It is funny to watch the talking heads opine, wring their hands, and pop Valium on live TV over Trump’s proposed steel and aluminum “tariffs”. They cry that Trump is creating a “trade war” and that our really nice allies are going to hate us. Even farm groups are getting in on the act claiming that wheat, soybeans, and other commodities are going to be subject to retaliation. The absolute dumbest comment that is often repeated is that there are only 250,000 workers in steel and aluminum but there are 6,500,000 workers who need steel and/or aluminum products to support their industries. A trade war would endanger 6,500,000 workers versus only 250,000 who may benefit! Really, a 25% tariff on steel and a 10% tariff on aluminum, will cause 6,500,000 people to be laid off! Then, our idiotic Congressional hacks all badmouth Trump’s policy even though they have no idea what it is like to compete today in the so-called “free market” of globalism! They all need to get a real job and get some dirt under their fingernails!
Subsidies Are Tariffs: First of all, “tariffs”, a tax on imports or exports between sovereign states, is only one way to screw your trading partner! How about when your country produces wheat and my country produces wheat, but your country pays you $1.00 per bushel to produce your wheat. This allows your country to produce more of a product that may not be economically viable if not subsidized. The result, the world “free” market is now being flooded with a product because of one country’s subsidy! This is not fiction. When I was farming and growing sugar beets, the EU decided to subsidize their beet and cane production. The result is that world sugar prices were driven down to $.06 a pound and we had to stop growing and EXPORTING sugar while the EU subsidized growers overproduced creating more downward pressure on sugar prices. The EU farmer did not receive only $.06 per pound, they received almost $.25 per pound due to direct and indirect EU farm subsidies! Their subsidy increased as world prices in the “free market” went down. China and others do this today with Steel and Aluminum and a whole host of other products and commodities.
VAT Taxes: Mexican IVA (VAT) tax is levied at the rate of 16% on most imports from even the US. China, the EU and many other nations charge US manufacturers a VAT tax on all of their exports into these countries. While the US manufacturer can recoup the VAT tax when the produce is resold in the designation country, the US product is automatically 16% more expensive than competing local products that are exempted from the VAT tax!
Quality/Health Restrictions: MANY countries have set artificial import barriers by imposing harsh Quality or Health restrictions on incoming products. These restrictions are levied against specific products from specific nations. Case in point is Japan’s restrictions on importing US beef and other animal products. In order to protect its own beef producers, Japan imposed quality requirements on US beef that even Japan’s own producers could not meet if the same standard applied to them. The EU applies the same discriminatory barriers to US imports for many food products coming into the EU from the US.
One of the funniest examples I personally experienced was when I was working in Tunisia. Tunisia was a prior colony of France so France kept their paws in the Tunisian economy especially long after their independence. Wine grape juice was sent into France and many of the French import restrictions on juice from Tunisia were waved entirely. ESPECIALLY THOSE THAT WERE LABELED AS “FRENCH WINE” AFTER BEING PROCESSED IN FRANCE.” This ticked off the Italians who thought they were part of the EU with France. I guess they never read George Orwell’s Animal Farm. (French wine is more equal than Italian Wine! ) If you were in the US trying to export wine to the EU, forget it. It would be easier and cheaper to import heroin!
So, without belaboring the topic with more details of a Tariff is not just a tariff, don’t think that the word “free trade” does not mean that countries we try to export to are “free” to our exports. Also, that even if both countries have the same tariff percentage, VAT taxes, heath and quality fees may erase the “free” part! One other nutty “tariff” is the EU’s global warming restrictions. If the grand poohbah of the EU decides your country is not doing its part to lower cow flatulence, I mean global warming, then you could get a demerit, tax, on all products coming from your country!
What is Trump Trying to Accomplish?
- NAFTA: Hold Canada and Mexico’s feet to the fire on renegotiating NAFTA and leveling trade imbalances, including quality standards, VAT, and other non-leveling practices.
- China: Trump wants to deal with China Top-To-Top rather than have a knock down drag out with them publicly. Trump needs to maintain a dialogue with Xi on North Korea and a whole host of issues that are vital to our national interest. He wants to whittle down the trade deficit with China but in as low-key a way as possible. The blowhards who want to “attack” China head on are not responsible for leveling trade and maintaining world stability, Trump is! Trump will deal with XI directly on intellectual property, currency manipulation, state industry dumping and other related trade issues.
- EU: The EU sticks it to us on trade every time they get a chance. Whether it is on agricultural products, BMWs/Mercedes, or steel, the EU does not treat us as a valued trading partner and do not particularly concern themselves over our trade imbalance. Try exporting a horse to the EU. If your horse does not have a passport, yes a passport, with all of the injections your horse has had, no deal. Remember the French and others eat horse meat and they want to know what their meal has been injected with! Trump sees NATO and the EU as intertwined. Subsidizing their defense is not acceptable and having an unfair trade imbalance just adds to this level of unfairness in Trump’s mind. He will negotiate long and hard with the EU and will do so openly as he did NATO and their lack of owning up to their commitments.
Many argue that trade imbalances are not harmful and are actually healthy by providing US citizens with low-cost products. They argue further that even if a US company cannot make broom sticks as cheaply as they are made in and shipped in from China that is OK because the US consumer is getting a cheaper brook stick! That great unless you worked at the US broom stick factory! They will then argue, that is ok, they have unemployment, welfare, food stamps etc. to fall back on!
So, we lose our factory that paid taxes, we lose the taxes from the employees who used to work at the broom stick factory, and now we have to subsidize the Chinese Broom Stick by giving our ex-broom stick employees $65,000 is welfare and other government paid goodies! Bet you don’t hear Larry Kudlow or the Wall Street Journal mention that little paradox! Trade imbalance can be offset with foreign investments back into the US IF THOSE INVESTMENTS PRODUCE US JOBS! In the past 40 years we have lost out export base, increased our trade imbalance to $800 Billion, and CLOSED 55,000 US factories! Maybe some of these really smart people need to go back to their Ivy League schools and try ECON 101 again.
Trump knows you have to stimulate the supply side via business tax and regulation reductions; stimulate the demand side by creating good paying jobs; and leveling our trade imbalances by insisting on a fair international trade playing field. The US is 5% of the world population and consumes 25% of the world output including our own. Trump knows that you cannot have low exports and continue to lose our own industries and jobs and still maintain a healthy GDP and economic growth.