for decades and seem to be impervious to any arguments to the contrary, no matter how logical free trade policies might be. In a recent edition of the American Conservative, Clyde Prestowitz praises President Joe Biden’s proposal to heavily subsidize the US semiconductor industry. He writes:

President Biden has proposed that the U.S. government invest billions of dollars in the pivotal U.S. semiconductor industry as part of an effort to assure continued global leadership. It is a break with 70 years of U.S. free-trade doctrine, as well as a huge step back to America’s future.

While one can write volumes on the meaning of “invest” in that statement, nonetheless there is much more to understanding just how fallacious this latest conservative argument for “managed trade” really is. President Bill Clinton used that term regularly as a euphemism for more spending, and politicians recklessly have used the terminology ever since.

However, what exactly would be Biden’s “investments”? Will the federal government be financing new capital expenditures for US companies and, if so, what are the terms of financing and how will the capital be directed? Government “investments” by definition are political expenditures and require political outcomes, none of which will meet actual needs in the US economy.

Like so many conservatives that call for some forms of autarky, Prestowitz conjures up an American past that in his thinking was made possible only by protective tariffs. He writes:

This is a return to the trail first blazed by Alexander Hamilton in 1791. Hamilton proposed mimicking Britain’s budding industrial revolution by copying its technology, imposing tariffs on imports of manufactures and providing financial incentives for the development of domestic manufacturing.

Hamilton was initially opposed by Thomas Jefferson, who dreamed of an America of yeoman farmers trading produce and raw materials like timber for imported manufactures. The outcome of the debate was determined by the War of 1812, which the U.S. nearly lost for want of manufacturing capability. In its wake, Jefferson yielded to Hamilton, noting that manufactures were “as necessary to our independence as to our comfort.”

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Contact William L. Anderson

William L. Anderson is a professor of economics at Frostburg State University in Frostburg, Maryland.

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Thanks to Federal Megaspending, the Trade Deficit Has Only Gotten Worse | Mises Wire

Posted by M. C. on June 17, 2021

President Trump’s protectionist trade measures against China and other external partners have not caused a reduction of the total US trade deficit. The latter actually grew further as China’s exports found indirect ways into the US and massive domestic growth stimuli were deployed during the pandemic.

Mihai Macovei

President Trump’s protectionist trade measures against China and other external partners have not caused a reduction of the total US trade deficit. The latter actually grew further as China’s exports found indirect ways into the US and massive domestic spending schemes were expanded during the pandemic.

Almost three years after the Trump administration unleashed the trade war on China, hostilities have not ended, but only entered a truce with the Phase One trade deal signed in January 2020. The US tariff hike on more than $360 billion of Chinese goods has remained in place until today. Washington imposed four rounds of tariffs in 2018 and 2019, with the bulk of the tariffs ranging from 10 to 25 percent coming into force in September 2018 and September 2019. Beijing has gradually retaliated with tariffs ranging from 5 to 25 percent on about $110 billion of US products. The difference in the volumes of products targeted by tariffs reflects the unbalanced bilateral trade.

The covid-19 pandemic took the trade war off the headlines, but its economic disruptions prevented China from meeting the condition of the Phase One deal to purchase an additional $200 billion of US products over the 2017 level. Recently China has approached the Biden administration trying to restart trade discussions, but it seems unlikely that Biden’s policy on China would deviate significantly from his predecessor’s. As a matter of fact, Biden’s trade agenda still underlines that “China’s coercive and unfair trade practices harm American workers, threaten our technological edge, weaken our supply chain resiliency, and undermine our national interests.” In addition, the tech war continues, as top Chinese tech companies suspected to be affiliated with the military remain blacklisted and recently the US Senate passed a bill providing $250 billion in subsides to high-tech sectors competing with China. But Trump’s protectionist agenda does not seem to have reached its target, so why continue it?

The US Trade Deficit Continued Growing

The sharp increase in US tariffs on Chinese goods led to a significant decline in the bilateral trade deficit of about 25 percent, or $108 billion, from 2018 to 2020. Despite the retrenchment of the deficit with China, the US trade deficit in goods with the world has actually increased by around $35 billion from 2018 to 2020, to a record-high $915 billion (graph 1). If Trump’s protectionist measures1 appear to have worked with China, they have certainly not reduced the overall trade deficit. The situation worsened in the first quarter of 2021, when the trade deficit widened by almost 50 percent with China and by more than one-third with the world during the same period in 2020 (US Census Bureau). At the same time, the surplus in the balance of services has shrunk by about 20 percent and it seems that the US is heading for a record-high current account deficit in 2021.

