For Many People, the Tariff Debate Is a Distraction with Potentially Dire Consequences

If you’re confused about President Trump’s trade policies, I suggest you revisit the transcript of a March 2011 interview, where Mr. Trump put forth his views clearly and succintly. Here’s an excerpt:

Now, most economists don’t like this reasoning, not one bit. They think it’s ludicrous for people to pay more for products and services than they’d have to pay if the market was allowed to find an equilibrium unencumbered by tariffs and other trade barriers. In other words, why pay $2,000 for a sofa made in North Carolina when you can purchase an equivalent one made in China for half that price?

Understandably, though, people who’ve lost they jobs to foreign producers see it differently. Being unemployed, or severely underemployed, tends to frame most issues in a deeply personal way. Their concern is jobs, plain and simple. They don’t much care whether shoppers at Walmart will have to pay more.

This is a gross oversimplification of the issues, of course. Economists could and have written entire books on the subject. But people tend to see issues in pretty simplistic and stark terms. Nuances and complexity don’t count for much when your job is at stake, whether you’re a domestic worker or a foreign one who’s making products for the U.S. market.

The one thing most people can agree on is the need for fair trade. And, admittedly, many of the trade rules aren’t fair by any reasonable standards. It’s not that some people and companies, including Americans (including most consumers who have good jobs), haven’t benefited from the rules as they are. They have. But that’s merely an acknowledgement that, no matter what the rules are, there are always winners and losers.

From my perspective as someone who may be retiring soon, the tariffs aren’t a welcome thing. My income will be relatively fixed (depending on my investment returns) while the costs of goods will increase due to these new taxes and the inevitable upward pressure on prices, and downward pressure on quality, caused by less competition and imbedded structural inefficiencies.

But, of course, the tariffs may be welcome to some people, namely, those who may secure jobs that are supplanting imports. However, the number may not be significant, and they may be dwarfed by the number of people who lose jobs due to retaliatory tariffs imposed by other countries. Even without the offset of lost jobs, the number added may not be as significant as some people believe.

The reason is simple: technology. Robots and computer-assisted machines and processes already have displaced many workers, including many of the workers who mistakenly think they’ve lost their jobs to foreign workers. And this phenomenon is just getting started. It’s likely to spread farther through the ranks of both blue and white-collar workers no matter what happens with tariffs.

Which brings me to my main point: young people shouldn’t be distracted by the tariff debate. Rather, they should focus on that which they can control and influence, namely, their own learning, knowledge, and skills in the context of a world in which more and more human activity will be taken over by computers and computer-assisted machinery, no matter what tariffs are in place.

This transformation has huge implications for people. No one can be sure how it will all play out; however, it’s likely it will result in a further stratification of workers and even less equal distribution of income and wealth.

When I was teaching, I tried to challenge my students to address this question when choosing a major and potential career path: What will you be able to do that computers won’t be able to do better? Not only today, but in the decade ahead.

American workers’ stiffest competition in the years ahead won’t come from China: it will come from digital technology. Mr. Trump’s mindset is stuck in the 1950s. When you’re a 71-year-old billionaire, there is little risk in that. If you’re in your 20s and aren’t a billionaire, there is a whole lot of risk.

The aging Baby Boomers who are hostage to mindsets formed in the 20th century will be consumed by debating the president’s policies. The smart young people of the 21st-century will focus on the things they can control. And will be preparing for a future than will look very different from the past.

Student-Loan Debt Is Following Americans into Retirement

I can’t imagine carrying student-loan debt when I was 40 years old. Or 50. Or, for heavens’ sake, 60 or older. But that’s what happening in America according to the New York Fed.

Of course, some of this debt will never be repaid. The U.S. taxpayer, who holds most of the debt via its federal government, will have to absorb the losses. The winners in such a system are the colleges, who received most of the loan proceeds.

When I was a college president, I was shocked by the willingness of some students to incur ridiculous amounts of debt for a college degree with little economic value. There just didn’t seem to be any concern over the relationship between the debt and that which was being purchased with the proceeds, or about the impact of the debt on their lives in the years ahead. I believed then and believe now that we need:

  • to do a much better job of educating our kids about personal finance; and
  • to revamp a seriously flawed student-loan program.

Unfortunately, none of this seems to be a priority, either with our local school boards or our national government. So nothing has changed. Except the loan balance, that is. The total amount of student debt has grown to about $1.5 trillion. And it’s continuing to rise.

A War That No One Will Win

The war is on. History tells us no one wins such wars. But the U.S. is throwing caution to the wind and proceeding nonetheless. Its president says he’ll win this war. But he’s a fool. No one of any substance believes him.

The war is picking up steam quickly. It started about a month ago with the U.S.’s announcement of new tariffs on steel and aluminum imports. China shot back with a list of 128 U.S.-produced products that would be subject to new tariffs.

The next battle in this war started last night, when the White House unveiled new tariffs on 1,300 additional Chinese products. It’s a long list. I found myself in bed scouring the list to see if a products that compete with any of my clients were included.

