The ignorance about tariffs, and the real way to protect American business

We’ll begin with the facts and then move on to the ignorance: Fact: 1. The ostensible purpose of most tariffs is to protect domestic businesses by raising the price of similar imported goods. This allows domestic producers to charge higher prices while remaining competitive. Fact: 2. For a Monetarily Sovereign (M.S.) nation like the U.S. (and Canada, China, Japan, Australia, the U.K., et al.), tariffs cost domestic consumers in two ways.

• They are forced to pay higher prices, i.e., tariffs are inflationary.
• Consumers’ dollars are removed from the private sector (“the economy”) and transferred to the M.S. government, where they are destroyed. They cease to be part of any money-supply measure. Since a growing economy requires an increasing money supply, tariffs are recessionary. 

Fact 3. An MS government has the infinite ability to create dollars simply by pressing computer keys.

Former Federal Reserve Chairman 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.”

Fact 4. Gross Domestic Product (GDP) = Federal Spending + Nonfederal Spending + Net Exports Fact 5. To protect domestic industries, the federal government either could use tax laws to lower their costs or federal spending to increase their net income. Either approach would protect the selected businesses, fight inflation (reduce prices), and/or increase GDP (increase the money supply).

In summary, import tariffs transfer dollars from the economy to the government in a misguided effort to protect the economy. If that isn’t stupid, I don’t know what is. Now, for the ignorance:

The Epoch Times Trump, Harris Endorse Tariffs on China, With Differing Approaches The next administration will be likely pro-tariff. The conversation has shifted from whether tariffs are necessary to how they can best be implemented.

Regardless of who wins the White House in November, tariffs against China are here to stay.

That’s the consensus in Washington, although Democrats and Republicans have different approaches.

That’s the consensus and that’s the ignorance.

Meanwhile, who bears the cost of tariffs remains a topic for debate.

How can it be a “topic for debate”? When money is collected from a transaction, the buyer generally pays unless the seller is willing to accept lower profit margins. However, in this case, the fundamental purpose of the tariffs is to increase the buyer’s price, so the buyer will opt for a cheaper domestic product.  Both Trump and Harris want the price to go up for U.S. buyers. They don’t want the Chinese seller to absorb the tariff and continue to undercut domestic sellers.

The Trump administration imposed tariffs on more than $300 billion worth of Chinese goods to respond to an array of unfair trade practices, including intellectual property theft.

Translation: The Trump administration raised the prices paid by American buyers to punish the Chinese for unfair trade practices and intellectual property theft. That’s like cutting off your own hand for stealing. It might work, but it’s expensive, painful and unnecessary.

The Biden–Harris administration has kept all of them in place and, in May, increased rates on $18 billion of goods, including electric vehicles, solar panels, medical equipment, lithium-ion batteries, steel, and aluminum.

Translation: The Biden-Harris administration increased the cost of electric vehicles, solar panels, medical equipment, lithium-ion batteries, steel, and aluminum so as to help American industry, the consumer, and the economy. If that makes sense to you, you should be a government economist.

Both administrations have used tariffs to level the playing field for domestic manufacturers as China unloads its excess production in the U.S. market at cheap prices.

Heaven forbid U.S. consumers should enjoy cheap prices.

Without them, domestic industries will keep losing market share and cutting jobs.

Unless the government helps those industries survive by providing them with tax benefits and/or direct subsidies.

An August poll by the CATO Institute, a Washington-based think tank, found that a majority of Republicans and Democrats support tariffs levied by their party but not the opposing party.

The Republicans support tariffs by Republicans and not by Democrats. The Democrats support the reverse. Thus, tariffs are a nonsensical game of tit-for-tat, with the U.S. consumer paying both the tit and the tat.

Former President Donald Trump has repeatedly said on the campaign trail that he would raise China tariffs to 60 percent and apply at least 10 percent tariffs to goods imported from other countries.

“We have to take care of our own nation and her industries first,” he said, while alluding to tariff rates “higher than people had heard in the past.”

The Republicans raise tariffs because taxes on goods proportionately affect the rich much less than those who are not rich. As a percentage of their income and wealth, the rich spend less on tariffed goods. Thus, tariffs widen the income/wealth/power Gap between the rich and the rest, which is exactly what the right-wing Republicans want. Sadly, most of the MAGA crowd, though not rich, doesn’t understand what their hero wants to do to them just for his personal revenge.

Vice President Kamala Harris’s position on tariffs is less clear, but they’ll be retained if she keeps the current administration’s policies. The administration will announce its final tariff determinations, initially scheduled for the end of August, in the coming days.

As for Harris, she’ll just do what she thinks the public, in its economic ignorance, wants. The public believes that Chinese companies will pay for tariffs, and “being tough on China” is required for election.