Graph 1: US Trade Deficit with China and the World, 2002–20

Source: US Census Bureau

Chinese Exports Found an Indirect Way to the US

While the US trade deficit with China was shrinking, its deficit with other Asian economies was expanding almost in lockstep. From 2018 to 2020, the US trade deficit in goods to China declined by around $108 billion, but expanded by about $90 billion with Vietnam, Taiwan, Hong Kong, Singapore, Korea, Malaysia, and Thailand. Many analysts interpreted this evolution as a readjustment of global value chains and offshoring of production from China to Vietnam, Taiwan, and other Asian peers. Yet the data points to something else. As US imports from other Asian countries grew by about $32 billion in 2019 and another $30 billion in 2020, China’s exports to the same Asian economies2 grew almost in lockstep (graph 2).

Graph 2: US Imports from and Chinese Exports to Asian Economies, 2018–20


Source: US Census Bureau and UN Comtrade Database

This would suggest that China’s production has not been relocated to other Asian economies because of the US tariff hike, but that somehow its exports have found an indirect way into the US. During the trade war, businesses were obviously eager to find loopholes to avoid exorbitant tariffs without having to shift production, in particular by using transshipment, in which Chinese exports are minimally processed during a brief stop at a third port and then reexported as a non-Chinese product. The US authorities have recognized and tried to reduce this practice, but apparently without much success. Several arguments would support this view: (i) despite a drop in Chinese exports to the US of $87 billion in 2019 and another $16 billion in 2020, China’s total exports to the world grew by $13 billion in 2019 and another $92 billion in 2020; (ii) the structure of China’s exports in terms of main products has remained broadly unchanged from 2018 to 2019, not displaying large disruptions following the trade war (according to the Observatory of Economic Complexity [OEC]); and (iii) the reorientation of US imports from China to other Asian economies took place very quickly, in a matter of months rather than years, when it would be almost impossible to shift production facilities so quickly from one country to another. It would also be naïve to think that much smaller Asian economies such as Vietnam could replace China as the world’s manufacturing hub overnight. China still enjoys a large comparative advantage in terms of workforce size and qualification, infrastructure, business environment, and internal market capacity.

If some production offshoring from China to low-cost Asian economies took place, it was mainly for low-tech and low-value goods, and has not affected China’s production and exports much. Manufacturing output continued growing by almost 6 percent in 2019 and 4 percent in 2020, while high-tech manufacturing advanced even faster, by 9 percent in 2019 and more than 7 percent in 2020. And although China’s trade surplus with the US shrunk by $108 billion, its surplus with all its trade partners actually increased by more than $180 billion from 2018 to 2020 (graph 3). This trend strengthened further during the first four months of 2021, when China’s exports grew on average by 40 percent from a year before and the trade surplus increased almost three times, to $160 billion. The negative economic impact of strict lockdowns and massive growth stimuli in the US and other advanced economies has undoubtedly contributed to China’s brisk export recovery since the summer of 2020. This also brings us to the heart of the problem of the US’s large and persistent current account deficits.

Graph 3: Chinese Trade Surplus with the US and the World, 2000–20

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Contact Mihai Macovei

Dr. Mihai Macovei ( is an associated researcher at the Ludwig von Mises Institute Romania and works for an international organization in Brussels, Belgium.

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Joe Biden Inadvertently Schools Conservatives and Libertarians on Tax Deductions – LewRockwell

Posted by M. C. on March 3, 2020

The millennial, X, Y, Z…whatever sheeple continue to believe free stuff will be free.


Like the other Democratic presidential candidates, former senator and vice-president Joe Biden has a tax plan—a plan to raise taxes.

To raise an additional $3.4 trillion government revenue over the next decade to address climate change, infrastructure, health care, and higher education, Biden has put forth ten specific proposals.

Eliminate stepped-up basis. Appreciated assets transferred by a decedent can no longer be “stepped up” to fair market value at the time of death.

Raise the top rate on ordinary income. Increase the top income tax rate from 37 percent to 39.6 percent.

Tax capital gains and dividends at ordinary rates. Increase the top capital gains and dividends tax rate from 23.8 percent to 39.6 percent.

Limit itemized deductions. The reduction in tax liability per dollar of deductions cannot exceed 28 percent.

Raise the corporate tax rate. Increase the corporate income tax rate from 21 percent to 28 percent.

Impose a minimum tax on corporate book income. C corporations with more than $100 million in book income would be required to pay the greater of normal corporate tax liability and 15 percent of book income.

Raise the tax rate on foreign profits. Decrease the global intangible low-taxed income (GILTI) deduction thereby increasing the effective tax rate on corporate income earned by foreign affiliates from 10.5 to 21 percent.

Eliminate fossil fuel subsidies. Eliminate certain tax credits for oil, gas, and coal production, including expensing of exploration costs and percentage depletion cost recovery rules.

Eliminate real estate loopholes. Eliminate the ability of owners of appreciated real estate assets used in a trade or business to defer capital gains taxes when exchanging the asset for property of “like kind.”

Impose sanctions on tax havens. Impose sanctions on countries that facilitate corporate tax avoidance.

Additionally, concerning tariffs, which are merely taxes under another name, Biden has said that some of Trump’s tariffs should come off, but others should go on. Biden has also said that he supports a financial transactions tax. And regarding the 12.4 percent Social Security payroll tax, which is currently levied on the first $137,700 of employee wages, Biden would also apply it to wages above $400,000.

The Penn Wharton Budget Model (PWBM) projects that Biden’s tax plan would raise between $2.3 trillion (including macroeconomic effects) and $2.6 trillion (not including macroeconomic effects) over the next ten years—not the $3.4 trillion that the Biden presidential campaign estimates. I suppose this can be considered a good thing.

About the only real good thing about Biden’s tax plan is that he is not proposing a wealth tax like Senators Bernie Sanders and Elizabeth Warren.

What I want to focus on is Biden’s attempt to limit how much taxpayers can use deductions to reduce their tax liability. As pointed out above, he is calling for capping the value of tax deductions for the wealthy at 28 percent. Biden’s campaign claims that this would raise $310 billion over the next ten years.

Joe Biden understands a principle that some conservatives and libertarians have yet to grasp: decreasing tax deductions increases taxes.

Tax deductions reduce one’s income subject to tax. One will pay less in taxes the greater the number, and the greater the amount, of deductions that he qualifies for. Eliminating or reducing the value of tax deductions has the same effect as raising tax rates: less money in the pockets of Americans and more money in the pockets of greedy, profligate Uncle Sam. Any support for eliminating or reducing tax deductions should be seen as a call to raise taxes—even if the supporters are conservatives and libertarians whining about how much “complexity” deductions add to the tax code, how much deductions “distort” the tax code, how much deductions “subsidize” high-income taxpayers, and how much deductions encourage people to make “economically unwise decisions.” All tax deductions are good; it doesn’t matter whom they benefit or why Congress enacts them.

Tax deductions—and their cousins tax exemptions, tax breaks, tax loopholes, tax shelters, tax incentives, and tax credits (as long as they are not refundable)—are not subsidies that have to be paid for. Since there is no chance that the income tax will be eliminated or the tax rates substantially reduced, the importance of tax deductions cannot be overstated. As long as Americans have an income tax, the more deductions they can take to lower their tax liability the better.

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Free lunch.



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The EU’s Latest Screw-You to the UK Shows a Big Problem with Trade Agreements | Mises Wire

Posted by M. C. on February 29, 2020

Let me translate that for you: European politicians are concerned
there might be too much freedom in the UK after Brexit is finished.
Brussels fears producers in the UK might use that freedom to produce
goods and services that will be more affordable to European consumers.

Thus, the EU’s negotiators want to force British producers to labor
under all the same entrepreneurship-crushing and innovation-destroying
regulations that Europeans now must endure.

Should they refuse, the EU plans to hike tariffs or employ other trade-blocking sanctions.

A free trade agreement longer than one page is not “free” and is benefiting someone that’s not you.

All too often, discussion over trade deals focuses almost solely on tariffs.

It’s true that tariffs—i.e., taxes—are always a significant barrier to free exchange at all levels, but there are also plenty of ways to block or lessen trade that are not primarily tariff-based. Recent conflicts over the pending negotiations between the UK and the EU are a reminder of this.

For instance, The Guardian reported yesterday “The EU will demand the right to punish Britain if the government fails to shadow the Brussels rule book in the future….The bloc will demand that the British government apply EU state aid rules in their entirety as they evolve.”

Specifically, EU countries—especially France—want to make sure

that Britain must comply with strict “level playing field” provisions to ensure that the UK does not undercut the EU on issues like the environment, state aid and workers’ rights.

Let me translate that for you: European politicians are concerned there might be too much freedom in the UK after Brexit is finished. Brussels fears producers in the UK might use that freedom to produce goods and services that will be more affordable to European consumers.

Thus, the EU’s negotiators want to force British producers to labor under all the same entrepreneurship-crushing and innovation-destroying regulations that Europeans now must endure.

Should they refuse, the EU plans to hike tariffs or employ other trade-blocking sanctions.

The Creation of a Global Trade Bureaucracy

This isn’t to say that the EU is the only state or quasi state guilty of working to limit trade while also claiming to be expanding it.

The United States-Mexico-Canada Agreement (USMCA, the successor to NAFTA) features the use of government regulations to manage trade and limit foreign freedoms that might be used to “undercut” other countries.

As with NAFTA, under the USMCA Mexico can’t export goods to the United States unless those producers are subject to new labor laws demanded by US negotiators. Mexican firms must also adhere to US-approved environmental regulations and to intellectual property laws that extend corporate monopolies (mostly patents) into ever longer time periods.

And, of course, Mexico must conform to “country of origin” rules designed to ensure that other countries aren’t using Mexico as a pass-through for their goods.

What if Mexico doesn’t comply? Well, then tariffs go up, thus illustrating that the agreement was never really about free trade in the first place.

After all, under both the USMCA and the EU agreements, enforcement of all these regulatory provisions requires a whole host of bureaucratic agencies designed to monitor and regulate trade so as to ensure compliance.

When your “free trade” agreement depends heavily on thousands of pages of rules and regulations, then somebody has to check to make sure “40 to 45 percent of automobile parts must be made by workers who earn at least $16 an hour,” or that 75 percent of a manufactured good’s components come from an approved location. There must be inspections, reports, audits—and when necessary—judicial-type proceedings designed to determine guilt and punishment.

We should also expect these requirements, regulations, and mandates to get worse over time. Ever since NAFTA was inked, there have been complaints that the agreement did not impose enough new requirements on the Mexicans to suit the desires of environmentalists and labor union advocates. And, of course, huge corporations are always demanding ever-more-exploitive intellectual property rules. We should not expect those demands to go away with the USMCA.

Meanwhile, Europe isn’t exactly in any danger of liberalizing its regulatory regime. If the past decade is any indication, the next ten years will bring a host of new regulations. Through it all, the EU is now telling us the British will be expected to “keep up” or “harmonize” its own laws with those of the EU. Otherwise, Britain will be accused of abusing the system by providing a means for employers and producers to avoid some regulations but still get access to the EU trading bloc.

Poor Countries Often Get the Worst of It

But at least the UK is already a rich country. In the case of Mexico, as with other developing countries, these nontariff trade barriers “may erode the competitive advantage that developing countries have in terms of labour costs and preferential access.”1

Yes, poor countries can offer cheap labor to bring down costs of producing goods. But when exporting those goods requires jumping a host of regulatory burdens, costs can quickly climb again. Moreover, these regulatory requirements can be stacked on top of each other. Under EU rules, for example, a trading partner in Africa might need to meet “sanitary” requirements around food quality while also meeting labor requirements and quality control mandates on manufactured goods. In many cases, these requirements are difficult to meet because producers in poorer nations lack the expertise and capital to achieve compliance at a level far above what the market itself demands.

