Tag Archives: Tariffs

Tariffs Are Not the Answer, by Ron Paul

Tariffs will not solve the main problems afflicting US business, the ones caused by the US government. From Ron Paul at ronpaulinstitute.org:

President Trump’s planned 25 percent tariff on steel imports and 10 percent tariff on aluminum imports may provide a temporary boost for those industries, but the tariffs will do tremendous long-term damage to the American and global economies. Tariffs raise the price of, and reduce demand for, imported goods. Tariffs ensure the preferences of politicians, instead of the preferences of consumers, to determine how resources are allocated. This reduces economic efficiency and living standards.

Some justify these economic inefficiencies as being worth it to save American jobs. This ignores how tariffs increase costs of production for industries reliant on imported materials to produce their products. These increased costs lead to job losses in those industries. For example, President Trump’s proposed steel tariff could cost nearly 40,000 jobs in the steel-dependent auto manufacturing industry. Tariffs also cause job losses in industries reliant on exports. This is especially true if — as is likely to be the case — other countries respond to President Trump’s actions by increasing tariffs on US products.

Many of President Trump’s critics do not themselves support true free trade, which is the voluntary exchange of goods and services across borders. Instead, they support the managed (by government) trade of NAFTA and the World Trade Organization (WTO). NAFTA and the WTO promote world government and crony capitalism, not free markets. Any libertarian or free-market conservative who thinks the WTO promotes economic liberty should remember that the WTO once ordered Congress to raise taxes!

Foreign manufacturers may make convenient scapegoats for the problems facing US industry. However, the truth is that most of the problems plaguing American businesses stem from the US government. American businesses are burdened by thousands of federal regulations controlling every aspect of their operations. The tax system also burdens businesses. Until last year’s tax reform bill, the US had the highest corporate tax rates in the developed world. The tax reform bill lowered corporate taxes, but the US corporate tax rate is still higher than that of many other developed countries.

The United States not only spends more on military weapons than the combined budgets of the next eight biggest spending countries, but also spends billions subsidizing the defense of developed counties like Germany, Japan, and South Korea. Bringing US troops home from these countries is an excellent place to start reducing spending on militarism.

To continue reading: Tariffs Are Not the Answer


Doug Casey on the Coming War With China

Trade barriers often hurt the country that imposes them more than the ostensible target. They can also lead to wars: when goods don’t cross borders, armies do. From Doug Casey at caseyresearch.com:

Justin’s note: Donald Trump may have just started a war.

If you read Tuesday’s Dispatch, you know that I’m talking about a trade war. You see, Trump just slapped a 25% tax on steel imports and a 10% tax on aluminum imports.

He did this because he wants to put American businesses first. But this plan may end up doing more harm than good. And that’s because Trump’s tough stance on trade could spark a global trade war. It could even lead to a shooting war with one of the most powerful countries on the planet.

You might find that hard to believe. But Doug Casey told me why this might happen during a recent phone call…

Justin: Doug, what do you think about Trump’s approach to trade?

Doug: Well, let me start off by saying the government should have zero to do with the economy in general, and trade in particular. No subsidies, no duties, no quotas—nothing of the sort. Most people don’t understand that import duties punish the whole country to “help” some uneconomic industry or group. At the same time, it allows them to persist in the practices that make them uneconomic.

And yes, I understand the chances of the government butting out are about zero. But it’s critical to voice correct principles, even if they’re disregarded.

Of course, Trump is correct in putting America first, as opposed to subsidizing other countries. But import duties don’t put America first. They damage it. The Smoot-Hawley tariffs were what really set off the last depression, because foreigners could no longer sell to us. That destroyed their economies, resulting in business failures and high unemployment.

Duties are always a disaster. When you have a duty on things from a foreign country, you violate all kinds of economic laws. You are, in effect, putting yourself under embargo. That’s number one.

Number two, the revenue on import duties goes to a government. It feeds the beast. This revenue makes the government bigger and stronger. So, it’s bad from that point of view as well. It always impresses me as strange when people talk about “we” in reference to the State, or the government. The State is a discrete entity—like General Motors, or the Catholic Church, or the Boy Scouts. It doesn’t care about you; it cares about itself. But, unlike those other organizations, it uses guns to enforce its will. You want to deny resources to it as a moral principle.

