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TARIFFS, TRADE AND MONEY

December 10, 2018

TARIFFS, TRADE AND MONEY

Economic writer Robert Scott tells us that GM is closing five plants in North America due to an overvalued dollar and Trump’s economic policies. Let’s discuss such claims.

We know that the dollar is overvalued and that this along with our trading partners’ counter tariffs makes our exports more expensive (thus negatively affecting overseas demand), and that imports to this country are relatively cheaper given our strong dollar but for Trump’s tariffs (since the countries he has tariffed have counter tariffed the goods and services we export to them), but that is a price we all must pay whether consumers or not when our trade deficit of hundreds of billions of dollars per annum heads for the stratosphere, as it is now doing with last month’s deficit being the greatest ever. So why are our trade deficits increasing?

Trump’s tariffs and trade wars, ostensibly for the purpose of evening up such deficits, is plainly doing the reverse, since his tariffs punish American consumers of imported goods via higher prices, not Chinese corporations or multinationals who run overseas operations for export to the United States. Trump has effectively raised prices of imported goods to American consumers while increasing prices on our exports due to countervailing tariffs set by our trading partners. Such a brilliant policy with its effect on inflation and ordinary Americans’ paychecks! Does Trump listen to his economists, or to the internalized and narcissistic ego of a man in power?

I heard him bragging just last week that his tariff policies have brought billions of dollars into our treasury from these people who have been taking advantage of us. That is not true; the truth is that those billions he talks about have been paid by Americans like you and me at Walmart, Target, Macy’s et al., and in most states we pay an additional sales tax at the retail level as well.  Trump doesn’t seem to understand that there is no free lunch in the brawling world of international trade – none – and that his insertion of tariffs and trade wars into the mix is only making things worse in terms of higher prices, GM’s and their suppliers’ shutdowns, unemployment, tepid demand, etc. and all this with little discussion of how countervailing tariffs of China and threats of others to do so (even Canada!) have reduced the purchasing power of ordinary Americans like you and me.

Another economic externality of Trump’s hare-brained tariff wars is that the increased prices Americans have to pay for such tariffed imports reduces what they have left to buy goods and services on local markets, thus reducing demand for domestic goods and services. In sum, and as usual, it is safe to say that there are enough distortions of the market without adding tariffs and trade wars to the pot.

The Constitution gives the power to conduct trade to the Congress, but the Congress has delegated such powers to the executive if national security is thought to be involved. I don’t see or hear of Canadian and/or Mexican troops massing at our borders, but I do see and hear from a president who, frankly, doesn’t know what he is doing and apparently doesn’t care about the results. I rarely agree with Wall Street on anything, but I do agree with its denizens that Trump’s tariff wars are bad for everybody whether consumer, producer, financier, or whatever. Trade negotiations should be conducted with a scalpel, not a machete. Renegotiation of any trade treaty can be good but tariffs as tools for negotiation should never be on the table. There are other weapons at our disposal to achieve our ends. Trump should leave it to the experts, a group to which he does not belong.      GERALD        E

 

 

 

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