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Tag Archives: Tariffs

Endgame for the Fed? by Ron Paul

Is the same end coming for the US dollar that has befallen every other unbacked fiat currency, and by implication does it mean the end of the Fed? From Ron Paul at ronpaulinstitute.org:

The Federal Reserve, responding to concerns about the economy and the stock market, and perhaps to criticisms by President Trump, recently changed course on interest rates by cutting its “benchmark” rate from 2.25 percent to two percent. President Trump responded to the cut in already historically-low rates by attacking the Fed for not committing to future rate cuts.

The Fed’s action is an example of a popular definition of insanity: doing the same action over and over again and expecting different results. After the 2008 market meltdown, the Fed launched an unprecedented policy of near-zero interest rates and “quantitative easing.” Both failed to produce real economic growth. The latest rate cut is unlikely to increase growth or avert a major economic crisis.

It is not a coincidence that the Fed’s rate cut came along with Congress passing a two-year budget deal that increases our already 22 trillion dollars national debt and suspends the debt ceiling. The increase in government debt increases the pressure on the Fed to keep interest rates artificially low so the federal government’s interest payments do not increase to unsustainable levels.

President Trump’s tax and regulatory policies have had some positive effects on economic growth and job creation. However, these gains are going to be short-lived because they cannot offset the damage caused by the explosion in deficit spending and the Federal Reserve’s resulting monetization of the debt. President Trump has also endangered the global economy by imposing tariffs on imports from the US’s largest trading partners including China. This has resulted in a trade war that is hurting export-driven industries such as agriculture.

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“Worst Year Ever”: The Chinese Ban On U.S. Agricultural Products Will Be A Death Blow For Countless U.S. Farms, by Michael Snyder

Between the weather and retaliation for Trump’s tariffs, farmers are getting mauled. From Michael Snyder at theeconomicollapseblog.com:

U.S. farmers have never experienced a year quite like this.  During the first half of 2019, endless rain and unprecedented flooding were the major problems.  As a result of the incredibly wet conditions, millions of acres of prime farmland didn’t get planted at all, and tens of millions of other acres are going to yield a lot less than usual.  Even without anything else happening, we were going to see farm bankruptcies soar to absolutely crazy levels, but now the Chinese government is essentially cutting off U.S. agricultural imports.  This will greatly depress the prices that U.S. farmers get for their crops, and so many farmers that were still hoping to squeeze out a profit for this year will be hit with a loss instead.  Ultimately, the truth is that 2019 is going to be a death blow for countless U.S. farmers that were barely hanging on financially after a string of really tough years.  Many will leave the industry entirely and never go back to farming again, and our nation will be worse off because of it.

When the Chinese announced that they were going to completely stop buying U.S. agricultural products, it sent shockwaves across the middle portion of the country.  According to the executive vice president of the American Farm Bureau, our farmers and ranchers will now be facing “just a really tough, tough time”

“This is a body blow to farmers and ranchers all across the country,” Dale Moore, executive vice president of the American Farm Bureau, told FOX Business. “That’s one of the things that we are feeling the effects of, and this is on top of a year when mother nature has been a terrible business partner in many parts of the country. It’s just a really tough, tough time for farmers and ranchers in this country.”

Shares of industrial, farming, oil and transportation companies have plummeted, a direct result of the increased tensions between the world’s two largest economies.

Of course President Trump is trying to be upbeat and he is promising that the Chinese will not be able to hurt our farmers, but the truth is that they already have.

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Tariffs: A Threat to America’s GDP, by Bob Luddy

You don’t make people better off by taking money out of their pockets, which is, like taxes, what tariffs do. From Bob Luddy at spectator.org:

Faraways/Shutterstock.com

Tariffs are a popular remedy to maintain a favorable balance of trade and create domestic jobs. Some believe tariffs will foster a renaissance of American manufacturing, but let’s consider the facts.

America has six million unfilled jobs, with almost every industry desperately trying to hire qualified personnel. Our trade surplus is widening as these trade wars progress, and international relations are very stressed.

Free trade allows buyers and sellers to be winners and facilitates comparative advantage and the division of labor. For example, iPhones are designed and engineered in the United States, manufactured in China, and sold worldwide. China assembles the iPhone, but many countries provide the components, software, and technologies for this amazing computer.

Apple is now enduring tariffs imposed on China and restrictions on the sale of technologies to Chinese companies such as Huawei. Chinese buyers have reduced their purchases of iPhones because of American tariffs. If the U.S. imposes tariffs on the importing of iPhones, it will have a very adverse impact on Apple and its suppliers. More importantly, Americans rely on iPhone technology in every industry to operate their businesses; for example, chefs store their recipes, contact their users, and order food from this small device.

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The Old World is Dying, by Michael Krieger

Michael Krieger correctly identifies what will be the defining global issue for at least the next several decades: decentralization versus centralization. From Krieger at libertyblitzkrieg.com:

Yesterday, Trump took to Twitter and unexpectedly threatened to raise tariffs on Chinese goods this coming Friday. This caught most people by surprise given incessant commentary over the past several months about how good trade talks were going and how close both sides were to signing a monumental deal. Although Trump’s tweet led to immediate turmoil in global financial markets, U.S. equities have gone up in a straight line since the market opened and are barely down as I write this. Investors appear to assume this is just theater meant make the U.S. public think he’s being tough, so that when he ultimately signs a largely meaningless sham deal with no teeth he can talk it up and pat himself on the back for being a brilliant negotiator. I’m not convinced this is correct, but it’s what markets seem to be pricing in. Either way, we’ll have answers soon enough.