To continue reading: Doug Casey on the Coming War With China

Trump Trade Wars A Perfect Smokescreen For A Market Crash, by Brandon Smith

The Trump trade wars would have made a perfect smokescreen if he had announced his tariffs before the market topped out. As it was, the market dropped severely after its January 26 top, well before Trump announced his tariffs. So Trump’s trade wars will be smokescreen, but not a perfect one. If the market craters from here, the lore will always be that Trump’s tariffs caused the market to crash: Smoot-Hawley II. From Brandon Smith at alt-market.com:

First, I would like to say that the timing of Donald Trump’s announcement on expansive trade tariffs is unusual if not impeccable. I say this only IF Trump’s plan was to benefit establishment globalists by giving them perfect cover for their continued demolition of the market bubbles that they have engineered since the crash of 2008.

If this was not his plan, then I am a bit bewildered by what he hopes to accomplish. It is certainly not the end of trade deficits and the return of American industry. But let’s explore the situation for a moment…

Trump is in my view a modern day Herbert Hoover. One of Hoover’s first actions as president in response to fiscal tensions of 1929 was to support increased tax cuts, primarily for corporations (this was then followed in 1932 by extensive tax increases in the midst of the depression, so let’s see what Trump does in the next couple of years).  Then, he instituted tariffs through the Smoot-Hawley Act.  His hyperfocus on massive infrastructure spending resulted in U.S. debt expansion and did nothing to dig the U.S. out of its unemployment abyss. In fact, infrastructure projects like the Hoover Dam, which were launched in 1931, were not paid off for over 50 years. Hoover oversaw the beginning of the Great Depression and ended up as a single-term Republican president who paved the way socially for Franklin D. Roosevelt, an essential communist and perhaps the worst president in American history.

This is not to say Hoover was responsible for the Great Depression.  That distinction goes to the Federal Reserve, which had artificially lowered interest rates and then suddenly raised them going into the economic downturn causing an aggressive bubble implosion (just like the central bank is doing right now).  But Hoover did actually aid the Fed in their undermining of economic stability by pursuing policies which were poorly timed.

I’m hitting readers with all of this because I am growing rather tired of the contingent of Trump apologists in the liberty movement scrambling to defend every single Trump action no matter how illogical. These people should know better.  Sorry, but Trump is not “playing 4D chess” against the globalists.  His primary initiatives have only served so far to create a useful distraction away from the globalists.

To continue reading: Trump Trade Wars A Perfect Smokescreen For A Market Crash

WSJ Editors: “This Is The Biggest Policy Blunder Of Trump’s Presidency”

Trump is shooting himself in the foot on trade. From the editors of the Wall Street Journal, via zerohedge.com:

With Peter Navarro egging him on, and a handful of US steel and aluminum producer CEOs patting him on the back, President Trump’s decision to impose tariffs has prompted worldwide outrage from the establishment as a sign of impending trade wars and the end of the world as we know it.

While many are purely political kneejerk reactions – just as anything Trump does is a negative (think “crumbs”) to those on the ‘other’ side – The Editorial Board at  The Wall Street Journal,  believe that Donald Trump made the biggest policy blunder of his Presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum.

This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms.

The Dow Jones Industrial Average fell 1.7% on the news, as investors absorbed the self-inflicted folly.

Mr. Trump has spent a year trying to lift the economy from its Obama doldrums, with considerable success. Annual GDP growth has averaged 3% in the past nine months if you adjust for temporary factors, and on Tuesday the ISM manufacturing index for February came in at a gaudy 60.8. American factories are humming, and consumer and business confidence are soaring.

Apparently Mr. Trump can’t stand all this winning. His tariffs will benefit a handful of companies, at least for a while, but they will harm many more. “We have with us the biggest steel companies in the United States. They used to be a lot bigger, but they’re going to be a lot bigger again,” Mr. Trump declared in a meeting Thursday at the White House with steel and aluminum executives.

No, they won’t. The immediate impact will be to make the U.S. an island of high-priced steel and aluminum. The U.S. companies will raise their prices to nearly match the tariffs while snatching some market share. The additional profits will flow to executives in higher bonuses and shareholders, at least until the higher prices hurt their steel- and aluminum-using customers. Then U.S. steel and aluminum makers will be hurt as well.

Mr. Trump seems not to understand that steel-using industries in the U.S. employ some 6.5 million Americans, while steel makers employ about 140,000. Transportation industries, including aircraft and autos, account for about 40% of domestic steel consumption, followed by packaging with 20% and building construction with 15%. All will have to pay higher prices, making them less competitive globally and in the U.S.

