Tariffs

11 thoughts on “Tariffs”

1. Just sat in on the Flexport zoom call about the tariff announcement. One thing that probably is not well understood is that tariffs are *stacked*, ie various tariffs enacted at various times can be added to one another. One example given was of a sofa imported from China that would face a tariff of 79%.

2. Another interesting comment from Matthew Chang at X:

   “I have a truckload of robotics sitting at the Canadian border. This is going to cost $100k+ in tariffs. 2 trucking companies have bailed on the contract since last week and our broker can’t get a 3rd. We are delivering the robots to a US manufacturing company who is expanding production.

   I expect tariffs to be a marginal cost increase on our CAPEX project of 4-5%, since all the engineering, trades, install, and software are made in USA. Lots of the equipment too.

   So,
   @howardlutnick
   , consider me has having paid my fair share to meet your $1TN external revenue goal.

   I’m totally here for it. Small price to pay for bringing manufacturing back to the USA and reindustrializing. We are going to manufacture at pace that almost no one alive has seen before.

   Would you rather pay 2-5% extra capex or 10-25% on all imported goods.

   Since I build advanced manufacturing facilities for a living, I expect to be getting a lot of calls in the near future.

   We are so back.”

   https://x.com/matthewachang/status/1907266773268799917

3. The Democrats want higher taxes on energy, capital gains, vehicles bigger than Priuses, communications, technology, etc. This is called “socialism” or “nudging” or “smart growth”.

   Trump wants higher taxes on imported goods. This is called “tariffs” and many conservatives believe that it’s somehow different than the kinds of taxes Democrats like to impose.

   Maybe the imposition of tariffs is an effective negotiating tactic. Time will tell. But, as policy, taxing imported goods and services isn’t much different from taxing SUVs or subsidizing battery factories. The government shouldn’t pick winners and losers; it shouldn’t be in the business of penalizing the customers of imported goods.

   Trump’s tariffs are perhaps less stupid than the Democrats’ green energy subsidies, but they are stupid nonetheless.

4. In my libertarian youth, I learned about the horrors of tariffs, Smoot-Hawley in particular, and how they’re a tax, and how protectionism essentially protects the inefficient industries and division of labor, and trade stops wars, and so on and so on.

   But since I’ve been listening to Donald Trump wax rhapsodic about tariffs (and listened to a lot of commentary because people are now forced to talk about them), I’ve learned a lot more. For example, a lot of the tariffs regarding Europe and China date back to the end of World War II, when the US accepted those tariffs from other countries to encourage them to rebuild their shattered economies. And it worked, bootstrapping Europe and Japan into world economic powers. But once they were on their feet again, the tariffs didn’t go away. I’ve been hearing how whatever tariffs we’ve laid on Canada are not mirrored, but in fact Canada’s are much higher that ours. And I’ve learned that Canada and Mexico are essentially China’s backdoor into the US markets. If Chinese companies build in our neighbors, they’re not subject to tariffs we’ve placed on goods made in China.

   And I’ve learned that all of these factors led to the virtual end of manufacturing in the US, making us dependent on buying from other countries, the ones charging us onerous tariffs.

   So, while the US was underwriting European security via NATO and Japanese security via our defense agreements with them, we were also underwriting their economic security by allowing them to levy tariffs on the goods we sold to them and keeping our own trade barriers down.

   Today I went to Cafe Hayek, one of the blogs in the blogroll. I used to look at it a long time ago, and then a few times since I discovered this blog. It is virtually a one-note symphony, dragging tariffs and any trade policy other than no trade barriers at all. And now it’s on steroids, Don Boudreaux having kittens about the “disaster” impending because of these “clowns.”

   If I were to write to Boudreaux (you can’t comment on his posts), I would ask him this:

   If someone who had abused you for a long time was coming at you again and you had a gun such that if you pulled the trigger two bullets were fired. One was a big bullet that would really do damage to your attacker, and the other was a smaller bullet that would hurt you but not as much, would you pull the trigger?

   That’s how I look at tariffs. They’re not intrinsically an economic tool, they’re a policy tool, albeit a blunt one. These tariffs may hurt us in the short term. Wall Street may not like it. It may damage Q2 ROI for many investors. But the majority of the country are not investors concerned with Q2 ROI. They’re people trying to earn a good living, to enjoy their lives. Like Batya Ungar Sargon said on Piers Morgan’s show, the American people are now led by a man who will put them first and tell Wall St to get bent. She’s definitely a class warrior, but many of our problems, especially trade, boil down to class. America’s advantage is that we are most countries largest market. I figure they will eventually cave, fearing damage to their own domestic markets. This is a game of chicken, and Donald Trump is behind the wheel and not turning.

   I’m willing to put up with a little pain in the short term if our trade relationships become fairer down the line. If only out of a sense of justice. Other countries have taken our good graces for granted for too long. World War II was eighty years ago. Time for the relationships to change.

5. Wall Street can go pound sand. I’m old enough to remember when the Dow Jones Industrial Average was well bellow 1,000. As I look now it’s above 40,000. Wall Street and the relatively small percentage of the public that owns most stocks has been getting rich for decades by building factories in foreign countries so they can close them here, importing foreigners to work here for far less than Americans, and buying back shares to keep stock prices high.

   All of these are bad for the country at large. If nothing else our so-called elite should recognize that we can no longer afford and no longer have the industrial capacity to defend a globe-spanning swarm of “allies” who are also our economic competitors- but no, they are frothing-at-the-mouth angry that Trump has noticed and is attempting to act.

   If something can’t go on forever it will end. We can either end our Cold War era trade policies now, mostly on our own terms- or keep them the same and end up with a Soviet-style economic and political collapse.

   The status quo just isn’t sustainable.

6. The problem with free trade is that it’s never been tried. If you ever tried to ship something substantial overseas, anywhere, you’d find out damn’d quick that they aren’t bashful at all about tariffs and all sorts of other “requirements”.

   Trump is 100% correct that the de-minimus rule was allowing fentanyl and much else in the flood of cheap Chinese crap through the Post Office. Not just that, but we actually subsidized the postage due to the Postal Compact that classed China as a “developing” country. Every one of those Temu or Shein packages probably cost the tax payers about $5-10. Probably more that the purchaser paid in many instances. Just not having to see all those Temu and Shein adds will be worth it. Legitimate importers will pay duty on the wholesale cost which ain’t nothing but a lot less than retail. They’ll also be far easier to police.

   Huge warehouses were being built in Mexico and probably Canada to break-bulk mostly Chinese imports under bond, so no Mexican tariffs, and send them into the U.S. under de-minimus, one package at a time. By the way, the de-minimus limit for imports going into Canada is $10, ours was $800.

   At least the Quebec tariff on dairy was democratic, they charged the same for dairy products from the rest of Canada too.

7. I thought this blog was started by U of C grads. Is this what the Chicago School has become? Supporting central economic planning by the government, picking winners and losers, and dictating investment and spending decisions by businesses and consumers? American consumers told American businesses through their spending decisions that they wanted inexpensive goods, and American businesses complied. It so happened that many of those goods came from overseas. I run a trade deficit with my local grocery store. I buy more from them than they buy from me. Are they ripping me off? I don’t think so, but if the government starts telling me I have to buy only from them, and another store has cheaper stuff but I’m going to be taxed out the wazoo for shopping there, I’m not going to be happy. Come on. I thought this blog would be worthy of the U of C. Guess not.

8. I think the economic results of the Bretton Woods system can be summarized thus: the US government allowed foreign manufacturers to sell into our market without tariffs, regardless of what their governments did. Then, instead of using the dollars they got in exchange for their goods to buy goods from American manufacturers (or to invest in American firms, or any other useful purpose) the foreign manufacturers bought Treasury bills to hedge against their own government’s fiscal policies, thus making the dollar the “world’s reserve currency”. This in turn allowed the US government to borrow extravagantly and extend its scope enormously; in effect, the US trade deficit is paying for the government’s budget deficit.
   I don’t believe the arguments for free trade contemplate this situation. If the dollars sent abroad were coming back in exchange for real products the US trade deficit would be harmless; some industries would suffer, but others would flourish, and dying firms would be replaced. But government debt isn’t a real product; the firms that died because they couldn’t compete with imported goods were replaced by federal agencies, to the great detriment of our economy.
   The real reason for Trump’s tariffs, then, is to cut off this flow of money from US consumers to the Treasury by way of foreigners. It would be more efficient to do so by not selling Treasury bills to foreigners, but Trump needs Congress to shut down federal agencies before he can do that. At any rate, breaking what’s left of Bretton Woods is necessary to curb the US welfare state.