Tariffs are a “key piece of the solution,” if used in conjunction with other trade and industrial policies, to allow for domestic investments in critical industries, according to Nick Iacovella, a senior vice president at the Coalition for a Prosperous America, an advocacy organization exclusively representing manufacturers that have productions in the United States.

Iacovella is also political. Voters would not like to see “rich” manufacturers receive tax benefits or federal aid, but nobody will object to tariffs supposedly paid by the Chinese. As always, ignorance has a cost, and the U.S. consumers will pay it.

Who Bears the Cost of Tariffs? When the Trump administration imposed tariffs on Chinese goods in 2018, they were unpopular among many economists. Conventional free trade theory considers tariffs a market distortion that reduces competition and market efficiency and slows economic growth.

In this view, tariffs also raise retail prices to varying degrees, effectively reducing consumers’ net income.

Trust the economists to focus on “market distortion” and “reduced competition, market efficiency, and economic growth,” none of which the typical voter understands. The big, obvious problem is that tariffs are meant to raise prices, which the consumer pays.

Erica York, senior economist with the Tax Foundation, a tax policy watchdog, told The Epoch Times that the potential of multiple groups—exporters, importers, and retail consumers—sharing the burden of tariffs “doesn’t change that tariffs are a policy overall that reduces incomes and output.”

Who cares so long as one can appear to be “tough on China”?

Her analysis estimates the Trump–Biden tariffs will reduce long-run gross domestic product by 0.2 percent and employment by 142,000 full-time equivalent jobs.

Not to mention the inflationary aspects in addition to the recessionary.

Coalition for a Prosperous America, which advocates for tariffs on Chinese goods, says that the net impact of tariffs is more complicated than many analyses can assume.

Instead, the organization examined the singular case of washing machines, which had tariffs imposed from 2018 through to February 2023.

The trade organization concluded that the washing machine tariffs created more than 2,000 new jobs at Korean-owned companies that opened U.S. factories.

The study also noted that after a 12 percent retail price increase during the initial six months, the price came down to the pre-tariff level after another 14 months.

Isn’t that wonderful? The tariffs shifted profits from China to Korea while increasing prices paid by America’s consumers, and (maybe) created only 2,000 jobs — a real “success” story.

Paula Mints, the chief analyst of SPV Market Research, a research firm specializing in the solar industry, said tariffs impact different sectors differently.

U.S. manufacturing would not exist without China tariffs in her industry, she said, where China controls more than 90 percent of the global supply chain. The Trump administration imposed a 25 percent tariff on solar cells, and President Joe Biden doubled it, effective Aug. 1.

“We are starting to have a domestic industry. We are just starting to have it. It’s because of the tariffs, manufacturing incentives, and domestic content incentives attached to the demand side,” Mints told The Epoch Times.

She said the tariffs now work with the accompanying incentives for manufacturers to locate in the United States. “The Biden administration has used them to level the playing field.”

All those results could have been obtained with “manufacturing incentives, and domestic content incentives attached to the demand side” while putting money into U.S. economic growth and the pockets of American consumers.

William Lee, chief economist at the Milken Institute, an economic think tank based in California, calls himself “one of the few economists who actually considers tariffs as not so bad.”

He said the real-world market, which is different from an ideal world where free trade is the best solution, has distortions, such as government subsidies. Therefore, if used correctly, tariffs can be another distortion that makes things right.

Tariffs come at a cost because they raise the prices for U.S. importers and consumers, Lee said.

However, “the strategic need dominates the costs,” he told The Epoch Times. “The strategic need to have diversified industries in certain sectors, such as high-tech industries, became so important after COVID.”

Again, all of that could be accomplished without the American consumer paying the bill. Just use the abovementioned “manufacturing incentives and domestic content incentives. Reward the U.S. consumer with incentives; don’t punish the consumer with taxes.

Mints thinks the Trump administration viewed tariffs in a “retaliatory and aggressive way,” which would be carried into a second term. She believes the Trump administration didn’t think tariffs affected consumers, while the Biden administration says it raises the cost for buyers.

It’s the usual Trump way: Punish the middle and the poor to reward the rich.

Iacovella believes a second Trump administration would “go further on tariffs and industrial policy than a Harris administration” because Trump “has a greater understanding of the China threat.”

There’s that “be tough on China by punishing the U.S. consumer” idea, again.

He is delighted to see the conversation about tariffs shifting from whether they are necessary to how they can be best implemented.

“I think it’s very important that everyone recognizes that regardless of who becomes president, it will be a pro-tariff administration.”

They don’t even want to discuss whether taxing American consumers is necessary. The only question is how big a tax consumers should pay before they catch on to the rich’s money grab. Yes, there is a penalty for ignorance, and American consumers are paying for it. Both parties will make sure the poor and middle classes keep paying. The GOP will just make them pay more. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY