tariffs – Sheila Kennedy

R.I.P. GOP….

I often disagree with Bret Stephens of the New York Times on the issues, but I appreciate his intellectual honesty. Stephens is a genuine political conservative, appalled by Donald Trump and clear-eyed about the transformation of the GOP from a center-right political party into an unrecognizable cult held together by grievance.

As he observed in a recent exchange with liberal columnist Gail Collins:

If there were truth in advertising, Republicans would have to rename themselves the Opposite Party. They were the party of law and order. Now they want to abolish the F.B.I. They were the party that revered the symbols of the nation. Now they think the Jan. 6 riots were like a “normal tourist visit.” They were the party of moral character and virtue. Now they couldn’t care less that their standard-bearer consorted with a porn star. They were the party of staring down the Evil Empire. Now they’re Putin’s last best hope. They were the party of free trade. Now they’re protectionists. They were the party that cheered the Supreme Court’s 2010 Citizens United decision, which argued that corporations had free speech. Now they are being sued by Disney because the company dared express an opinion they dislike. They were the party that once believed that “family values don’t stop at the Rio Grande,” as George W. Bush put it. Now some of them want to invade Mexico.

The party that used to defend the right of businesses to run their own affairs–the party that, as Stephens notes, was committed to free trade– is relentlessly attacking corporations that have recognized the importance of diversity and inclusion, and is in the process of embracing tariffs–aka trade war tactics.

According to the Washington Post, in a recent interview with Fox Business’s Larry Kudlow, Trump explained that he favors a universal 10% tariff on all goods imported into the US:

“I think we should have a ring around the collar” of the U.S. economy, Trump said in an interview with Kudlow on Fox Business on Thursday. “When companies come in and they dump their products in the United States, they should pay, automatically, let’s say a 10 percent tax … I do like the 10 percent for everybody.”

The Post reported that Trump and his advisers are promoting the imposition of a universal tariff on all imports as “a central plank in his 2024 bid for a second term.”

As virtually all economists–conservative and/or liberal– will insist, tariffs are a terrible idea. (In his daily newsletter, Robert Hubbell characterized a 10% universal tariff as “an economy-destroying debacle of generational proportions.”) Hubbell quoted one expert on the subject who characterized the idea as “lunacy.”

What is wrong with tariffs, you ask? Well, other than leading other major economic powers to conclude the United States cannot be trusted as a trading partner, tariffs are basically a hidden tax ultimately paid by US consumers. Also, history confirms that the imposition of tariffs by one country inevitably triggers retaliatory tariffs by others.

We saw the effects of such tariffs when Trump imposed a number of them on China during his disastrous Presidency. They wreaked havoc on U.S. farmers. The impact was so severe that the administration had to make massive grants to farmers to offset the losses.

As Forbes reported at the time,

The Trump administration gave more taxpayer dollars to farmers harmed by the administration’s trade policies than the federal government spends each year building ships for the Navy or maintaining America’s nuclear arsenal, according to a new report. A National Foundation for American Policy analysis concluded the spending on farmers was also higher than the annual budgets of several government agencies. “The amount of money raises questions about the strategy of imposing tariffs and permitting the use of taxpayer money to shield policymakers from the consequences of their actions,” according to the analysis.

According to experts, the value of US imports in 2022 approached $4 trillion. A 10% universal tariff imposed on that amount would cost consumers $400 billion.

This insane tariff proposal is just one more bit of evidence–as if we needed any– that Trump hasn’t the foggiest idea how economies work. His behavior during the four years he was President convincingly demonstrated that he also lacks any understanding of how government operates. He may well be the most profoundly ignorant person ever to occupy the Oval Office (and we’ve had some clunkers…)

Given Stephens’ entirely accurate description of the “Opposite Party,” and given the loyalty of MAGA Republicans to a self-obsessed clown whose positions are, indeed, “opposite” of those traditionally held by the GOP, all I can conclude is that grievance–primarily racial grievance–has Trumped sanity. (Double-entendre intended..)

The GOP that once was is dead. R.I.P.

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There’s Damage And Then There’s Damage

The damage being done every day by the Trump Administration falls into two categories: that which can be reversed relatively quickly if a Democrat wins the Presidency in 2020, and that which will take much, much longer–if it can be reversed at all.

For example, Betsy DeVos is the gift that keeps on giving to for-profit “colleges” and religious voucher schools, but once she has gone–and it can’t happen soon enough–her efforts to reverse the student-centered policies of the Obama years can themselves be wiped clean.