To continue reading: WSJ Editors: “This Is The Biggest Policy Blunder Of Trump’s Presidency”

In 2002, President Bush Imposed 30% Steel Tariffs; This Is What Happened Next, by Tyler Durden

Tariffs didn’t work out too well for President Bush; they probably won’t work out too well for President Trump. From Tyler Durden at zerohedge.com:

an eerie analogue of what is about to take place, on March 5, 2002 President George W. Bush imposed tariffs as high as 30% on global steel imports.

The temporary tariffs of 8–30% were originally scheduled to remain in effect until 2005. They were imposed to give U.S. steel makers protection from what a U.S. probe determined was a detrimental surge in steel imports, as more than 30 steel makers had recently declared bankruptcy. Canada and Mexico were exempt from the tariffs because of penalties the United States would face under NAFTA. Additionally, some developing countries such as Argentina, Thailand, and Turkey were also exempt.

The response was immediate.

Domestically, some of the president’s political opponents, such as Democratic House Representative Dick Gephardt, criticized the plan for not going far enough. For some of the president’s conservative allies, imposing the tariff was a step away from Bush’s commitment to free trade. Critics also contended that the tariffs would harm consumers and U.S. businesses that relied on steel imports, and would cut more jobs than it would save in the steel industry.

The international response – like now – was more vocal.

Immediately after the announcement, the European Union announced that it would impose retaliatory tariffs on the United States, risking the start of a major trade war. To decide whether or not the steel tariffs were fair, a case was filed at the Dispute Settlement Body of the World Trade Organization (WTO). Japan, Korea, China, Taiwan, Switzerland, Brazil and others joined with similar cases.

In a decisive decision, on November 11, 2003, the WTO came out against the steel tariffs, saying that they had not been imposed during a period of import surge—steel imports had actually dropped a bit during 2001 and 2002—and that the tariffs therefore were a violation of America’s WTO tariff-rate commitments. The ruling authorized more than $2 billion in sanctions, the largest penalty ever imposed by the WTO against a member state, if the United States did not quickly remove the tariffs.

To continue reading: In 2002, President Bush Imposed 30% Steel Tariffs; This Is What Happened Next

A Short History Of Trade Protectionism——-Crony Capitalism That Always Hurts The People, by Thomas J. DiLorenzo

SLL reposts a fair amount of material from Patrick Buchanan. However, not many of his jeremiads against international trade and in favor of high tariffs, nor his so-called “history” of such, makes it to this site. Thomas J. DiLorenzo, one of the few historians out there who knows economics and also leans libertarian, has taken Buchanan to task. It’s long overdue. (As an aside, DiLorenzo sets the record straight on Abraham Lincoln in The Real Lincoln, an excellent book that was a source for some of the historical background in The Golden Pinnacle.) From DiLorenzo at davidstockmanscontracorner.com:

I’m a fan of much of Pat Buchanan’s “America First” foreign policy writings in which he expresses the supposedly outrageous idea that the purpose of the national defense establishment should be to defend against foreign aggressors, and not be the aggressor. Defense, not offense. But his “America First” economic writings in defense of protectionism are completely wrongheaded, and often historically inaccurate.

The main reason for the wrongheadedness is Buchanan’s pervasive error of the post hoc ergo propter hoc fallacy (“after this, therefore because of this”). An example of this fallacy would be: 1) A rooster crows in the morning; 2) The sun rises shortly after the rooster crows; 3) Therefore, the rooster crowing must cause the sun to rise.

In Buchanan’s case, his entire argument for protectionism rests on a slightly different version of the post hoc ergo propter hoc fallacy. Buchanan’s fallacy is: 1) The Republican Party ushered in forty years of protectionist tariffs, beginning in 1862; 2) There was a lot of good economic news for Americans during that period; 3) Therefore, the Republican Party’s protectionist trade policies caused the economic good news.

In a recent column entitled “Who’s the Conservative Heretic” Buchanan repeats this mantra, which he has written over and over for the past several decades, by citing the high tariff policy of the post-Civil War era, along with declining prices, higher real wages, 4% per year increases in GDP, increased industrial production, etc. and claims that ALL of it is the result of high tariffs.

But during that time period international trade accounted for less than 10 percent of the entire economy, so that high tariffs could not possibly have had such huge impacts. Moreover, the economic impacts of the GOP’s protectionist tariffs were uniformly bad. The main beneficiaries of the Party of Lincoln’s protectionism were the politically-connected corporate one-percenters of the day, whose corporate profits were “protected” from competition. As John C. Calhoun once accurately stated, what average Americans are “protected” from with protectionist tariffs is lower prices. Buchanan’s beloved high, post-war tariff rates allowed protected industries to rip off their American customers while all other industries were expanding, innovating, and dropping their prices. This is always and everywhere the fundamental effect of “economic nationalism”: the politically connected benefit at the expense of their fellow citizens.

Many of the post-Civil War tariffs were imposed on capital goods that were used by American manufacturers to produce other products, thereby making those American manufacturers less competitive on international markets.

Farmers were plundered mercilessly by the high tariffs championed by the Party of Lincoln. American farmers sold much of their product in Europe. Three-fourths of Southern agriculture was sold in Europe shortly after the war, for example. But when high protectionist tariffs deprived our European trading partners of revenue by prohibiting them from selling in America, they had fewer (or no) dollars with which to buy American agricultural products. Thus, farmers were plundered twice: Once by having to pay more for a lot of “protected” products shielded from competition and therefore higher priced; and then a second time from lost sales abroad. This is why American farmers became a powerful political force in favor of a federal income tax: They were promised lower tariffs in return for their political support.

Farmers did help get the income tax adopted, and the average tariff rate was lowered in 1913 when the income tax was adopted. But then they were once again abused by the Party of Lincoln which, in 1922, just nine years later, passed a huge tariff increase known as the Fordney-McCumber tariff, which Buchanan praises to the treetops with another silly post hoc fallacy: “For the next five years, the economy grew 7 percent a year,” he writes. Farmers ended up with high tariffs and an income tax.

To continue reading: A Short History Of Trade Protectionism——-Crony Capitalism That Always Hurts The People


Make America Great Again, by Peter Schiff

Donald Trump has got the right problem, but the wrong solutions. From Peter Schiff at europac.com:

Donald Trump’s critics have heaped scorn on his calls for protective tariffs to deal with America’s widening trade imbalance and the resulting loss of higher–paying blue color jobs. Some have accused him of trying to turn back the clock in pursuit of a cheap populist ploy and have said that he simply refuses to acknowledge that America is now an information and service economy for which large trade deficits are the new normal. But voters are sensing that The Donald is right to sound alarm bells, and that something radical needs to be done to revive manufacturing to make America great again. But his tariff solution is hardly the best medicine. To be honest, given the even worse solutions that are being offered by the left, Trump’s instincts may be preferable.

Ironically, in the late 19th and early 20th Centuries, the elimination of tariffs was a populist issue. A little more than a century later, the polls have reversed completely. Prior to the introduction of the income tax in 1913, tariffs were the Federal Government’s principal source of revenue. During the long and contentious campaign to enact the 16th Amendment (which allowed the government to tax incomes for the first time since the emergency Civil War-era 3% to 10% income tax), proponents argued that the passage of a “soak the rich” income tax would allow the government to repeal the tariffs and thereby transfer the tax burden from the working class, who paid the tariffs through higher prices on imports, to the ultra-wealthy, who were the sole target of the income tax as it was originally conceived, packaged and sold.

(The tax originally imposed rates from 1% to 7%, and only applied to fewer than 1% of Americans. The 99% supported its enactment solely because they believed they were getting something for nothing, in this case, government services paid for by the rich. In fact, in 1895, when the Supreme Court bravely declared the government’s first attempt to replace tariffs with an income tax unconstitutional, the justices were personally vilified as defenders of the rich.)

But once the Federal Government got its foot in the door, it rapidly raised the tax rates and expanded the base of taxpayers, ultimately subjecting the middle class to rates far higher than anything originally contemplated for the Rockefellers, Carnegies, or Vanderbilts. If this does not provide a sterling example to the legions of Democrats “Feeling the Bern” of how class warfare can backfire on the class waging the war, I don’t know what does. Ironically, no single tax has done more harm to the middle class than the income tax.

So while the populist movement of the early 20th Century demanded the removal of tariffs, the populist movement of today wants to bring them back. But Trump is not talking about replacing income taxes with tariffs. He simply wants to add tariffs to the existing tax structure (though he does want to lower the rates). This will only compound our problems and make our economy far less competitive. It will not bring back our jobs; it will only increase the tax burden on the American economy, destroying even more jobs. If we want to undo the deal we made with the devil over 100 years ago, we need to repeal the income tax as well.

To continue reading: Make America Great Again