Tariff Man Fails

Tariff Man (the term President Trump coined for himself) hates the trade deficit we run with China. He’s been working to correct this, or so he’d like us to believe. But the data don’t lie. And the data show our trade deficit with China is higher than it’s been in a decade (higher than it ever was under President Obama). It seems Tariff Man may be all talk. Now there’s a surprise.

Here’s the chart:

I suppose there are a couple lessons here for us, Vera. Continue reading

Raping the Nation’s Wealth? How Stupid Does He Think We Are? Oh, Yeah.

President Trump thinks allowing imports to be sold in the U.S. in amounts greater than our exports is tantamount to “raping the nation’s wealth.” Think for a minute. No, for a second. Just consider how stupid this is. And the level of thinking demonstrated by the man who makes such a claim.

Of course, imports sell here only if they’re cheaper or better than what we produce domestically. So banning imports would cause us Americans to pay more than we’d otherwise have to pay, thereby lowering our standard of living, or would compel us to accept inferior products (such as GM cars in the ’80s). There is nothing about this arrangement that could even remotely be characterized as an economic “rape.”

A legitimate issue, of course, is whether we should give a preference to domestically produced goods either by taxing imports (tariffs) or subsidizing domestic producers (in the way the U.S. subsidizes its farmers), or banning certain imports altogether or restricting the volume coming in (quotas). There could be legitimate reasons for doing so.

For instance, if one’s national security depended on it, then it may make sense to protect the domestic suppliers. For instance, it would not be prudent to become entirely dependent upon aircraft made in foreign countries. That would make the U.S. Air Force and Navy highly vulnerable to potentially hostile regimes.

Another legitimate reason could be the fairness doctrine. For instance, if the reason an import is cheaper is because of a subsidy the producer received from its home country’s government, then the U.S. could decide, as a matter of policy, to place a leveling tariff on the import to ensure the competition is fair. Or it might chose not to, instead being grateful for the subsidy that the foreign government is essentially providing to the U.S. consumer. Obviously, the U.S consumer stands to benefit from the lower price, even if it’s the result of a foreign subsidy, where the U.S. worker who might lose his job due to the subsidized import might be harmed. Which brings us to the policy decision: which jobs are worth protecting and which one’s aren’t? These aren’t always easy decisions. In any case, there are remedies in place to protect against competition from subsidized producers (indeed, I’ve been involved in several cases where tariffs were sought because of such unfair competition).

But to cut off or restrict imports simply because someone is selling more of their products to us than they are buying from us is sheer lunacy, especially if your country’s currency is the world’s reserve currency (as is ours). In short, mindless protectionism is a sure recipe, over the long term, for diminished competitiveness, economic stagnation, and lowering of a country’s standard of living. And based on history, there’s a good chance it will lead to recession, depression, or war. Yet that’s precisely the mindset of our president.

You wonder how someone like this could be elected president. Or maybe you don’t. But I do. And you should.

The broader lesson in all of this, Vera, is simple: think for yourself. And don’t accept as gospel anything someone says, even if they hold a lofty position. Just because someone is a president, CEO, or, for that matter, a grandfather, doesn’t mean they know what they’re talking about.

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.

Did Trump Just Help or Hurt the U.S.? Look to Indiana for the Answer

My (new) home state of Indiana is the top steel producing state in the country. It’s also the most manufacturing intensive state. We manufacture a lot of automobile and truck parts here, parts that rely on cheap steel and aluminum. So when assessing whether the new tariffs imposed by President Trump will be good or bad for the country, Indiana’s may be the bellwether state. We may see the impact first — for better or for worse.

Meanwhile, I’m still grinning from ear to ear at the ways the Republican Party has been transformed under Mr. Trump. Who would have thought that the Republicans would become the party of protectionism? Not me. Or anyone else if they’re being honest with themselves.

I’m also taking delight in Mr. Trump’s recent desire to take guns from people without due process of law. All I heard during his predecessor’s administration was the ludicrous fear mongering from the right claiming that Obama was “coming for their guns.” And now it turns out it’s the Republican president who wants to come for their guns. I have to admit taking some perverse delight in the way the worm has turned.

But back to trade. This could well be a train wreck in the making. Or not. Only time will tell. But it’s hard to imagine a good outcome should other countries retaliate, which one would assume is likely.

Of course, protectionist trade barriers are nothing new. Every state in the Union already has them. They’re called licensing requirements, etc. They inhibit commerce across state lines, ostensibly to protect consumers. But that’s often a ruse. Usually, it’s to protect incumbents from competition, thereby propping up the income and wealth of the incumbents (to the detriment of others, of course).

Countries have protective barriers, too. Including the U.S. Just ask any farmer in Brazil or sugar cane grower in any other country. Or foreign producers of any of the myriad of other products that already carry stiff tariffs.

So, despite the impression the press may be giving people, the world isn’t new to tariffs and protectionist policies. That doesn’t mean they’re good. They’re usually not. And it doesn’t mean we should add more. But it does mean it’s not the black and white issue that many are projecting it to be.