Tag Archives: tariffs

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.”

 

 

Reality Is So Inconvenient

Time Magazine  recently ran a story illustrating the problem with electing stupid, uninformed people.

Numerous media outlets have explained–patiently, and in detail– why Trump’s evident belief that China is paying his tariffs is wrong; they’ve laid out–in painful detail–the way tariffs really work, and why those tariffs are more properly labeled tax increases on the American public.

The Time article addresses a subsequent demonstration of Trump’s utter economic cluelessness.

Tariffs on foreign goods are supposed to help companies that make things in the United States by increasing the costs of products sold by foreign competitors. Indeed, when rationalizing his administration’s increased tariffs on Chinese goods, President Donald Trump on Monday encouraged consumers and businesses to buy goods from countries other than China, or, in what he called the “best idea,” to buy American-made goods.

That would have been good advice, back when American companies were busy manufacturing  horse whips and corsets. These days, however, advice to “buy American” simply displays an embarrassing ignorance about the current realities of  the world of business.

But that advice is almost impossible to follow, as products made in America can contain parts sourced from all over the world. Even the most quintessentially American of goods has parts from somewhere else, whether that be a Ford F-150 pickup, a can of Budweiser, or tire chains from Worcester, Mass. “In the last 20 years, businesses have become much more strategic,” says Kara Reynolds, an economics professor at American University. “More and more often, they are looking at where they can find highest quality and lowest-cost parts so that they can be competitive.” More often than not, that’s China — and that means many U.S. businesses are feeling the pain thanks to Trump’s tariffs.

Trump, as usual, has ignored the warnings of more knowledgable people (a category that includes most sentient humans), and has doubled down on his tariff policy. Farmers have been the most notably hurt, but manufacturers and retailers aren’t far behind. Automobile companies are already feeling the pinch.

The most recent round of tariffs is expected to affect a broad swathe of industries that make products in the United States. “This is playing havoc with the supply chains of Americans producers — increasing their cost and reducing their worldwide competitiveness,” says Robert T. Kudrle, an economics professor at the University of Minnesota. St. Pierre, for example, makes chains and wire rope in its Worcester facility, as it began doing in 1920 when Henry St. Pierre started the company. But as it started facing foreign competition, St. Pierre began buying chain slings and other parts from producers overseas, then cutting them and adding hooks and fittings in the United States.

The cost of those imported chain slings have gone up as tariffs have risen. Even St. Pierre’s horseshoes, which are made completely from U.S. steel, have been affected by the tariffs on foreign goods. As the cost of foreign steel went up, the cost of U.S.-made steel rose too, says Peter St. Pierre, vice president of finance at St. Pierre Manufacturing — and Henry St. Pierre’s grandson. “Everything we do here is steel-related, and over the last year or so, the price of steel has been going up and up,” he said. Increased demand for domestic steel has allowed U.S. producers to raise their prices; one estimatefound that U.S. steel prices have more than doubled since 2015.

Companies affected by the tariffs include a number that make goods in the U.S., thanks to rising duties on imported parts.

A South Carolina plant that assembled televisions using Chinese parts said last yearit was shutting down because of the tariffs. The Beer Institute, which represents 6,000 brewers and 2.2 million American jobs, said thatabout six percent of the cost of beer is the aluminum used in cans, and predicted that higher aluminum tariffs could cost 20,000 American jobs.

Are we tired yet of all that “winning”?

Will his brainwashed base ever decide that it may be time to elect someone with less ego and more functioning brain cells?

Red Myths, Rural Realities

Paul Krugman recently looked at the effects of Trump’s policies on rural America, and found–to no sentient person’s surprise–that the effects have been disastrous.

Economists, reports Politico, are fleeing the Agriculture Department’s Economic Research Service. Six of them resigned on a single day last month. The reason? They are feeling persecuted for publishing reports that shed an unflattering light on Trump policies.

But these reports are just reflecting reality (which has a well-known anti-Trump bias). Rural America is a key part of Donald Trump’s base. In fact, rural areas are the only parts of the countryin which Trump has a net positive approval rating. But they’re also the biggest losers under his policies.

As Krugman points out, whatever Trump’s campaign rhetoric might have promised, his actual policies have been aligned with (okay, dictated by) Congressional Republican priorities–what Krugman calls “G.O.P. standard”: big tax cuts for corporations and rich people, accompanied by cuts to the social safety net.

The only real deviation from GOP orthodoxy has been the tariffs, and Trump’s evident belief that trade wars are “easy to win.” Even the farmers who have been a reliable part of Trump’s base are beginning to recognize that they will bear the brunt of the substantial injuries caused by those wars.