More importantly, I continue to think the U.S. and China are on a major collision course irrespective of what happens with the trade deal. This charade will likely resolve either with no deal and an immediate dangerous ratcheting up of tensions, or we’ll get a deal so weak and irrelevant it’ll fail to fundamentally alter the U.S.-China economic relationship in any meaningful way, which was supposedly the whole point.

Many people still assume the “trade war” is actually about trade, when in reality it’s about geopolitical power. The Trump administration wants to knock China down a notch and consolidate global hegemony, which is why it’s been pressuring China on a variety of fronts. This pressure will not cease until China either rolls over and becomes a client state of a U.S. unipolar empire, or it fights back. My view is China will fight back.

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18,927 Ways Chinese Exporters Dodge US Tariffs, by Tyler Durden

The Chinese, a clever people, are figuring out ways around US trade restrictions. Imagine that! From Tyler Durden at zerohedge.com:

Always an industrious people when it comes to maximizing profit and cash flow, especially if it means breaking the law, it didn’t take long for Chinese exporters to find a way to dodge hundreds of billions in US tariffs. Take the case of David Visse, a wood importers from Oregon, who this past June got a call from a supplier asking if he would like to get some Chinese plywood tariff-free. “How would that work”, asked importer David Visse. The products carry an identification code that is checked by U.S. Customs agents.

“Don’t worry about it,” the supplier said. The plywood would be stripped of its Chinese markings, and “we’ll ship it under some other code.”

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Protectionism Abroad and Socialism at Home, by Ron Paul

Government gets bigger and more powerful at home and abroad. From Ron Paul at ronpaulinstitute.org:

One of the most insidious ways politicians expand government is by creating new programs to “solve” problems created by politicians. For example, government interference in health care increased health care costs, making it difficult or even impossible for many to obtain affordable, quality care. The effects of these prior interventions were used to justify Obamacare.

Now, the failures of Obamacare are being used to justify further government intervention in health care. This does not just include the renewed push for socialized medicine. It also includes supporting new laws mandating price transparency. The lack of transparency in health care pricing is a direct result of government policies encouraging overreliance on third-party payers.

This phenomenon is also observed in foreign policy. American military interventions result in blowback that is used to justify more military intervention. The result is an ever-expanding warfare state and curtailments on our liberty in the name of security.

Another example of this is related to the reaction to President Trump’s tariffs. Many of America’s leading trading partners have imposed “retaliatory” tariffs on US goods. Many of these tariffs target agriculture exports. These tariffs could be devastating for American farmers, since exports compose as much as 20 percent of the average farmer’s income.

President Trump has responded to the hardships imposed on farmers by these retaliatory tariffs with a 12 billion dollars farm bailout program. The program has three elements: direct payments to farmers, use of federal funds to buy surplus crops and distribute them to food banks and nutrition programs, and a new federal effort to promote American agriculture overseas.

This program will not fix the problems caused by Tramp’s tariffs. For one thing, the payments are unlikely to equal the money farmers will lose from this trade war. Also, government marketing programs benefit large agribusiness but do nothing to help small farmers. In fact, by giving another advantage to large agribusiness, the program may make it more difficult for small farmers to compete in the global marketplace.

To continue reading: Protectionism Abroad and Socialism at Home

Trump’s Fake Fix for a Bad Policy, by Walter E. Block

In classic government fashion, Trump’s “fixing” one mistake with a bigger mistake. From Walter E. Block at lewrockwell.com:

As an economist who shares President Trump’s belief that we should be cutting taxes and shrinking government, one might expect me to be enthralled by his policies. But that is not the sentiment I and many other libertarians feel when it comes to his decision to impose tariffs on steel, aluminum and a host of other products made overseas, particularly in China.

On Wednesday, Mr. Trump and the president of the European Commission, Jean-Claude Juncker, said they had reached an agreement to step back from a trade war and discuss ways to lower tariffs and other trade barriers. But the outcome of those talks are far from certain, and trade tensions between the United States and China remain very high.

What is driving the president’s apparent eagerness to impose tariffs is a simple and wrongheaded idea that plays to a large part of his base: That a trade war will spur job growth in America. He is trying to use tariffs to give a leg up to American industries against countries that manufacture the same products that we do — whether steel, aluminum or cars — but more efficiently. And who could be against that if it creates more jobs?

But in reality simply creating jobs alone does not make for a strong economy. What we really want is to increase production. And to achieve that, we need to allocate labor as efficiently as possible. One way to do that is to make sure that if there are other countries that can create certain goods more efficiently than we can, it is to our advantage to trade with them for these items, rather than manufacture them ourselves. The result is cheaper goods.

But tariffs do nothing to improve this efficient allocation of labor. They also do not increase or decrease employment. They just shift jobs around, and almost always in a manner that hurts the economy.

To continue reading: Trump’s Fake Fix for a Bad Policy

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