For this reason, “tariff liberalization alone has generally proven unsuccessful in providing genuine market access [and] has drawn further attention to non-tariff measures (NTMs) as major determinants in restricting market access.”2

Nor are these “regulatory harmonization” efforts the only sort of nontariff barriers at work. According to this 2017 study,3 these can include domestic subsidies designed to make domestically produced goods more competitive than foreign ones. Other nontariff barriers include straight-up quotas on foreign goods and laws requiring governments procure goods and services only from domestic firms. Given the size of the public sector in many countries—including the US, which heavily employs this type of trade barrier—those kinds of provisions have a sizable impact on international trade.4

Global non-tariff barriers, 2009-2016:

Source: Erdal Yalcin, Gabriel Felbermayr, Luisa Kinzius, Hidden Protectionism: Non-Tariff Barriers and Implications for International Trade (Munich: Liebniz Institute for Economic Research, 2017), p. 8.​

Of all of these, though, it may be the use of regulatory mandates as a trade barrier that is the most insidious. By requiring trade partners to expand their own regulatory states so as to “harmonize” their legal environments with those of trading partners, trade agreements actually expand the power and jurisdictions of bureaucratic regimes.

Trade Bureaucracy Destroys Innovation and Entrepreneurship in Rich and Poor Countries Alike

Like all trade barriers, this may be a net win for certain interest groups within the country where the state is pressing for greater regulatory mandates. But these measures also cut out much of the benefit of expanded international trade for entrepreneurs and consumers.

For example, imagine a small chain of US restaurants discovers a new much more affordable source of avocados in El Salvador. The restaurant chain then begins to demand more avocados than it could afford to buy before. Farmers in El Salvador start to hire more workers to harvest the avocados and ship them north. The American restaurants then hire more truckers to deliver the avocados and more waiters to serve their customers.

But then it turns out that the El Salvador farmers aren’t paying the workers the wage mandated in the trade agreement between the US and El Salvador. US trade negotiators then demand that the farm owners pay higher wages or submit to a 20 percent tariff. As a result, El Salvador workers are laid off and become once again unemployed. Meanwhile in the US the restaurant chain must scale back its operations and close stores as a result of rising food costs. Had there been real free trade, of course, the workers, the restaurant owners, and the diners would have all been free to produce avocados in a way that everyone could agree on. But then regulators got involved and imposed regulations to make sure Salvadoran workers and farmers weren’t “undercutting” US workers and farmers. The enforcement of these provisions might be a win for certain American farmers and labor unions. But it’s a loss for everyone else.

So much for “free trade.”

Here we see again the dark side of economic integration: what was billed as a lowering of taxes, barriers, and “transaction costs” was in many ways just an expansion of the state’s jurisdiction. We are witnessing something very similar in the Brexit negotiations. The UK is angling for an agreement to facilitate trade, but in the end it may just end up increasing Brussels’s power over British consumers.

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Patrick Buchanan: Tariffs — The Taxes That Made America Great

Posted by M. C. on May 15, 2019

Free trade. Free is good, right?

Buchanan seems to advocate permanent tariffs. The Donald appears to view tariffs as a non-permanent corrective measure, I think.

Tariffs encourage high domestic producer prices and lessen efficiency incentives.

A few win and we pay the price. Literally.

Is what was true 100 years ago true today? I am afraid we will find out the hard way. Time will tell.

By Patrick J. Buchanan

As his limo carried him to work at the White House Monday, Larry Kudlow could not have been pleased with the headline in The Washington Post: “Kudlow Contradicts Trump on Tariffs.”

The story began: “National Economic Council Director Lawrence Kudlow acknowledged Sunday that American consumers end up paying for the administration’s tariffs on Chinese imports, contradicting President Trump’s repeated inaccurate claim that the Chinese foot the bill.”

A free trade evangelical, Kudlow had conceded on Fox News that consumers pay the tariffs on products made abroad that they purchase here in the U.S. Yet that is by no means the whole story.

A tariff may be described as a sales or consumption tax the consumer pays, but tariffs are also a discretionary and an optional tax.

If you choose not to purchase Chinese goods and instead buy comparable goods made in other nations or the USA, then you do not pay the tariff.

China loses the sale. This is why Beijing, which runs $350 billion to $400 billion in annual trade surpluses at our expense is howling loudest. Should Donald Trump impose that 25% tariff on all $500 billion in Chinese exports to the USA, it would cripple China’s economy. Factories seeking assured access to the U.S. market would flee in panic from the Middle Kingdom.

Tariffs were the taxes that made America great…

What great nation did free traders ever build?

Free trade is the policy of fading and failing powers, past their prime. In the half-century following passage of the Corn Laws, the British showed the folly of free trade.

They began the second half of the 19th century with an economy twice that of the USA and ended it with an economy half of ours, and equaled by a Germany, which had, under Bismarck, adopted what was known as the American System.

Of the nations that have risen to economic preeminence in recent centuries — the British before 1850, the United States between 1789 and 1914, post-war Japan, China in recent decades — how many did so through free trade? None. All practiced economic nationalism…

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Trump’s Trade War is Already Over — Strategic Culture

Posted by M. C. on May 14, 2019

After that the real energy war starts as Russia completes Power of Siberia and begins pumping natural gas to China. And China directs its state oil companies to buy more oil from Iran while lowering its purchases from Saudi Arabia unless the Saudis accept Yuan for it.

That’s where the real leverage in this whole fiasco lies.

Tom Luongo

May 12, 2019

I hate to break the news to China bashers, but the trade war with the US is over. I’ve maintained for months that Trump has no leverage in trade talks with China. If he did China would have done a deal by now.

They haven’t and they likely won’t unless you are talking some form of deal which allows Trump to save face here. But to be honest I’m beginning to doubt whether anyone in the White House cares. This is about the Great Powers Game and the simpleton idea that for one country to win in trade another has to lose.

This is, of course, nonsense.

Trade is not a zero-sum game. Ideally, all voluntary trade is a win-win scenario for both the buyer and the seller. If it wasn’t the trade would not be made. Lost in the numbers is the comparative perceived value of the exchange.

China is still running a massive trade surplus and that is true. But from the perspective of US trade, that is as much a function of Trump’s own profligate spending habits as any structural inequalities.

Trump is running a $1 trillion budget deficit. This is money that is conjured up out of thin air by the miracle of selling bonds. $1 trillion in bonds. Where do you think those $1 trillion in government expenditures goes to?

The moon? Laos?

No. It goes to China. It also finds its way into the US equity market Trump is so in love with and other places that produce goods that we Americans buy with that money. If Trump wants to win the trade war with China he should consider spending a little less money allow consumer prices here in the States to fall and let his tax cuts continue to attract capital for the right reasons – the value the American work force is capable of generating…


Over at my blog recently I noted:

China’s not going to implode over these tariffs. It will give Xi and his central bank the opportunity to devalue the yuan in response to the slower flow of dollars. It has to protect the lion’s share of its trade with Southeast Asia and Europe whose currencies are already in trouble.

And it will bail out the most strategically-sensitive banks and businesses over-exposed to them. It’s what they did last year in response to the 10% tariff and it is what will happen this time.

Lastly, however, is the part no one actually wants to discuss which is that China has to protect its trade with Southeast Asia and Europe. The Yuan didn’t devalue in a vacuum. The euro is down 13% from its high as are currencies like the Indonesian Rupiah, the Malaysian Ringgit and Thai Baht.

What Trump and his team are arguing for in trade negotiation is no different than what they’ve offered Iran and Lebanon, surrender your sovereignty or face punishment.

So, China reciprocates and cuts off US soybeans and other food exports. Now, a year later, Midwest banks are facing surging bankruptcies from farmers hit with the double whammy of no exports to China (who now buys them from Brazil) and massive flooding from an abnormally vicious winter and spring.

They have Trump to thank for this. He didn’t help them by not thinking through how we could be hurt by China’s reaction to his belligerence…

Let’s shift gears now and talk about what’s really going on.

Trump’s team would be fine with a trade deficit if China was still recycling that trade surplus into US Treasury bonds. They aren’t. The Chinese have held their stock of US debt between $1.1 and $1.25 trillion for two years now.

They are sending a lot of those dollars back out into the world to fund their massive Belt and Road Initiative (BRI). They are also using them to power swap arrangements with countries feeling the bite of Trump’s sanctions. Countries like Turkey, Pakistan and Iran, for examples.

To the paranoid schizophrenics who run his White House can only see China rising as a threat not a complement to the US.

Again, these are people with a zero-sum view on trade.

They, like Trump, only see things in terms of power. And if China is running a surplus they are gaining it and we are losing it.

The push to sanction the world and stop the unapproved use of the dollar is beginning to have catastrophic effects on the world economy. People like John Bolton and Secretary of State Mike Pompeo don’t care about those things. In fact, the more our ‘enemies,’ as they see them, suffer, the better it is for us. Such is their reductionist view of the world.

In no way do I believe China is somehow blameless or anything. They have taken egregious advantage of the US’s terrible policies for decades. But they are also shifting away from their mercantilist policies as Xi shifts the economy away from exports and towards a domestic consumption model…

After that the real energy war starts as Russia completes Power of Siberia and begins pumping natural gas to China. And China directs its state oil companies to buy more oil from Iran while lowering its purchases from Saudi Arabia unless the Saudis accept Yuan for it.

That’s where the real leverage in this whole fiasco lies…






Posted in Uncategorized | Tagged: , , , , , | Leave a Comment » Murray Rothbard vs. Donald Trump on Tariffs

Posted by M. C. on May 11, 2019

Murray Rothbard vs. Donald Trump on Tariffs

Murray Rothbard

From Power & Market: Government and the Economy (1977)by Murray Rothbard:

Tariffs and various forms of import quotas prohibit, partially or totally, geographical competition for various products. Domestic firms are granted a quasi monopoly and, generally, a monopoly price. Tariffs injure the consumers within the “protected” area, who are prevented from purchasing from more efficient competitors at a lower price. They also injure the more efficient foreign firms and the consumers of all areas, who are deprived of the advantages of geographic specialization. In a free market, the best resources will tend to be allocated to their most value-productive locations. Blocking interregional trade will force factors to obtain lower remuneration at less efficient and less value-productive tasks…

The arguments for tariffs have one thing in common: they all attempt to prove that the consumers of the protected area are not exploited by the tariff. These attempts are all in vain. There are many arguments. Typical are worries about the continuance of an “unfavorable balance of trade.” But every individual decides on his purchases and therefore determines whether his balance should be “favorable” or “unfavorable”; “unfavorable” is a misleading term because any purchase is the action most favorable for the individual at the time. The same is therefore true for the consolidated balance of a region or a country. There can be no “unfavorable” balance of trade from a region unless the traders so will it, either by selling their gold reserve, or by borrowing from others (the loans being voluntarily granted by creditors).
The absurdity of the protariff arguments can be seen when we carry the idea of a tariff to its logical conclusion—let us say, the case of two individuals, Jones and Smith. This is a valid use of the reductio ad absurdumbecause the same qualitative effects take place when a tariff is levied on a whole nation as when it is levied on one or two people; the difference is merely one of degree.25 Suppose that Jones has a farm, “Jones’ Acres,” and Smith works for him. Having become steeped in protariff ideas, Jones exhorts Smith to “buy Jones’ Acres.” “Keep the money in Jones’ Acres,” “don’t be exploited by the flood of products from the cheap labor of foreigners outside Jones’ Acres,” and similar maxims become the watchword of the two men. To make sure that their aim is accomplished, Jones levies a 1,000-percent tariff on the imports of all goods and services from “abroad,” i.e., from outside the farm. As a result, Jones and Smith see their leisure, or “problems of unemployment,” disappear as they work from dawn to dusk trying to eke out the production of all the goods they desire. Many they cannot raise at all; others they can, given centuries of effort. It is true that they reap the promise of the protectionists: “self-sufficiency,” although the “sufficiency” is bare subsistence instead of a comfortable standard of living. Money is “kept at home,” and they can pay each other very high nominal wages and prices, but the men find that the real value of their wages, in terms of goods, plummets drastically.
Truly we are now back in the situation of the isolated or barter economies of Crusoe and Friday. And that is effectively what the tariff principle amounts to. This principle is an attack on the market, and its logical goal is the self-sufficiency of individual producers; it is a goal that, if realized, would spell poverty for all, and death for most, of the present world population. It would be a regression from civilization to barbarism.

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Tariffs: The Preferred Tax of Masochists

Posted by M. C. on May 10, 2019

We have seen this before. It is worth repeating.

Tariffs make imported cars $4000 more expensive. Domestic manufacturers jack their price to $1000 less. You lose, again. Tariffs are a bankster issue.

Steel tariffs mandate buying expensive domestic steel. Only often it does not get bought. Here is an energy balance equation like you were supposed to learn in school.

High cost + limited budget = no project + no jobs.

Tariffs are the inverse of a septic tank. It all sinks to the bottom, where the consumer lies.

As stated in Mr. North’s post most suffer, selected few profit, you pay the final bill.

