It takes only two things to keep people in chains:
The ignorance of the oppressed
And the treachery of their leaders
A May 31, 2018, CNN headline began: “Trump hits allies with metal tariffs.“
Why should you care? Aside from the fact that the headline claims we are hitting our own allies, with Trump as president, we really don’t have allies anymore, do we?
And the rest of the headline is: “Mexico, EU, and Canada vow to retaliate.” Well, that “retaliate” word doesn’t sound very good. It sounds like war.
But Trump has assured you that, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.“
Thus, you are faced with four questions:
- Are you actually paying for Trump’s tariffs?
- Do tariffs help domestic industries grow?
- Is the U.S. losing many billions of dollars on trade?
- Are trade wars good and easy to win?
The CNN article tells us:
President Trump is imposing steep tariffs on steel and aluminum from three of America’s biggest trading partners — Canada, Mexico and the European Union.
The trade penalties, 25% on imported steel and 10% on imported aluminum, take effect at midnight, Commerce Secretary Wilbur Ross told reporters Thursday.
Who will pay for those tariffs? It’s a trade war, and in any war, you assume your government is shooting at the enemy.
In this case, the “enemy” is Canada, Mexico, and the European Union.
So you may assume that Canada, Mexico, and the EU will pay those tariffs, right? Wrong.
- Are you actually paying for Trump’s tariffs?
A trade war is not like any war you ever have known.
In a trade war, your government shoots at you, because it is you who pays the tariffs. Canada, Mexico, and the EU will not pay one cent.
When the imported products arrive in America, they arrive with their usual price.
Then the U.S. government adds a tariff to that price, and that increased price is what you pay.
Steel and aluminum are used widely: Cars, planes, appliances of every type. Are you thinking of buying a car, house, a refrigerator, a TV, a computer, a phone, any canned good?
Even your gas and oil will cost more because the oil industry and energy utilities use steel and aluminum extensively.
Steel and aluminum prices affect almost every product and service you buy, so prepare to pay more here, more there, more everywhere.
2. Do tariffs help domestic industries?
Existing American factories cannot supply U.S. needs. So new factories would have to be built and/or old factories be re-opened.
But consider the realities. Trump changes his mind, minute-by-minute. Would you invest millions or billions of dollars, and years of effort, to build a new factory, or to re-open old ones, when tomorrow Trump might decide that, “No, there won’t be tariff increases”?
At best, current factories might be able to ramp up production somewhat, which will increase profits but have a negligible effect on employment. More likely, they simply will raise prices, because they won’t have to compete with foreigners.
Meanwhile, U.S. manufacturers who use aluminum and steel will have to keep importing and paying the duties. That will require them to cut profits or raise prices, both of which will negatively affect Americans.
Even if an American manufacturer buys from domestic steel mills or aluminum smelters, those companies would raise their prices because they wouldn’t have to worry about competition from low-priced imports.
Under any circumstances, you would pay more, while the federal government takes dollars out of the private sector. No matter what happens, there would be scant benefit from a trade war and substantial punishment to the American economy.
3. Is the U.S. losing many billions of dollars on trade?
When Trump says “the U.S. is losing many billions of dollars on trade,” he means the U.S. is running a “trade deficit.” But a trade deficit is not the same as “losing” dollars.
When you shop at your local grocery store, you give them dollars and they give you goods and services.
In reality, you run a trade deficit with that store, but do you consider that to be “losing money”?
When you buy shoes that were made China, you run a trade deficit with China, but are you “losing money”?
Would you prefer not to run a trade deficit with your grocery store, and instead grow or manufacture all your groceries, yourself?
The vast majority of Americans would answer “No,” to both questions. We buy from foreign nations because the things we buy there either are better or cheaper, or both.
It benefits us to buy better and cheaper goods and services.
Further, when dollars flow out of the U.S., this is no problem for our Monetarily Sovereign government, which has the unlimited ability to create dollars.
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Sending dollars to Canada, Mexico, the EU, China, et al, does not make the U.S. even one cent poorer. It merely strengthens the dollar’s position as the world’s go-to currency.
That is why, for many years, the U.S. has been able to run billions of dollars in trade deficits, with no adverse effect on our economy. In fact, our economy has grown massively.
