Through time, some industries rise and some fall. Some industries fall due to the natural progression of progress. The products they produce and/or the services they provide, have become less needed.
Or, foreign competition has taken its toll.
Whatever the reason, industries that are stressed often ask for government aid, and the government then is tempted to step in, “to protect jobs.”
There are three primary tactics our Monetarily Sovereign government can use to protect domestic industries from foreign competition:
- Import tariffs
- Direct financial support.
- Grow the economy
1. Import tariffs: This is the most common, and also the least effective approach. Taxing your own people in order to make it harder for them to buy foreign products, is foolish on the face of it.
First, tariffs take dollars out of the private sector.
A growing economy requires an increasing supply of money in the private sector, but tariffs destroy dollars.
The more tariffs the federal government collects, the more dollars are removed from the economy, and thus tariffs restrict economic growth.
Second, these tariffs are designed to raise domestic prices, and therefore are inflationary.
Third, import tariffs beget retaliation by the nations whose exports were taxed, and this retaliation also is inflationary.
In summary, import tariffs may temporarily aid specific industries, but they harm the overall economy.
They are like trying to improve your hearing by gouging out your eyes.
2. Direct Financial Support: Because import tariffs beget retaliation that punishes domestic industries, a nation may be forced to assist those industries directly:
Trump’s farmer bailout begins. USDA spends $1.2 billion to buy surplus food
By Katie Lobosco, Updated 12:45 PM ET, Tue August 28, 2018
The initial $4.7 billion of direct payments will go to corn, cotton, dairy, hog, sorghum, soybean, and wheat producers.
Farmers can begin requesting the aid on September 4, the US Department of Agriculture said.
Most of that aid has been set aside for farmers who grow soybeans. Their prices reached historic lows after China imposed a tariff on the legume.
China is buying soybeans again, but Trump is still paying farmers hurt by tariffsKatie Lobosco, CNN, Updated 7:33 PM ET, Mon December 17, 2018
Many countries have slapped tariffs on American commodities in retaliation to the Trump administration’s move to impose tariffs on imported steel and aluminum from much of the world, as well as on many goods from China.
When the Trump administration imposed tariffs on certain imports from China, the Chinese retaliated by taxing purchases of soybeans. So, to protect soybean farmers, the administration was forced to bail them out with subsidies.
The better approach would have been to avoid harmful trade wars and simply support those industries the government believed needed protection.
For instance, rather than applying import tariffs on steel and aluminum to protect the steel and aluminum industries, the federal government could have supported those industries the way it now is being forced to support the victims of Chinese retaliation, the farmers.
That approach would have added growth dollars to the economy while avoiding inflationary price increases.
3. Grow the economy: Not every industry needs protection. The United States does not need to be self-sufficient in all things.
In this current world economy, it is perfectly fine for some industries to decline while others grow.
Even where industries such as steel and aluminum may have some wartime security implications, it is not necessary that they be so robust as to support all our needs.
Since WWII, there never has been a time when the importation of steel and aluminum has been difficult.
The better approach to industry and employment protection is to grow the economy, i.e. to put more dollars into the pockets of consumers.
One approach would be to institute the Ten Steps to Prosperity (below).
With certain very specific exceptions, industries that are not competitive should be allowed to fail, while successful industries grow the overall economy.
Industries that are deemed vital for America’s security can be protected, not with import duties, but with direct financial support and overall economic growth.
Import tariffs never, never, ever are a good solution to anything. They always are harmful to the people of the nations that impose import tariffs.
Rodger Malcolm Mitchell
Twitter: @rodgermitchell; Search #monetarysovereigntyFacebook: 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:
2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone
3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)
4. Free education (including post-grad) for everyone
5. Salary for attending school
6. Eliminate federal taxes on business
7. Increase the standard income tax deduction, annually.
8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.
9. Federal ownership of all banks
10.Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.
5 thoughts on “Tariffs vs. spending”
Thanks for that. I hadn’t really thought about it to date. What I did understand is that corporate union busting exported jobs by setting up industries overseas, thus creating deliberate home unemployment and the job uncertainty that went with it, so that strikes would not happen. Greenspan talked about this uncertainty as policy.
Speculation about motivation can be difficult. The motive for moving overseas might be “union busting.” Or, it simply might be trying to reduce production costs.
Do you shop at Cosco? If so, do you shop there because you are trying to put small businesses out of business? Or are you simply seeking lower prices?
Do you buy from Amazon? If so, do you have a grudge against brick-and-mortar stores? Or is it simply that Amazon is more convenient?
Many non-union businesses have moved production facilities. What was their motive? To prevent the formation of unions? Or to lower production costs?
I personally favor the concept of unions. But “union-busting” is far more complex than “evil” corporations sabotaging “angelic” unions.
Multiple parties each are partly to blame for declining union membership: Businesses, union members, union leadership, non-union members, politicians, Republicans, and Democrats. Each has motives that may differ substantially from the others’.
It was definitely an aim by some corporations possibly combined with getting costs down. i dunno about “angelic” unions. certainly not here anyway. The fact it attracted attention from Greenspan made it real enough.
Back in the post WW1 days of Hoover, there was a saying “a chicken in every pot and a car in every garage.” Industrialization of the Roaring Twenties was booming.
Then after WW2, the big suburban sprawl began and everyone had a chicken in every pot and TWO cars in every garage. Industry was really Booming. It was at this moment that the Old Glory, flag flying, USA corporationns fully (and secretly) began planning to get out of the saturated USA market in order to move in on the potential of the new, hungry, HUGE market developing over seas.
The growing Asian population and billions of available dollars with, lest we forget, the direct help of The Marshall Plan’s reconstruction mega- dollars pulled in American industrialists; they followed the money and whereever it went they too were sure to go. Busting unions was mostly a coincidence rather than the prime motive.
We need a non-tax funded, carefully executed, monetary soverienty Marshall Plan. Hopefully before WW3.
The huge cost of Trump’s tariffs: https://reason.com/blog/2019/03/05/trumps-tariffs-cost-the-us-economy-14-bi?utm_medium=email