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.
Agreed. “Intellectual”, “conservative” publications go bad just as surely as nonprofits originally funded by wealthy entrepreneurs.
Really? Does it do that, or does it just result in a stock bubble? It seems to me to be the latter, because I sure don't see the jobs.
The real estate they invest in never leaves the country, profits the American who sold it, and helps support the real estate market.
Another asset bubble, just like the Japanese big commercial real-estate 'investments' in the late 80's.
Buying our T-Bills keeps interest rates down and benefits every US taxpayer.
You mean benefiting every special interest: to me, this is a forced loan in my name used to benefit the banks and public employees. If government spending is out of control, interest rates should rise on T-Bills to reflect the glut of debt and heightened risk. If they don't rise, the market is being manipulated.
Slow as job growth may be it would be a lot slower if our companies didn't have access to capital.
Another asset bubble, just like the Japanese big commercial real-estate 'investments' in the late 80's.
Which ended up only hurting them when the Japan bubble burst.
The real estate they had bought stayed right here and Americans were able to buy it back at fire sale prices.
Structural economic changes lead to some people being unemployed while opportunities in new industries are developing.
Why is that hard for some to understand? (he asked rhetorically)
Thanks for your service.
Hopefully then you will get caught up in a structural economic change so you can experience the good times being had by others while you are excluded. Just promise you won't cry on this board.
When foreigners who are not here invest in real estate, we end up subsidizing it. The roads, the police and fire fighting, etc, which make the property valuable or even viable, are not paid for with property taxes but other taxes the foreign-based owner is not contributing to.
Most nations have limits or prohibitions on the amount of investing foreigners can participate in. we think it’s good because the dollars are back in the US, but it’s not great because control is no longer in the hands of someone who might have US interests in mind.
Why exchange US dollars, which maintain or increase in value, for goods which will have a precipitous decline in value over the first 2 or 3 years?
What's the difference between a foreigner and an out-of-state owner who doesn't pay other taxes where the property is?
They're an arm of the same Globalist Fascist machine that runs the democrat party.
NR takes care of what they call "perception preparation" so that people are more inclined to believe what those who are responsible for "perception management" spew.
The democrat machine saw from their surveys that people have become inclined to see the all democrat politicians since the Clinton Administration as nothing but part of a crony capitalism machine so naturally they'll be working hard to pin that label of Trump and the Republicans. Look for the trash about how Republicans have always been the party of the rich, too, in spite of the fact that the democrat party sucks up more money from corporate and wealthy donors in a quarter than the Republicans can strong arm out of donors in a year even while they're in the majority.
Articles like the one posted above are to help make the idea that Trump and the Republicans are only looking out for the corporate guys more acceptable to those who would be skeptical of or not even bother with something similar they read in an article placed with media not "known to be Conservative".
After seeing this from a "Conservative", a lot of people who would ignore something along the same lines elsewhere may read articles they'd otherwise skip and if they do, they're more inclined to not see such an article as the democrat propaganda it really is. That's also how a whole lot of Free Traitors end up with their nonsense accepted by people who should know better than to accept the idea that nothing but the "invisible hand" is at work in the deindustrialization of this country.
Never, ever, forget that special anti-Trump edition from these same folks. That's their true colors and that's the intent behind anything they print.
The out-of-state owner is at least paying federal taxes, from which grants and other aid is paid, and one can also assume that there may be some in the state where the property is located who are out-of-state owners of property in the other state.
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