Posted on 12/07/2016 8:34:45 AM PST by SeekAndFind
Thank goodness for Kevin McCarthy! isnt something one says every day, but in the matter of President-elect Donald J. Trumps backward and destructive plan to resurrect 19th-century tariffs, the gentleman from California is invaluable.
Trump wants to impose 35 percent tariffs on . . . somebody. He does not seem quite sure. One of the reasons for that is that Trump has the question of trade deficits mixed up in his head with the question of offshoring and, like most Americans, he does not understand either of them very well.
The president-elect, writing on Facebook (because thats what presidents-elect do now), insisted: Any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. . . . without retribution or consequence, is WRONG! (Eccentric punctuation and capitalization the president-elects.) There will be a tax on our soon to be strong border of 35 percent for these companies wanting to sell their product, cars, A.C. units etc., back across the border.
Pretty tough talk for a guy who just oversaw a multi-million-dollar corporate-welfare giveaway to Carrier as his first semi-official act.
It is not clear that the federal government even has the power to do what Trump proposes to lay on a punitive tax based on offshoring decisions, as opposed to laying on a general tariff but Representative McCarthy has made it clear that congressional Republicans are not much inclined to follow Trump down that particular rabbit hole, preferring to work on such less exotic measures as corporate tax reform that would make investing in the United States a more attractive proposition.
Of course, investing in the United States already is a very attractive proposition, which is almost everybody gets this wrong the main reason why we have trade deficits.
Trade deficits are partly a question of consumer preference American consumers really do like Hondas more than Japanese consumers like Buicks but they are not mainly a question of consumer preference. They are mainly a question of investor preference and investors prefer the United States, which is why there is almost twice as much foreign direct investment in the United States as in China, even though Chinas economy has grown at a much faster rate over the past 20 years.
It works like this: Almost every advanced country does a great deal of international trade. They have lots of imports and exports because it is easier to grow sugar in Florida than it is in Norway and more efficient to sew T-shirts in Bangladesh than it is in Switzerland. When Walmart orders $1 million worth of flip-flops from a Chinese concern, those Chinese gentlemen receive 1 million delicious U.S. dollars, which they are very happy and grateful to have. But what can you do with U.S. dollars? You can buy stuff from U.S. companies or you can buy assets from sellers who take U.S. dollars, which ultimately means U.S.-based investments. (This is true even when you add in all of the real-world complications such as foreign exchange.) If you are that flip-flop entrepreneur in China, you probably have a very high rate of savings, which is normal for people in poor, backward, and unstable countries. There is lots of uncertainty in a place like China, and having a whole lot of savings especially dollar-denominated assets is a rational response to that.
But it isnt only the Chinese. The Japanese, the British, the Germans and the other Europeans, the Canadians, the Mexicans, and practically everybody else in the world with a little bit of coin to invest likes to buy American assets. And why wouldnt they? The American economy is the most wondrous thing human beings have ever managed to do, and all it takes to get yourself a piece of it is a few greenbacks.
The mystery isnt why so many foreigners want to invest in U.S. assets but why Americans invest so little.
Trade deficits dont happen because the wily Japanese juke us on trade policy. They happen because intelligent people holding a fistful of dollars very often decide to forgo the consumption of American consumer goods in order to invest in American assets. In economics terms, what this means is that the trade deficit is a mirror image of the capital surplus. A capital surplus isnt necessarily an unalloyed good (everything in economics is about tradeoffs), but it is a pretty nice thing to have around if you are, say, an entrepreneur looking to build a new facility in Houston or Jacksonville and looking for some investors to stake you.
If the economists are correct and trade deficits are mainly driven by investment preferences rather than consumer preferences, what would a big Trumpkin tariff actually do? Daniel Griswold of Cato considered the case back during the 1990s trade panic: Slapping higher tariffs on imports will only deprive foreigners of the dollars they would have earned by selling in the U.S. market. This, in turn, will reduce the supply of dollars on the international currency market, raise the value of the dollar relative to other currencies and make dollar-priced U.S. exports more expensive for foreign buyers, thus reducing demand for our exports. Eventually the volume of exports will fall along with imports, and the trade deficit will remain largely unchanged.
The trade deficit might remain unchanged, but there would be a large cost attached: Without that foreign investment capital flowing into the United States, money gets more expensive. That means entrepreneurs have a harder time raising capital.
Having a fat taxman and starving entrepreneurs is not a model for prosperity the opposite is.