9. I had been writing my own piece on tariffs, but David’s has sparked a spirited debate so I will wait a while and either modify or spike mine, but a few quick thoughts from it

   I don’t like tariffs. As a policy instrument, they quickly become a magnet for corrupt rent-seeking and economic distortion.

   Having said that there is no such thing as “Economics” in the real world, only “political economy” The free-market economics from the Chicago School has historically been wildly successful, especially compared to the social democratic models it displaced but it seems to ignore the social aspects of the ”creative destruction” as mere implementation details.

   The “problem” with democracy for theoretical conformists lies just as much with the Right as the Left in that people – even the social and economic losers – get a vote. You can write off parts of the supply chain and off-shore, but in a democracy you write off the people from those industries at your peril.

   On a separate note, I have sympathy with those on the Right who have a hard time grasping why this is happening. It is hard to swallow. Alot of this stuff though had become apparent in the late 2000’s though not yet politically manifest and who did the Republicans and The National Review nominate/or cheer on from 2008 through 2016? John McCain, Mitt Romney, and Jeb Bush,… which is why they never became president and Trump did.

10. I thought this blog was started by U of C grads. Is this what the Chicago School has become?

    You see this Chicagoboyz? You’re failing him because you have insufficiently opposed tariffs. Do better, or else.

    Supporting central economic planning by the government, picking winners and losers…

    Worried about your stock portfolio?

    Anyway, how are reciprocal tariffs any sort of central economic planning? How are they picking winners and losers, aside from attempting to make more American companies winners? Btw, I want American companies to be the winners.

    …dictating investment and spending decisions by businesses and consumers?

    The government already dictates the investment and spending decisions of Americans, via about a trillion pages of rules, regulations, and even the occasional law. This generally encourages investment outside of the United States, to the benefit of a select few. Trump is attempting change this such that investment and economic activity is incentivized to remain and occur inside the United States. Two thumbs up from me.

    American consumers told American businesses through their spending decisions that they wanted inexpensive goods, and American businesses complied. It so happened that many of those goods came from overseas.

    Hogwash. What happened is that American consumers got charged the same price while globalist businesses cut their costs by paying foreigners vastly less than Americans. That was obviously more profitable. To quote Thomas Jefferson, Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains.

    I run a trade deficit with my local grocery store.

    To paraphrase something Abraham Lincoln said about a coat, when you buy groceries from an American company you have the groceries and an American has the money. If you buy something from a foreign grocery you have the groceries and foreigners have the money. I want Americans to have the money.

    …if the government starts telling me I have to buy only from them, and another store has cheaper stuff but I’m going to be taxed out the wazoo for shopping there, I’m not going to be happy.

    This isn’t really about groceries. It’s about whether or not the US should be able to arrange it such that manufacturing and the associated activities are economically viable inside our country. I think we should do that, using whatever tools we have available.

11. A French guy who posts frequently at X, Pascal-Emmanuel Gobry, says:

    “Shortly after the election I was invited to speak to a group of French CEOs to explain Trump’s economic policies. I was asked to summarize them in a sentence.

    Here’s what I said: “He’s going to raise the barriers around the country, and he’s going to remove the barriers inside the country. So if you’re exporting to America, Trump will be bad for you, but if you’re investing in America, Trump will be good for you–which is the whole point.”

    Here we are.”

    https://x.com/pegobry_en/status/1907811875850502434

    When you’re trading with someone outside the country, governments are inherently involved in the transaction.