Economics of a Bully

This just in:  Trump’s tariffs have started a global trade war in which there are no winners.  Not unless you call the smug satisfaction Trump gets when he is bulling someone a “victory.”

Here is what tariffs do.  They are a tax on an imported good.  For example, if China once sold a cell phone in the United States for $400, then a 25% tariff would increase the cost of that phone to $500.  We put a tariff on China and Americans pay more for goods they buy from China.

To be clear…the tariff on imported goods is a tax on Americans.

If this is true, why would anyone implement tariffs?

Setting Trump aside for the moment, there are times that tariffs are practical.  For example, let’s suppose China has a huge technological and cost advantage when it comes to producing solar panels.  Let’s also assume that the United States would like to encourage the development and production of solar panels domestically.  Since China has such a huge advantage and can sell panels much cheaper than we can make them, any company in the United States that produces panels will not be able to compete.  Their panels will not be as advanced nor as cheap as those from China.

Enter the tariffs…

By putting tariffs on Chinese solar panels, their panels will now cost Americans more to buy.  In fact, the Chinese panels are now so expensive that we will buy American panels instead.  This allows a domestic industry to survive and grow.   Eventually, we will be on par with China and the tariffs, no longer needed, will go away.

So, the tariff increased the cost of solar panels but in exchange, we got a foothold in a huge global market for our domestic panels.

Let’s bring Trump back into the picture.

As president, he is allowed to unilaterally implement tariffs up to 25% if it is in the interest of national security.   For example, to protect an American industry that contributes to defense.

What Trump has done is to impose arbitrary tariffs on China, the E.U. and Canada without any clear rationale.  No one, including those in this cabinet, know what it is that he is actually trying to do.  No one can tell us what the “national security” issue is.

And what’s worse, those countries he is imposing tariffs on don’t know what he wants.  They don’t know what he is trying to negotiate for.  He says things like “China is treating us unfair” without clarification.  He puts tariffs on Canadian milk as if this will prevent a national security breach.  He puts a tariff on German cars and leaves the E.U. to scratch their collective heads in confusion.

Trump does all of this for two reasons.  The first being because he can.  The Republican Congress has indicated to Trump that they will not challenge any issue he wants to take on.

The main reason for tariffs is that Trump is a bully.  He puts tariffs on counties for the same reason the biggest kid in 3rd grade beats up on the other, smaller kids.  He is mean and insecure.  Being a bully is the best way he has come up to deal with this.

So, the world is entering a trade war because Trump basically needs a nap.

And as the result, Americans will pay more for many for the products they buy every day.

Vote in November and get the Republicans out of our house.

Up, up and away…

Jim

 

Please follow and like us:

The insanity of Trump’s economics

This just in:  It has been said that economics is a “soft science” because the outcomes of certain actions are not always predictable.  In fact, there is an entire field of economics known as Behavioral Economics, that tries to find out why this is so.  This diversity of outcomes from a repeated experiment is why we find several economic opinions that all differ with regards to nearly any given topic.

But there are some things we can count on, either by observation or irrefutable logic.  On these types of issues, the economic world is in nearly unison with their recommendations.

One such issue is Trump’s fantasy world of economics.  Nationally and abroad, the absurdity of Trump’s actions are astounding anyone that is paying attention.

Let’s look at a broad view of what I mean.

I will lay this out in steps, trying to put order to something that is nearly random.

  1. Trump wants to deport millions of illegal aliens.  These are people that have raised families here.  They pay taxes.  They commit crimes at a much lower rate than others.  And, this is important, they are filling many of the jobs that most of us would not take due to the low pay.  Trump’s policy of deporting these people is, in large part, justified by “They are taking away jobs that belong to U.S. citizens.”  Somehow, Trump is saying that for every field hand we deport, a high paying job is Silicon Valley opens up.
  2. Trump, and the Republican Congress passed a tax bill that takes from the nation as a whole, and gives to the vastly rich.  There are two ideas behind this: (1) Rich people will hire us to mow their lawn if they have more money.  This is known as Trickle-Down economics and is the most widely disproven economic theory there is.  And (2) Corporations will use their tax breaks to raise wages.  This makes the assumption that corporations are benevolent.  Instead, companies exist to make a profit.  If they already have employees that come to work for $x per hour, why would they pay more?  In fact, they didn’t. Instead, they are in the process of buying back company stock which has the effect of enriching shareholders, not workers.
  3. Trump cut subsidies for Green Energy, one of the fastest growing industries in the world today.  Many of the jobs in this industry are good paying.  Instead, Trump is investing in coal and other fossil fuels; an industry that is rapidly shrinking.
  4. Trump dropped out of the Trans Pacific Partnership and is now threatening to drop out of the World Trade Organization.  There is no clear reason for doing this but the outcomes are certain.  These are the exact steps one would take if they wanted to reduce the amount of goods we sell overseas.  Confusingly, Trump complains about the Trade Deficit all the time.  He thinks its a bad thing (it’s not) and then he does the exact opposite of what it would take to increase exports.
  5. Trump is putting tariffs on everyone that pisses him off.  As president, he can levy a tariff as high as 25% if it is deemed necessary for national security.  So,  suddenly, Canadian cheese imports are a threat.  The result of this is two-fold.  First, is causes our trading partners to levy counter-tariffs against us.  These counter-tariffs raise the price of our goods overseas.  Harley Davidson is a good example of this.  Tariffs placed on their product means they will sell fewer of these  overseas…unless….they move the factories and jobs overseas…which is exactly what Harley Davidson is doing.  Secondly, we now pay more for good that are imported.  If we put a tax on imported steel, then everything that uses imported steel will cost us more.  Already we are seeing spikes in goods like automobiles.

In summary, Trump touts jobs and then does everything he can to eliminate them.  He claims he is putting more money into the hands of the middle class and yet, they small amount we all get from the tax cut is quickly eaten up by the higher prices we are paying for anything imported.

And here is the kicker.  Europe, China and the rest of the world want to make this stop.  they actually want to know what it will take to make Trump stop this Globally Destructive behavior.

The thing is, even Trump doesn’t know what he wants.  The conversation goes like this…

Trump:  Here are some tariffs on the rest of the world.

The World: What can we do to make you change your mind?

Trump: I have no idea.

Time to save the world.

Up, up and away…

Jim

Please follow and like us: