Why Is the GOP Terrified of Tariffs?

From Lincoln to William McKinley to Theodore Roosevelt, and from Warren Harding through Calvin Coolidge, the Republican Party erected the most awesome manufacturing machine the world had ever seen.

And, as the party of high tariffs through those seven decades, the GOP was rewarded by becoming America's Party.

Thirteen Republican presidents served from 1860 to 1930, and only two Democrats. And Grover Cleveland and Woodrow Wilson were elected only because the Republicans had split.

Consider. On hearing that President Trump might impose tariffs on aluminum and steel, Sen. Lindsey Graham was beside himself: "Please reconsider," he implored the president, "you're making a huge mistake."

Twenty-four hours earlier, Graham had confidently assured us that war with a nuclear-armed North Korea is "worth it."

"All the damage that would come from a war would be worth it in terms of long-term stability and national security," said Graham.

The U.S. relied on tariffs to convert from an agricultural economy in 1800 to the mightiest manufacturing power on earth by 1900.

Bismarck's Germany, born in 1871, followed the U.S. example, and swept past free trade Britain before World War I.

Does Senator Flake think Japan rose to post-war preeminence through free trade, as Tokyo kept U.S. products out, while dumping cars, radios, TVs and motorcycles here to kill the industries of the nation that was defending them. Both Nixon and Reagan had to devalue the dollar to counter the predatory trade policies of Japan.

Since Bush I, we have run $12 trillion in trade deficits, and, in the first decade in this century, we lost 55,000 factories and 6,000,000 manufacturing jobs.

Does Flake see no correlation between America's decline, China's rise, and the $4 trillion in trade surpluses Beijing has run up at the expense of his own country?

The hysteria that greeted Trump's idea of a 25 percent tariff on steel and 10 percent tariff on aluminum suggest that restoring this nation's economic independence is going to be a rocky road.

In 2017, the U.S. ran a trade deficit in goods of almost $800 billion, $375 billion of that with China, a trade surplus that easily covered Xi Jinping's entire defense budget.

If we are to turn our $800 billion trade deficit in goods into an $800 billion surplus, and stop the looting of America's industrial base and the gutting of our cities and towns, sacrifices will have to be made.

But if we are not up to it, we will lose our independence, as the countries of the EU have lost theirs.

Specifically, we need to shift taxes off goods produced in the USA, and impose taxes on goods imported into the USA.

As we import nearly $2.5 trillion in goods, a tariff on imported goods, rising gradually to 20 percent, would initially produce $500 billion in revenue.

All that tariff revenue could be used to eliminate and replace all taxes on production inside the USA.

As the price of foreign goods rose, U.S. products would replace foreign-made products. There's nothing in the world that we cannot produce here. And if it can be made in America, it should be made in America.

Consider. Assume a Lexus cost $50,000 in the U.S., and a 20 percent tariff were imposed, raising the price to $60,000.

They could accept the loss in sales in the world's greatest market, the USA. They could cut their prices to hold their U.S. market share. Or they could shift production to the United States, building their cars here and keeping their market.

How have EU nations run up endless trade surpluses with America? By imposing a value-added tax, or VAT, on imports from the U.S., while rebating the VAT on exports to the USA. Works just like a tariff.

The principles behind a policy of economic nationalism, to turn our trade deficits, which subtract from GDP, into trade surpluses, which add to GDP, are these:

Production comes before consumption. Who consumes the apples is less important than who owns the orchard. We should depend more upon each other and less upon foreign lands.

We should tax foreign-made goods and use the revenue, dollar for dollar, to cut taxes on domestic production.

The idea is not to keep foreign goods out, but to induce foreign companies to move production here.

We have a strategic asset no one else can match. We control access to the largest richest market on earth, the USA.

And just as states charge higher tuition on out-of state students at their top universities, we should charge a price of admission for foreign producers to get into America's markets.

At every point the money comes from US consumers.

Again, this is demonstrably false. The product cost is born by a variety of what is called economic surplus - the buyer has an economic surplus (or they wouldn't have bought it), retailer or reseller does, the manufacturer has economic surplus, the shipper has economic surplus, labor has economic surplus and the raw material has economic surplus. It is effectively a zero sum surplus in aggregate but the size of each economic surplus can change. Charging a tariff may not hit the economic surplus of the buyer at all (ie higher prices), a small portion, half, or the whole thing - it depends on variety of things. On the flip side, US income tax and US corporate tax will always hit 100% cost in the US, while in the tariff scenario, somewhere between 1-99% is born outside of the US through reduced economic surplus. If what you are suggesting was true, they (exporters to the US) wouldn't care if you added a tariff.