One of the problems, I suspect, is that people hear the word deficit and they think of the trade deficit as being like the budget deficit, i.e. a mounting debt that one day will have to be paid. It is something closer to the opposite: We get more stuff in return for the stuff we sell, and we get cheap investment capital on top of that. Foreigners get access to a dynamic economy with a stable government (miraculously stable, considering the jackasses in charge of it) and a stable currency. Everybody benefits.
But of course everybody benefits: Trade does not happen between countries (which is why trade deficits are kind of a mirage, anyway, a chimera of aggregation) but between buyers and sellers, each of whom stands to gain from the exchange if it were otherwise, the exchange would not happen. Thats the really nifty thing about voluntary exchange.
Someone should explain this to the president-elect, assuming it is possible to explain things to him.
Kevin D. Williamson is National Reviews roving correspondent.
NR has gone down the tubes - it’s dead Jim.
Who cares what this Never Trump jerk who went out of his way to try to get Hillary elected thinks?
“Trade deficits are partly a question of consumer preference”
He says that just after he says we don’t have trade deficits.
It is hard to find a starting point on his idiocy. American consumers don’t have a preference when all the manufacturing is moved offshore and millions are unemployed as a result.
How much did he discuss loss of jobs in his fantasy?
backward and destructive plan to resurrect 19th-century tariffs
BTW, anytime someone makes a reference to a past century as an "argument" for why something is bad, you know this person is a progressive and an SJW.
Trade deficits do not equal open borders immigration. I want strong immigration policy. But
I love buyer cheap foreign made crap because I know in the long run the savings of the American consumer are more important than keeping some types of jobs in the USA.
Grammar issues have rendered your post impossible to comprehend.
180 degrees opposite of the Constitution which prohibits export taxes.
LOL! They still haven’t figured out his 35% proposal was aimed at US companies that opted to go elsewhere and clean up at the expense of middle class jobs. It would be their choice as to whether they wished to incur it....
You got further than I did.
Expect Deaf Ears to your post. But not from me. I love Trump but he is just dead wrong on this subject. And he will learn that when push comes to shove with Congress.
That Japanese guy with $50,000,000,000 that Trump brought out yesterday could have told us he was going to spend it all on Buicks. That would reduce the trade deficit by that amount and helped unemployment in Detroit.
But he didn’t. Instead he is spending those dollars on new startups. He will hire a ton of people here in the U.S. It will be just as helpful to the employment picture as it would had he bought the Buicks. And you don’t need a punitive tariff to accomplish it.
But it won’t reduce the trade deficit. And it doesn’t matter that it doesn’t.
“Of course, investing in the United States already is a very attractive proposition”
Eventually it becomes ‘buying the United States’.
Eventually foreigners have a lot of control over how the United States operates and is governed.
The founders had tariffs so foreigners coming here would fund our military and the security. What is wrong with that!? Do we prefer instead to raise export taxes on the income of Americans manufacturing export products!?
End the IRS now
“The mystery isnt why so many foreigners want to invest in U.S. assets but why Americans invest so little.”
Maybe if we didn’t have stagnant wages for the last 3 decades we might have some money left over to invest, genius.
Whoowee! Dat Kevin Williamson, he be de smartest one in de room!
If U doan believe it, jes axe him bout anyting!
Yessiree! He be wun smart donkey, seein everyting so clearly when lookin out thru his own bellybutton, an all!
Me too. Tax cuts and incentives are not giveaways. All money does not inherently belong to the government.
He might’ve had an interesting article there if he hadn’t been dripping with disdain for Trump. Was he a Cruz fan or a Kasich fan, I wonder?
Another clueless idiot from NRO.
I amazed when I heard Steve Moore, one of Trump’s econ advisors, say that on TV. Either he was mistaken or the US Government has been intentionally trying to injure its own country.
LOL!!
Nor did I imply that it did, but it does weaken the strength of the Constitution.
I love buyer cheap foreign made crap because I know in the long run the savings of the American consumer are more important than keeping some types of jobs in the USA.
Then you also must enjoy paying for people to live off of your tax money. Cheaper goods are only beneficial for those Americans still employed. The unemployed and underemployed can't take advantage of them anyway. Also benefiting are illegal aliens, and H1B visa holders who again do nothing to strengthen the Constitution.
They don’t call them taxes but they are.
Thanks for actually addressing the point of the article.
I'm not sure what else you would want them to invest in. Wall Street means investment in US Companies, which allows them to expand and create jobs.
The real estate they invest in never leaves the country, profits the American who sold it, and helps support the real estate market.
Buying our T-Bills keeps interest rates down and benefits every US taxpayer.
Do you think Congress and the President will suddenly stop their profligate spending just because China cuts back on T-Bill purchases and increases our cost of borrowing?
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