Being Monetarily Sovereign, we can continue to run trade deficits forever, and the only result will be that we will receive better, and/or less expensive, products and services than we can produce domestically.
4. Are trade wars good and easy to win?
For the U.S., a trade war is stupid. There is no better way to say it. Stupid.
The Democrats know it. The Republicans know it. Our foreign friends know it. Our foreign enemies know it. The vast majority of economists knows it. Only Trump seems not to know it.
He likes conflict, especially when he can bully others, so he has begun an “I-can-cut-off-America’s-nose-faster-than-you-can” trade war.
Contrary to Trump’s statement, trade wars are not good, and no one wins.
Imagine, for instance, that Trump “triumphs” over China, and China agrees to reduce its deficit with the U.S. It can accomplish this in two ways: It can sell less to us and/or it can buy more from us.
If it sells less to us, we either will have to buy elsewhere (which makes no change in our trade deficit) or we can make the goods ourselves. But if we were able to make those goods better, or at a better price, we already would be doing so.
We either will have to settle for higher prices or for lower quality.
If China buys more from us, that means China will send us more dollars than it previously had.
But the U.S. does not need more dollars from China. Being Monetarily Sovereign, we already can create unlimited dollars.
The irony is that the GOP wants China to send us more dollars by purchasing goods and services, but does not want China to send us more dollars by “lending dollars” to us.
The GOP worries about the federal “debt” to China, which is nothing more than China converting yuan to dollars, then depositing those dollars into U.S. Treasury-security accounts.
If China were to increase its purchases from us, that would increase the U.S. dollar supply in the same way that federal deficit spending does. But the GOP worries (wrongly, as it turns out) about increases in the U.S. dollar supply causing inflation.
So, in actual effect, the Trump/GOP debt hawks support the same thing they oppose: An increase in the U.S. money supply.
1. Trump’s tariffs will cost you money.
2. Trump’s tariffs will not help domestic employment or businesses.
3. The U.S. is running a trade deficit, but it is not “losing many billions of dollars on trade.”
4. Trade wars not good and not easy to win. No one wins a trade war.
5. In the unlikely event a trade war is “successful,” i.e. adds dollars to the U.S. economy, it does nothing the federal government can’t do without costing Americans higher prices and a poorer selection of products.
After failing to destroy health care for the poor and middle income groups, and failing to make Mexico pay for his wall, Trump is desperate to claim an accomplishment that people care about.
Unfortunately, all he will accomplish is inflation, a poorer availability of products, and job loss.
Now you understand why American banks no longer will deal with Donald Trump, and before he became president, he and his family were forced to go overseas for business funds. He is not trusted by anyone.
Rodger Malcolm Mitchell
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.
Implementation of The Ten Steps To Prosperity can narrow the Gaps:
Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Guaranteed Income)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:
Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012
Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.
7 thoughts on “Are you paying for Trump’s tariffs?”
Another negative with trade wars is that it imports the pollution and finite resource usage that was exported in the former trade deficit.
Tariffs lead to increased US steel production which means we have more pollution and finite resource usage than before, these are negative externalities. China benefits from lower pollution and preserves its finite resources.
We also re-import dirty dangerous low skilled steel making jobs.
The trade deficit myth is quite pernicious, as bad as the debt myth.
And you are right on target regarding exports using finite resources and receiving, in return, dollars, of which we have infinite.
Thanks for the extra link I enjoyed reading it.
Oh no. Howard Schultz leaves Starbucks and has this to say: https://www.cnbc.com/2018/06/05/howard-schultz-21-trillion-debt-is-biggest-threat-to-us-domestically.html
At least he said “Domestically”, meaning he ranks North Korea as a slightly bigger threat.
Clearly, he has zero understanding of the differences between a Monetarily Sovereign government (The U.S.) and a monetarily non-sovereign government (states, counties, and cities). And this guy may want to run for President? Yikes! The beat goes on.
Funny that even if he doesn’t understand Monetary Sovereignty, the US still doesn’t have a net debt according to Wikipedia. This article says the US has a Balance Sheet of +$123 trillion. https://en.wikipedia.org/wiki/Financial_position_of_the_United_States
Could not be sillier. Completely meaningless.