As for the tax and social safety net cuts…

The Trump tax cut largely passes farmers by, because they aren’t corporations and few of them are rich. One of the studies by Agriculture Department economists that raised Trumpian ire showed that to the extent that farmers saw tax reductions, most of the benefits went to the richest 10 percent, while poor farmers actually saw a slight tax increase.

At the same time, the assault on the safety net is especially harmful to rural America, which relies heavily on safety-net programs. Of the 100 counties with the highest percentage of their population receiving food stamps, 85 are rural, and most of the rest are in small metropolitan areas. The expansion of Medicaid under the Affordable Care Act, which Trump keeps trying to kill, had its biggest positive impact on rural areas.

It is fair to suggest that many rural Americans are unaware of the variety of ways in which Medicaid expansion and other social programs support farm country; some of those benefits are indirect (which doesn’t mean they aren’t critically important). The impact of the tariffs, however, is hard to miss.

What about protectionism? The U.S. farm sector is hugely dependent on access to world markets, much more so than the economy as a whole. American soybean growers export half of what they produce; wheat farmers export 46 percent of their crop. China, in particular, has become a key marketfor U.S. farm products. That’s why Trump’s recent rage-tweeting over trade, which raised the prospect of an expanded trade war, sent grain markets to a 42-year low.

If Trump succeeds in plunging us into a full-blown trade war, which certainly seems more likely than not, Krugman says American imports and exports will both shrink — and since farmers rely disproportionately on exporting, they will be the biggest losers.

The harm being done to rural America by Trump leads to that perennial question: why do so many of the people bearing the brunt of his ignorance continue to support him?

Krugman delicately suggests that it has to do with “cultural factors”–by which he means hostility to immigrants and resentment of coastal elites they believe look down on rural America. (What Krugman calls hostility to immigrants is, if the research is to be believed, part of a much larger and more ingrained hostility to non-whites and non-Christians.)

Krugman thinks that rural America’s support for Trump may start to crack as the negative effects of his policies become too obvious to miss. I’m less sanguine.

When we so-called “elitists” talk about “voting ones interests,” we are almost always referring to economic interests. When I listen to Trump supporters–when they post angry diatribes on Facebook or are interviewed for a new program–what I hear is a very different view of what constitutes their interests.

Economic reality be damned. Trump voters are defending their vision of America, and that vision is white, heterosexual, and fundamentalist Christian. So long as they believe Trump is hurting people who fall outside that narrow category, he’s their guy.

 

The President’s Stupid Trade War

Remember Trump’s declaration that “trade wars are good, and easy to win”? How about “I am a Tariff Man,” or his repeated (inaccurate) claim that foreigners pay tariffs.

Have we ever had a less-informed President? (That’s a rhetorical question. Obviously, being ignorant is one contest Trump wins in a walk.)

Let Paul Krugman explain Trump’s fallacies.

Over the course of 2018 Trump imposed tariffs on about 12 percent of total U.S. imports, and many of those tariffs have been in effect long enough that we can get a first read on their consequences.

On Saturday economists from Columbia, Princeton, and the New York Federal Reserve released a paper, “The impact of the 2018 trade war on U.S. prices and welfare,” that used detailed import data to assess the tariffs’ impact. (The paper, by the way, is a beautiful piece of work.) The conclusion: to a first approximation, foreigners paid none of the bill, U.S. companies and consumers paid all of it. And the losses to U.S. consumers exceeded the revenue from the new tariffs, so the tariffs made America poorer overall.

Krugman explains the essential findings of the cited paper, with graphs–you should click through for the details–and then gives examples.

Consider the following example: pre-tariff, the U.S. imports some good from China that costs $100. Then the Trump administration imposes a 25% tariff, raising the price to consumers to $125. If we just keep importing that good from China, consumers lose $25 per unit purchased – but the government raises an extra $25 in taxes, leaving overall national income unchanged.

Suppose, however, that importers shift to a more expensive source that isn’t subject to the tariff; suppose, for example, that they can buy the good from Vietnam for $115. Then consumers only lose $15 – but there is no tariff revenue, so that $15 is a loss for the nation as a whole….

Putting it all together, the Trump tariffs have raised consumer prices, rather than depressing foreign earnings. Some revenue has been gained, but there has also been what amounts to tax avoidance as consumers turn to other, untaxed sources of what we used to import. But this tax avoidance itself comes at a cost, so the U.S. as a whole is left poorer.

Now, the numbers aren’t that big. The new paper puts the net welfare loss at $1.4 billion a month, or $17 billion a year; that’s less than 0.1 percent of U.S. GDP. But winning it isn’t.

NPR and other media outlets have reported on the far worse effects of Trump’s tariffs on farmers–especially soybean farmers.

Stubbornly low crop prices have been exacerbated by the trade war that decimated the once-lucrative Chinese market for soybeans. China used to be the biggest buyer of U.S.-grown soybeans. But this year, in retaliation for similar U.S. tariffs on Chinese imports, China imposed a 25 percent tariff on imports of U.S. soybeans, resulting in a dramatic drop in shipments.

The American Soybean Association has elaborated on the problems. According to the organization, Trump’s actions have “rocked the foundation of a decades-old trade relationship” between U.S. soybean farmers and China, which has been the largest market for American beans. It has resulted in halted sales, plummeting crop prices, and a lack of security for farmers seeking funding for the 2019 season.

The value of U.S. soybean exports to China has grown 26-fold in 10 years, from $414 million in 1996 to $14 billion in 2017. China imported 31 percent of U.S. production in 2017, equal to 60 percent of total U.S exports and nearly one in every three rows of harvested beans. Over the next 10 years, Chinese demand for soybeans is expected to account for most of the growth in global soybean trade, making it a prime market for the U.S. and other countries.

U.S. soybean growers have realized a nearly 20 percent drop in soy prices since the threat of tariffs began last summer, and the future of soy growers’ relationship with China continues to be in jeopardy. China has pursued new means to procure soybeans and other protein crops, including maximizing soybean imports from other exporting countries, particularly Brazil.

Growers have taken to Twitter and other social platforms today with the hashtag #185DaysStillNeedTrade, along with the popular #RescindtheTariffs hashtag to continue demanding that the Administration bring an end to its lingering trade war with China and help restore certainty and stability to the soy industry.

Certainty and stability aren’t Trump’s strong suits, to put it mildly. Thanks a lot, “Tariff man.”

The Trouble With Tariffs

I try to read a variety of information sources, but I will be the first to admit that–if it weren’t for my architect husband–Engineering News Record would not be among them. It is a print publication that considers itself “the construction resource,” and focuses on matters like the reason for that Italian bridge collapse and the technology of road paving. These are subjects that fascinate my husband, but usually aren’t among my preoccupations.

However, there is a real virtue to reading such publications for a policy person, because they report on the practical implications of what might otherwise be abstract and ideological policy debates. That is exactly what the most recent issue did in its discussion of Trump’s misbegotten tariffs, in an article titled “Equipment Readies for Tariff Fight.”

As the article reported, “the reality of new surcharges on all sorts of imported materials and finished goods has begun to reverberate through the global supply chain for construction equipment.” And that global supply chain is complicated–something a ham-handed and ill-considered policy can disrupt in unexpected ways and with unanticipated consequences.

The (sobering) points made by the article can be summarized by a quote from a vice-president of the Association of Equipment Manufacturers: “Everyone loses in a global trade war. Tariffs are taxes on American consumers and businesses.”

Major manufacturers have already raised their prices in anticipation of the higher up-front costs of steel and other materials. According to Senator Chuck Grassley, tariffs the administration aimed at imports of automobile components have also hit heavy-duty trucks, buses, construction equipment, agricultural equipment and industrial engines. As those prices increase, they’ll be passed along, so prices paid by consumers will rise. (There has already been a 32% rise in the cost of hot-rolled, coiled steel.)

Some 30% of of the construction equipment manufactured in the U.S. is designated for export, and the imposition of tariffs has “upended” the industry, which had been anticipating a period of strong sales. As a consequence, according to industry spokespersons, manufacturers are likely to shift production to “places like China or Brazil.”

These tariffs and retaliatory tariffs will put U.S. manufacturing at a disadvantage, because dozens of OEM’s have facilities around the world. It will tip the balance and they’ll just move out of the U.S. to make the equipment somewhere else.

The decision whether to shift the locus of manufacturing is only one of the consequences that has yet to be felt; as the article quoted one construction industry representative,

The point about tariffs is the effect doesn’t come the day after, it comes the year after. The economic impact, the loss of jobs, the loss of business in the community–that is a very long-term effect.

There is a reason that opposition to tariffs bridges ideological divides. Both conservatives and liberals recognize the negative effects of these sorts of interventions into complex and interrelated markets. Unfortunately, we have a President whose policies (if they can be dignified by the term) do not rest on any theoretical or philosophical framework. Instead, he acts out of bile and petulance, complicated by utter ignorance of the matters he is disrupting.

The Engineering News Record says these tariffs pose a significant threat to the construction equipment industry’s prosperity. But the damage isn’t limited to the construction equipment industry. Tariffs pose a significant threat to job creation, consumption and general American prosperity–a threat that could have been avoided had we elected someone competent, or even someone who had–and heeded– competent advisors.