For the most part no one cares much about buy American when price is (always) the issue. If we did Walmart wouldn’t exist.

Gary North – January 28, 2016

If I were to come to you and say “What this country needs is higher taxes in order to make us all rich,” you would correctly conclude that I had lost my mind or my principles. But if I were to come to you and say, “What this country needs is higher tariffs to make us all rich,” a considerable number of you would say, “You know, he’s absolutely right.”

What you need to understand is that these two statements are the same, economically speaking: “What this country needs is higher taxes to make us rich” and “What this country needs is higher tariffs to make us rich.”

Why are they the same? Because a tariff is a tax. This is the “dirty little secret” that every promoter of higher tariffs never tells you. It is the secret revealed by economic analysis ever since Adam Smith’s Wealth of Nations (1776), which is why those people who publicly promote tariffs are very seldom trained economists, and why those few who are economists are devoted followers of John Maynard Keynes and hostile to the idea of economic freedom.

Something for Nothing?

The fundamental principle of economics is the fact of scarcity: “At zero price, there will be greater demand for most goods than there is supply of these goods.” This means that whenever we hear someone offer a scheme that promises us something for nothing, especially a scheme enforced by the State, we should be on the alert. “Put your hand upon your wallet and your back against the wall!”

The defenders of tariffs insist that tariffs are the one remarkable exception to the logic of economics. We can raise tariffs (get the government to collect more sales taxes on imported goods), and in doing so, stimulate the economy and increase our nation’s per capita wealth. Let’s think about this for a moment. Higher sales taxes are beneficial to the economy? That is what the tariff advocate is saying, though he never says it this way. (If he said it this way. nobody would believe him.)

This is Keynesianism with a vengeance: tax and tax, spend and spend. This is the tax collectors’ siren song. “We’ll take your money, and you’ll be so much better off!” This is the economics of the New Deal: tax ourselves rich. Yet conservatives buy this argument almost every time when the word “tariff” is substituted for “tax,” unless they have read and have also understood Henry Hazlitt’s Economics in One Lesson or some similar free market economics book. They instinctively have faith in word magic: substitute a different word, and the laws of economics no longer apply.

The argument for tariffs as wealth-creating devices is the equivalent of the logic of the perpetual motion machine. It is the logic of something for nothing. Only a few pathetic, naïve, and misinformed souls ever get taken in by the professional hustlers who sell them on the idea of investing in some perpetual motion machine project. Unfortunately, millions upon millions of voters are quite willing to open their wallets to the Federal government whenever the politicians promise endless wealth for all Americans–through higher tariffs… Read the rest of this entry »

Posted in Uncategorized | Tagged: , , , | Leave a Comment » Krugman: Trump’s Tweets on Trade and Tariffs are So Idiotic That I Am Going to Reference Them in My Textbooks

Posted by M. C. on May 8, 2019

“to a first approximation, foreigners paid none of the bill, U.S. companies and consumers paid all of it.”

Paul Krugman nails it again. Trump is so bad on trade that he makes Krugman look like a sound economist.

PK writes in his new New York Times newsletter:

Trump’s tweets over the past few days may well be featured in future economics textbooks as perfect illustrations of how people misunderstand the basics of international trade and trade policy. In fact, I can pretty much guarantee it, since I’m the co-author of two textbooks.

First, Trump is still saying that because we run a $500 billion trade deficit with China — it’s actually $379 billion, but who’s counting? — that means we lose $500 billion. As some economists quickly pointed out, by this logic we all lose when we go shopping at our local supermarkets. After all, do the supermarkets buy anything from us in return? No!

Second, Trump keeps asserting that China is paying the tariffs he has already imposed. This could be true, if tariffs were driving Chinese prices down; in fact, the threat of more Chinese tariffs on U.S. agricultural exports is one reason grain prices have just plunged to a record low.

But enough time has passed for economists to look at the actual results of Trump’s trade policy so far, and the Chinese are not, in fact, paying the tariffs. As I wrote a couple of months ago, “to a first approximation, foreigners paid none of the bill, U.S. companies and consumers paid all of it.”

So if you’re trying to make sense of what’s happening on trade, you should start with the basic point that Trump has no idea what he’s doing, that there isn’t any coherent U.S. policy goal.


Be seeing you


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