On the other hand, there’s climate policy. We can’t recover the years we’ve lost in the increasingly critical, time-sensitive effort to keep the planet habitable. A Democratic administration will have to spend time and political capital just reversing the reversals of previous efforts to keep air breathable and water drinkable, let alone measures to halt climate change.

Most long-lasting of all–at least domestically– will be the damage done by dozens of unqualified ideologues who will sit on our federal courts for many years.

It’s hard to know the extent of the damage to America’s global relationships and reputation. Optimists believe Trump will be seen as a temporary aberration; I’m not so sure. (It sure doesn’t help when other countries see him getting away with caging children and green-lighting war crimes.)

And then, of course, there’s the damage his insane tariffs have done to the economy–especially but not exclusively to farmers. CNBC is not a “liberal” news organ; quite the contrary. So it was sobering to read the following from the CNBC website:

President Trump announced a month ago that his administration had clinched a trade deal with China. Well, actually, the first in a series of deals, which the White House now refers to as “phase one.”

Since then, countless declarations of “winning,” but agreeing to a deal only “if the terms are right,” have added to the year and half long conflicting cacophony of rhetoric about the content of any trade agreement with China.

Bottom line? The constant bluster has blurred the reality of what a deal would even accomplish, if anything at all. The only way to shovel away the pile of broken promises and contradictory comments is to analyze the flow of maritime trade.

Why? With 90% of all items in a house transported over water, it is the purest form of showing supply and demand. The flow of trade is agnostic. It moves regardless of who is “winning” or “losing.”

And what does that “agnostic” flow show? That a deal, no matter how good, will never make up for the losses sustained during this trade war.

For a perspective on the losses, look no further than the Port of Los Angeles, the largest port in the country. U.S. exports to China from the bustling harbor decreased for 12 consecutive months. It suffered a 19.1% drop in export volume when comparing October 2019 with the same month in 2018.

China’s retaliatory tariffs hit 96.6% of the purchases of U.S. exports that traveled through the L.A. port complex, with a price tag of $19.9 billion.

Add on the additional retaliatory tariffs from the other countries the U.S. is sparring with on trade, and that brings the total of impacted export cargo to $20.2 billion, or 28.8% of all export value through the L.A. port system. Considering 95% of the world’s consumers are outside of the U.S., the tariffs imposed on American goods have priced them out of the global marketplace.

Add to this analysis other reports strongly suggesting that America’s farmers will never recover the soybean markets they’ve lost during this trade war (other countries, after all, can grow and supply soybeans), and the picture is grim. And agriculture isn’t the only sector hurting; CNBC says China is expanding natural gas trade with Qatar and Australia “while essentially shutting off the United States.” The retail and technology sectors have announced losses in the billions.

So as the bluster blows and promises of winning mount, the actual flow of trade paints a very different picture.

A picture that looks increasingly long-term.

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Old McDonald Had A Subsidy

Like many of you, I get all sorts of newsletters, from a variety of sources. A recent report about farm incomes, from this issue of Axios Markets, made me take a deep breath, because I’m old enough to remember the Republican Party that no longer exists.

That iteration of the GOP would have screamed bloody murder had a President imposed tariffs; defense of free trade was (forgive the pun) a party trademark. Those Republicans would have pointed to all the readily-available evidence of the negative effects of tariffs, including but not limited to the fact that they are paid for by consumers in the nation that levies them.

That GOP was also a champion of genuine capitalism, and an (admittedly selective) opponent of corporate welfare.

That GOP did scream bloody murder when President Barack Obama “bailed out” American auto companies. Never mind that we were just coming off the “Great Recession,” or that thousands of American jobs were at stake, or that the funds were structured as loans, not giveaways. They continued to criticize the decision even after it was clear that the intervention had worked, and even after the companies completely repaid the loans.

But I haven’t heard a peep from any of today’s Republicans about the mounting subsidies to farmers–subsidies meant to compensate them for losses entirely caused by Trump’s tariffs. Those subsidies are now larger than the amounts lent to automakers.

Here’s the information from Axios Markets that set me off:

What’s happening: U.S. farmers have been suffering this year. Chapter 12 bankruptcies have risen 24% over the previous year and farm debt is projected to hit a record high $416 billion.

While farm income is expected to reach its highest total since 2014, 40% of that income will come from trade assistance, disaster assistance, the farm bill and insurance indemnities, according to the American Farm Bureau Federation.

What we’re hearing: That’s “definitely not the normal,” Farm Bureau chief economist John Newton tells Axios. The $28 billion bailout package for farmers that President Trump signed earlier this year has “increased the percentage to a level we’ve not seen in a while.”

So let’s see. The party that believes in capitalism and markets–the party that counsels poor folks to suck it up and avoid ” welfare dependency”–is perfectly fine with government dollars supplying 40% of farm income.

The party of free trade has no problem with disruptive tariffs that interrupted farmers’ existing markets (many of which are unlikely to come back once this episode is over–other countries grow soybeans) so that their “leader” could look like the “tough guy” he clearly isn’t, and they’re hunky-dory with using billions of taxpayer dollars to compensate the people their idiocy injured.

Chinese imports of U.S. agricultural products totaled $24 billion in 2017 and peaked at $29 billion in 2013, according to U.S. government data. Imports fell to $9 billion last year as a result of the trade war.

Trump insists that he’ll make a new deal under which China will buy “40 to 50 billion” dollars of American farm products annually. As the Axios report notes, we’ve heard that song about an impending “great deal” before–and each time, Trump has had to pull back. Peterson Institute senior fellow Jeffrey Schott has opined that, even if a deal is signed, it’s unlikely that either side could deliver on its bloated promises to sharply increase US farm exports to China to $50 billion annually, “or anywhere near that total.”

Of course not.

Sentient Americans understand that virtually all of Trump’s pronouncements are untethered to reality–that they come straight from the fantasy universe he inhabits. What we don’t understand is where all those free-trade, fiscally-conservative, pro-market Republicans have gone.

I guess those policy preferences were less important than supporting a “leader” who promised them the continued dominance of straight white Christian males….

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Not-So-Merry Christmas?

I keep remembering the line Yul Brynner used whenever he was faced with a conundrum in The King and I? “It’s a puzzlement.”

As Americans count down to the 2020 elections, those of us who view the Presidential contest as a critical referendum on the American Idea and the rule of law are torn. We want to stop this corrupt and incompetent administration from doing even more harm between now and then, but we also know that preventing the worst consequences of Trump’s madness will work in his favor.

Take the damage being done to the economy by his ham-handed imposition of tariffs.

As an article in the Washington Post recently put it,

There’s a case to be made that Trump has the upper hand in these trade disputes because the United States buys more from China and Mexico than those countries buy from the United States. To put it another way, China and Mexico need Trump economically more than he needs them.

But that’s just the raw economic calculation. Trump is also facing a campaign for reelection in 2020, and he’s banking on a strong economy to propel him to victory. There are already signs that Trump’s trade policies are making the markets and economy jittery, and the pain is likely to escalate if he doesn’t make some deals by September.

People who actually understand economics and trade policy (a category that clearly excludes Donald Trump) are warning that America’s economy is losing steam. Despite Trump’s fantasies, coal is dying, factories aren’t coming back and companies that are still here are pocketing their tax windfalls, not creating new jobs.

Tariffs are taxes on the American people. So far, those costs have been modest. As Trump and top White House officials frequently point out, inflation (a good gauge of price increases across the economy) has remained low, which helps explain why there hasn’t been widespread public revolt over the tariffs, except among farmers and some manufacturers who have been hit the hardest.

Experts who follow economic trends warn that the costs of Trump’s delusional “dealmaking” are likely to ramp up in August and September. That’s because he appears intent upon announcing new rounds of tariffs– thus dramatically increasing the costs Americans will have to pay for goods, and making it probable that people will notice that they, not China, are paying the tab for Trump’s version of trade policy.

August and September are when U.S. retailers import goods for the holiday shopping period. Retailers warn that If Trump’s tariffs are still in place then, “it will be nearly impossible not to pass some — if not all — costs on to consumers for holiday season 2019.”

Consider the numbers. At the start of the year Trump’s tariffs cost the typical family of four about $480 a year, according to calculations by the right leaning Tax Foundation and The Washington Post. Last month Trump increased tariffs on China, which lifted the cost for a typical family of four to $860 a year…If Trump moves forward with his other threat to put tariffs on all Chinese imports by the end of the summer, the cost would jump even higher — to more than $2,000 for a family of four.

And it’s not just higher costs. Retailing–and retail employment– is already on the ropes. As one columnist recently noted,

Last week, 661 firms — including major players such as Costco, Target and Hallmark — signed a letter pleading with the administration not to use tariffs as a cudgel in its efforts to address China’s trade abuses. The USTR has also received more than 1,600 written comments thus far, overwhelmingly negative.

These, like the USTR public hearings, echo what big retailers had already been warning investors and customers: Sweeping tariffs will stress already-thin profit margins and lead to layoffs. They will also raise prices for U.S. households by hundreds or thousands of dollars, wiping out the value of Trump’s tax cuts.

My only quibble with that letter is with the notion that the tax cuts had value…

So here’s the conundrum: Consumer spending is the backbone of the U.S. economy. If Trump continues with his “Tariff Man” antics, the economy will suffer, and the working poor, as usual, will bear the brunt of the pain.

On the other hand, other than appeals to racism, Obama’s economy is pretty much the only thing Trump has going for him.

Should good Americans root for a downturn that would be likely to ensure Trump’s defeat, even though it would cause pain for so many people? Or should we hope that sane policymakers can keep him from tanking the economy– thereby improving his election prospects?

It’s a puzzlement.

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Tariffs And Taxes

When I was still a Republican, and Republicans were still a political party and not a cult, there was broad agreement within the GOP that tariffs were rarely if ever useful policy tools. They raised the price of goods, invited retaliation, and interfered with productive trade. Today that position is, if anything, more correct: In our increasingly globalized economy, most tariffs are counterproductive.

There was less agreement back then about tax policy, and over the years–as the GOP has pursued tax cuts as an article of faith (and self-interest)–it has taken a real effort on the part of ostensibly thoughtful “policy wonks” to ignore the mounting evidence of the harm that low-tax philosophy was doing. (Kansas, anyone? How about the most recent tax cuts, which even the Congressional Budget office says did nothing for the economy, but did line the pockets of the already obscenely wealthy?)

Trump’s sudden decision (all of his decisions are sudden–comes with the “why examine this, I”ll just go with my gut” process) to impose tariffs on Mexico until they magically manage to seal the border is egregious for a number of reasons. Republican Senator Grassley has noted that trade policy and immigration policy are different, and require different tactics–and that this gambit is highly unlikely to work. Worse still, the U.S. does an enormous amount of business with Mexico, and a large number of American companies have operations in both countries. It gets complicated.

Ed Brayton summed it up succinctly at Dispatches from the Culture Wars:

Most of the goods crossing the border are parts of a larger supply chain, particularly for the auto industry that is already reeling from Trump’s huge tariffs on steel and aluminum. That means this is going to do enormous damage to our economy. Both economies, actually, and what happens when Mexico’s economy is in bad shape? More illegal immigration, obviously. The man is desperately ignorant, on virtually every subject but especially on this one.

I won’t belabor the thorny economic issues raised by this latest bit of Trumpian economic ineptitude. What I do want to point out–and as economists confirm–is that tariffs are taxes on the American public. Trump seems to think they are paid by the country against which he is leveling them, but anyone who has taken Econ 101 knows better. We the People pay the tariffs, because they raise the prices paid by consumers. And they are already hurting the poor.

So tariffs are effectively a tax we pay. Worse, however, they are a tax that fails to do what taxes ought to do: pay for necessary government services.

The Republican approach to tax policy is simply a fixation on cutting taxes. The reason that is so misguided is that taxes pay for the country’s physical and social infrastructure. The roads we use, the police and firefighters we rely upon, the national defense, the costs of ensuring clean air and water, maintaining the justice system, social security and Medicare…on and on.

Think of the country as a club you belong to, with facilities and amenities that need to be maintained. Taxes are your dues. They keep the club furnace and roof repaired and the grass mowed.

It is entirely appropriate to argue about the specifics of tax policy: how should those dues be assessed? Who should pay the most? How do we ensure that the monies raised are properly spent? What are the tasks we need to fund collectively through government with our tax dollars? Reasonable people will have disagreements about these issues.

But onerous taxes levied through the imposition of disruptive and ineffective tariffs don’t fund our government. They just burden consumers–and especially the poor–without any offsetting benefit or return.

Leaving aside Trump’s multitude of offensive, childish and criminal acts, his ignorance of the economic consequences of his tariffs is a perfect example of his inadequacies for the office.

If Americans are capable of learning a lesson, that lesson is “don’t elect an ignoramus. It will cost you–and it sure won’t make America great.”

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