The Chinese struck back quickly. It took them only a matter of hours (by the time I got up this morning) to impose new tariffs on 106 categories of goods presently imported into China from the U.S.

The war is now on. In full force.

If you want to see a list of potential losers in this war, all you have to do is scan through the list of products that will be subject to these new stiff taxes and then start working your way backwards to determine who their producers and their suppliers are. Or wait for the inevitable news reports of layoffs and other financial hits that will be taken by affected industries and producers as well as their employees.

Prices may be affected, too. In certain cases, prices could rise due to lessened competition; in other cases, prices could fall, at least in the short term, due to oversupply. It’s too complicated to model in one’s head. We’ll have to await the economists’ modeling or be patient enough to observe price changes for ourself.

There may be other winners, including some domestic producers and other importers who now will have less competition from China. We’ll have to wait and see how this plays out.

Some people who have assessed the list of new tariffs imposed by the Chinese say it appears the Chinese have intentionally targeted states that supported Mr. Trump in the election. I hope so. It would only be fair to the states that didn’t support him. Targeted fallout is always preferable to generalized impact which, by its nature, ends up with innocents taking collateral damage. It’s only fair that those who voted for Mr. Trump bear the brunt of his reckless actions.

Based on everything the president and his minions have said to date, it appears unlikely this is the final battle in this new trade war. It’s likely our neighbors in North America will get pulled into this war as well as our Allies in Europe, especially Germany for whom the president seems to harbor ill-will.

Stay tuned. And hope you don’t get caught in any cross-fire.

Feudalism Is Back

Home ownership in the U.S. continues to remain out of reach for many people. The home ownership rate for American households now stands at only 62.9 percent, down from a high of 69.7 percent. The rate is the lowest it’s been since the Census Bureau started tracking it in 1965.

Meanwhile, about a third of millennials are still living with their parents.

Financial independence for a majority of our fellow citizens is more illusive than at any time in my lifetime. We are becoming a nation of haves and have-nots. That is truly disturbing for some of us.

(Attribution: The title of this post is attributed to Sven Henrich, who labeled his tweet of this chart as such.)

P.S. A couple other disturbing charts I ran across this morning.

 

Students Use Your Money to Invest in Cryptocurrencies

I have issues with our federal student loan program. But this wasn’t one of them. Until now that is.

From Investopedia:

According to a study by The Student Loan Report, over one-fifth of current university students with student loan debt indicated that they used their student loan money to invest in digital currency such as bitcoin.

The student loan news and information website found that 21.2% of the 1,000 students they surveyed indicated that they used their borrowed cash to gamble on the highly volatile digital currency market. While school administrators may look down upon the practice of using borrowed funds for non-school expenses, Student Loan Report indicates that there are currently no rules against it. College students are able to use loans for “living expenses,” a flexible category that covers a wide range of potential necessities.

I wonder if any of these risk takers will be unable to complete their studies because of their investment losses. Probably, but we may never know.

All of these student loans are funded by money borrowed by your federal government. In other words, you, the taxpayers, are on the hook to repay those borrowed funds if the student-borrowers fail to repay their student-loans. Not surprisingly, student-loans have a high default rate, meaning the lender (the U.S. Government) has to absorb the losses. It appears those losses may be increasing due, in part, from the risky investments made by the students in cryptocurrencies.

It will be interesting what effect, if any, stories like this one have on the student loan program. The main beneficiary of the program is the colleges, who would be compelled, without the program, to run more efficient operations and keep tuition low. In other words, the student-loan program is an indirect subsidy of the colleges.

There are better ways to assist needy students with a college education. Yet, at this time, I haven’t seen any political support for pursuing any of them. So it looks like taxpayer money will continue to be used for dubious purposes.

What Will America Look Like As This Transformation Unfolds?

This phenomenon — the aging of the Baby Boomers — will transform America in a myriad of ways: economically, financially, socially, religiously, politically, and culturally. It’s going to be interesting to watch.

Perhaps the most pressing concern is the financial one. The underfunding of pensions is huge. And the increasing demands on Social Security and Medicare will be mammoth. I’m not sure how we’re going to deal with these problems. It could get ugly.

The chart also reminds me of my own situation. I’m average — average age for a Boomer, that is. I’m not at the leading edge, and I won’t be bringing up the rear. So I have a pretty good vantage point, although I’ll be more vulnerable than the point and less vulnerable than the rear to potential fiscal hazards.

Mortality also comes to mind. Statistically, it’s a long ways off, yet I know that, in real life, very few of us are the mean or median. Anything could happen at any time.

Death has a way of surprising us. I volunteer at a nursing home. Last evening I arrived and, at a place always occupied by one of the ladies I know, there was a small bouquet of flowers. My heart sank. I feared the worse. As it turned out, she had choked to death from a sandwich the previous night. I never got to say goodbye. Or to tell her how much better she made my life. That’s the way death operates.

Her parting gift to me was a simple reminder: always say goodbye and tell the person how much they mean to you.