Here is an example.

There exists a product called Widget. This product currently costs Target $20.00 if they purchase it from a Chinese firm with an economic surplus of $8. A US firm would be willing to sell the same product to Target for $20.05 with an economic surplus of $8. This product retails for $39.99 with a total retailer + consumer surplus of $19.99. US economic surplus is currently $19.99 with $8 of economic surplus going to the Chinese firm.

Let's say we charge 20% tariff on Chinese goods. The total cost of the Chinese product is now $24.00 while the US cost is still $20.05. Target now decides to buy the product from the US Supplier because its $3.95 cheaper. Target declines to raise the price beyond $39.99 because thats already the profit maximizing price. In this scenario, the $8 economic surplus now belongs to the US firm, and Target and the Consumer's combined surplus dropped to $19.94. However, since the consumer didn't pay anything different, it was Target that lost the surplus. The total US economic surplus is now $27.94 in the US and $0 in China. We just had an increase in GDP of $7.95 (not even counting the money multiplier) that didn't effect the consumer one bit.

In the popular view, the Smoot–Hawley Tariff was a leading cause of the depression

Key phrase is "in the popular view," as "in the popular view, spilling salt causes bad luck and throwing salt over your left shoulder reverses it."

The Great Depression, like most economic downturns in recent history, was driven by speculators inflating stock prices of companies far beyond the material value of what those companies produced, and recklessly moving funds from low to high risk securities. Tariffs had nothing to do with either.

Then it comes down to who do respect and agree with. The Federalists (whom were pro-Britain, and maybe connected to much to big banking interests) or the Anti-Federalists like Jefferson (who were pro-France and I must agree too invested in a agricultural vision for America). Personally, I am not a fan of Alexander Hamilton, and have a hard time not liking Jefferson, though think his pro-France stance was a little misplaced.

There are some issues where I sympathize with the Anti-Federalists, but overall I think it's a good thing that 19th Century America had more Presidents sympathetic to the Federalist point of view. Between Jefferson and Hamilton, Hamilton was the more forward-thinking in terms of developing America as an economic and political power. It can be argued that if the anti-Federalists had been at the helm, not only would America never have become the great economic power that it is today, but that it may have collapsed altogether as politically independent and economically viable nation. Even Andrew Jackson recognized this and restricted his anti-Federalism to opposing the National Bank. He eventually came around to supporting tariffs and funding of infrastructure (as well as cracking down on early secessionists).

I think that anti-Hamilton views that are prevalent among conservatives today are the result of retrojecting today's political debates into another century. The Left and Right today may be to some degree defined by "big versus small government" because the Left is the party of the welfare state and social engineering. Two hundred years ago, the Federalists were not advocating "big government" to create a welfare state or to socially engineer equality, but to build our infrastructure and support US industry.

That’s a unicorn scenario. You just explained how a $20 product that is purchased from China is now going to be purchased from the US because the US company will accept an $8 economic surplus but not a $7.95 economic surplus.

If there is an $8 economic surplus why would anyone concede market share for $0.05? So the Chinese lower their price say $0.10 and take economic surplus of $7.90. Obviously the American firm loses the business because the must have an economic surplus of $8 or they would already have the business if they were willing to accept $7.95.

So the Chinese product is now $24 yet the US firm stays at $20.05. Another Unicorn scenario. The US firm will go to a $24 or something close. Isn’t the point of tariffs to increase the price of domestic goods and allow the manufacturer added profit so as to encourage them to produce here and invest here?

CAT has already announced price increase. Gee maybe they need to pass on higher steel prices? Oh wait steel prices aren’t going up are they? Doesn’t CAT has some nice economic surpluses that they can use to absorb the hit?

#1) Not really that unicornish and not that atypical. I can tell you've never done purchasing for a retailer before. Typically, a retailer will do an RFP for a product. The other bidders don't know how much they were off.

#2) The chinese would have to lower their price by 20%, not $0.10 in that scenario, to keep it break even.

#3) I never said NONE of the cost would be born by the consumer but that doesn't mean it 100% does ultimately like an income tax, sales tax or other direct tax such as corporate income tax.

The point is taxes are never good, but tariffs are far and away preferred to US income taxes, US sales taxes, and US production/income tax.

A us company who will sell a product for $8.00 for economic surplus but will not sell it for $7.95. That is a unicorn

A US company that will sell their product for $20.05 when their competitor is at $24.00? That is a unicorn.

Pricing is never secret and any buyer with a dime knows how to pit competitors against each other on pricing even when it is a secret.

Another unicorn, RFPs that are kept secret! That is even funny.

You are not understanding what I wrote at all, which isn't surprising. A us company who will sell a product for $8.00 for economic surplus but will not sell it for $7.95. That is a unicorn

Most retailers carry at any given time 20,000+ products. They are getting bids from 5-6 different producers for most products in addition to deciding what types of products and categories to even carry! While it might be very important to manufacturer's X in Cleveland or Manufactury Y's Chinese factory income, it's barely a fly in the ointment to most retailers and they do not leak that info. Pricing is never secret and any buyer with a dime knows how to pit competitors against each other on pricing even when it is a secret.

LMAO - Having worked as an exec for Retail for years, with a T10 MBA, and degree in Econ, Summa Cum Laude, I can tell you 100% you are full of sh!t. Single product companies that sometimes is true, but otherwise - nope. I know many people who have been fired for sharing the delta as that cuts both ways.Another unicorn, RFPs that are kept secret! That is even funny.

You would be surprised, apparently. Shoot, plenty of times the lowest bid isn't even the winner. And you are still ignoring the main point. Taxes suck, but tariff taxes suck the least of any taxes. Unless you can figure out how to cut the US Budget down by 99%, in which case God bless you, we need tax income from somewhere.

“I know many people who have been fired for sharing the delta as that cuts both ways” . So “many people” have shared pricing. That doesn’t sound like a secret. Your resume does not bolster your argument but it does explain your use of “widgets” and unicorns.?

If your concern is how to best raise revenue for the government then there are better more efficient means then tariffs. Or did your education not include studying comparative advantage?

If your concern is how to best raise revenue for the government then there are better more efficient means then tariffs.

Tax that can support the US fed gov such as? Use taxes are even smaller than tariffs, which are 1% of the federal budget.

Or did your education not include studying comparative advantage?

Comparative advantage is really not relevant anymore, and hasn't been in at least 40 years. The population of the US today is ~half the size of the entire world in 1750. Additionally, the # of people required to produce a widget today is 1/50th of what it took in 1750. Add in general tech advances, and the US could produce everything with fewer labor ours than any other country on the planet. What the US has higher of is regulations, taxes, environmental laws and labor costs. That has nothing to do with comparative advantage. When John Locke and others were putting together modern economics, what the US and China can produce on its own was not even fathomable globally with 100% efficient allocation of labor and capital at the time.

Another thing - If comparative advantage were real in the global economy, the US would not have $500b+ trade deficits every year for 25+ straight years. In economics, the value of currencies will “correct” to provide long run balance in trade between all countries, especially when 75% of that comes from a single country.

Yeah, see my view is that perhaps Hamilton was a big government statist in comparison to Jefferson. In the end wasn’t Jefferson right? The Hamiltonian vision, despite cries to the contrary, has lead us to where the US is now, a mixed economy with a massive welfare state and massive debt. Had Jefferson been at the helm would that have been avoided. In fact didn’t Hamilton’s embrace of England, adoption of England’s mercantilism, and pro-banking sympathies make Hamilton more of a Tory than a Whig?

Of course my views are colored strongly as being anti-Tory, and pro-Whig, rightly or wrongly seeing Toryism as statism, and whig liberalism as freedom loving.

All in all, isn’t what we have today, the proof the federalism did lead to big statist government?

“Another thing - If comparative advantage were real in the global economy, the US would not have $500b+ trade deficits every year for 25+ straight years. In economics, the value of currencies will “correct” to provide long run balance in trade between all countries, especially when 75% of that comes from a single country.”

Try really hard and you will see how you contradicted yourself. Hint: trade deficits for “25+ straight years” vs “”provide long run balance”. Unless 25 years isn’t “long run”.

How does a trade deficit negate comparative advantage? If anything a deficient shows that we are not pursuing our comparative advantage.

“You have no idea the scope of things I’ve been involved in. I’ve been at the highest levels of corporate view financially for about 10 years. The things even a sr director or VIP of merchandising would see is a mere fraction of what I have.”

Did your T10 MBA help you make the astute observation that a complete stranger on FR has “no idea the scope of things I’ve been involved in”?

Your appeal to authority may have credibility if you would cite someone other than yourself. Especially since I have “no idea the scope...”.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.