Posted on 07/01/2018 7:26:55 AM PDT by Kaslin
Trade is good. Or, so say most orthodox Republicans. From the earliest days of the Silk Road, the wealthiest nations and cities were trade centers. It was trade that allowed cities like Venice to rise from a swampy delta to become a center of international power. The tiny island state of Singapore (with no natural resources) has become an economic miracle thanks largely to trade. We became an economic Goliath during the last century, especially after World War II by selling everything from refrigerators to computers to the rest of the world. Conversely, we have been told that by conservative economists for generations that tariffs are bad. After all, it was the Smoot-Hawley tariff that caused the Great Depression, right?
So what are we to make of this president, claiming to be a Republican, imposing tariffs on steel, aluminum and other things that come from our trading partners, especially the People’s Republic of China? Tariffs are taxes. We don’t support new taxes, do we? What does he see that perhaps we have missed?
In a word, he sees jobs.
First, he noticed that we have been jobbed by most of our trading partners for several decades. We’ve agreed to terms that have given those partners unfair trading advantages. It has cost working Americans millions of good paying, family supporting jobs. They were allowed to go off shore. The previous president even scolded us for hoping that they might ever come back. The new negotiator in chief said nuts to that. He campaigned on renegotiating those trade agreements. He promised to fight for fair trade and bring many of those jobs back. Apparently some of our leaders in Washington weren’t paying attention. Donald Trump won and he’s actually committed to keeping those promises.
Oh, the G-7 clucked about the possibilities of dire repercussions. The Canadian Prime Minister warned and the EU leaders lectured. China promised a tit for tat reaction. Wall Street pharmacies began running out of Valium as the money mangers fretted over an oncoming trade war. But, our president knows something that our trading partners don’t want to admit. They need us a lot more than we need them. They can huff and puff and bluff. But, he is holding a straight flush…and they know it.
The dirty secret is that under this unfair trading system, big business and Wall Street have been doing just fine. While working Americans have been losing ground. Real wages had been shrinking for more than a decade. Tax cuts help. But, running massive trade and budget deficits have consequences. What we really need are good jobs and better wages. It is true that consumers benefit from cheaper imported goods. But, before consumers can buy, they need incomes. That requires jobs. Jobs that produce something.
The greatest negotiator who ever lived was a guy by the name of Al Capone. He once famously observed, “You can achieve more with a soft voice and a loaded gun, than you can with a soft voice.” President Trump understands the leverage he has over the G-7 and China. He has a strong hand and he is playing it well. If you doubt this, just look at the reaction of the G-7 leaders when he suggested that all sides remove all tariffs and trade barriers. Their reaction spoke volumes.
Please remember a couple of other points. First, that it was called a Great Depression only here in the United States. Most of Europe had returned to growth before Germany began pounding the war drums. There were many other factors that caused and protracted the Depression. Smoot-Hawley may have contributed, but it cannot explain the length and depth. And second, our federal government was funded largely with tariffs (taxes on imported goods) for more than a century. During that time we grew from a collection of struggling colonies into an industrial power.
Maybe it’s time to move beyond our orthodoxy. Our trading partners cannot defend the terms of trade as they now exist. Neither should we. The president wants the barriers to come down. They will come down sooner if we and our Congressional leaders stop sniping and start supporting the President’s fight for fair trade.
And there they miss the fundamental issue. Trade means trade, I take my goods and I exchange them for your goods. Traders in the old days transported goods around until sufficient excess in goods [fair payment for the transportation of goods between seaports or caravansary] had been accumulated to enable the trader to return home, a wealthier man if he were good at it, and a much wiser man in any event.
The monetization of all of that added efficiency, but now with the creation of paper and debt as money it has enabled our trading partners to give us overpriced cheap junk in exchange for calls on our wealth and property, hollowing out our country. Some traitorous middle-men on our side win, but we the people lose.
And so in the end what we call trade is indeed a trade - we sell you cheap plastic play houses and in exchange we take your country away from you. Fair is fair.
“Maybe it’s time to move beyond our orthodoxy.”
In before the dimwits come along to dutifully spout some nonsense about Free Trade.
Free Trade is a fantasy. It has never existed in the history of man, anywhere, at any time.
Mercantilism builds great nations. That is the natural state of trade.
Learn to play it, or watch as the world feeds on your bones.
It’s been the largest transfer of Capital Stock in the history of man.
With a lot of folks in DC and NY getting humongously wealthy skimming some rich cream off the top of the transaction.
However, you miss the real point.
That is Americans like stuff that is cheap and imported. Although China is the primary target of the isolationists, inexpensive goods come from all over.
The term Free Trade is sort of a Utopian concept known to be unattainable on a world wide (global) basis. The objective is not really Utopian Free Trade but rather fairer trade with major trading pardners. That is,tariffs by China and Germany are unfair because they are inrestraint of sales of American goods. The elimination of that practice is in play.
Although Uraguay might have onerous tariffs, That is trivial because the volume of trade is insignificant. Brazil is also very protective but there is no battle there. It’s not worth the effort at present.
These discussions usually end up going nowhere unless they address a fundamental reality of our human condition:
People will always want to pay less for a product or service than they would charge for their own labor to produce the same thing.
You can look at almost any legislation or government policy that has a financial aspect to it, and it is rooted in this reality of diverging interests. I call it the "Principle of Diverging Interests of Consumers and Producers," for want of a better description.
This is how you end up with lawyers who complain about the cost of their accountants, accountants who complain about the cost of health care, and doctors who complain about how much they pay their lawyers.
The end result is that there is an underlying tendency to push costs off onto someone else by engaging in a "race to the bottom." A massive trade deficit is the natural consequence of pushing costs so far out of sight that they are borne by people and industries in other countries.
As long as other countries have higher tariffs on us than we do on them, it’s absurd to call Trump anti free trade.
>> A massive trade deficit is the natural consequence of pushing costs so far out of sight that they are borne by people and industries in other countries <<
Well, no.
Our international trade deficit is simply the mirror image of our international investment surplus. It’s an “iron law” that will hold true regardless of whether we live in a high-tariff regime or a low-tariff regime.
One implication is that if our economy continues to boom under Pres. Trump, the investment climate in the USA will become more and more favorable.
As a result, the higher rate of return on invested capital will tend to pull more and more foreign investment funds into our economy, thereby increasing our investment surplus and automatically increasing “pari passu” our merchandise trade deficit.
In other words, the more successful Pres. Trump is in improving the economic climate, the higher will be our international trade deficit.
(The main exception would be if the average American household would reduce the share of consumption in its income and simultaneously increase its rate of savings. But you and I know that it just ain’t gonna happen.)
Our tariffs should mirror the tariffs put on our goods. Keeping a close eye on the we sell it to you then you sell it to them gambit.
Among other things, Taft recommended that we give them favorable tariff treatment to set them on the road to independence. This was mainly in shoes and garments, an area where they could compete.
It was supposed to be a temporary measure for a specific purpose. Most of our shoes and garments were made in New England and New York during those days. So to get those states to sign on to the favorable tariffs, the tariff measure allowed the manufacturing magnates to do contract manufacturing with the new U.S. Territory. Nobody much cared because the economy was booming and jobs were plentiful.
Then came Woodrow Wilson and our senseless involvement in World War I. He used the decining tariff revenue and the war for an excuse to give us the income tax.
And what was a special favor for the Philippines (then a U.S. Territory) became a perk granted to almost any country with sufficient influence on U.S. policy.
Thus, it is long overdue for a re-evaluation. Almost a century overdue in some cases.
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