Tariffs: Scary? Or Sensible?

by Phil Erwin

Well, the President’s made good on another campaign promise.

Or more accurately, he’s threatened to make good on imposing tariffs on “cheatin’ China” (he didn’t coin that phrase, but he could have.)

The Constitution puts tariffs squarely in the Congressional bailiwick. So when a President threatens tariffs, it could be more a request to Congress to impose them. But Congress is currently run (however badly) by Republicans. And Republicans consider tariffs to be really really evil! (Because they interfere with “Free Trade.”)

So Trump’s trump card is to say that we need tariffs to protect national security.

Sparks are flyin’ over this one. Republicans are wringing their hands, warning this will put the kibosh on our finally-reviving economy; put us right back in the Dark Ages – you know, when Obama was pretending to know what he was doing.

Democrats are screaming mad because… Well, because they’re Democrats, I guess. And because Trump’s Trump.

As usual, it’s almost impossible to find someone giving you the whole truth.

Commerce Secretary Wilbur Ross says the proposed 10% tariff on aluminum would add less than half a cent to the cost of a can of soup; just a couple cents to the cost of a six-pack of beverages. Yet, Fox News Sunday host Chris Wallace pounced: “That’s a $3 Billion tax to the nation!” Yeah, Chris, but nobody’s paying more than half a cent per can of Coke. And who gets that money? The Treasury. So maybe the deficit drops a bit; maybe we pay off a Billion or two of national debt.

Another big scare factor: The proposed 25% tariff on steel means new cars could cost another $1-300 each. OK. You think that’s a deal-killer for someone planning to pay $30,000 for a new truck? Think he might have trouble financing because of the additional 1% cost?

Get real.

And remember: Nobody’s forcing Ford to charge that extra $300, rather than writing it off as “incentive.”

Finally: Why can’t our car manufacturers use our own steel? Use U.S. steel, no tariff.

Nobody’s giving you the whole picture.

Countries all over the globe use tariffs to make products from outside their boundaries more expensive, so that those same products produced within their borders are comparatively less expensive. It’s a protectionist racket. And everybody does it.

Everybody except us.

We usually avoid tariffs, for several reasons. They generally increase the cost of products. (That’s the whole idea. So you’d better have another, more palatable reason for imposing them. Like championing your own industries.) Tariffs can be an inflationary pressure. And if prices of many, or key, products go up substantially, that can slow the nation’s economic engine, possibly leading to that most dread of economic bugaboos: Recession!

But economic analysis aside, we reflexively bow to the God of Free Trade. It’s a nice notion – everyone competing freely should mean everyone competing fairly. But since the U.S.A has been the world’s premier economy for at least a couple of human lifetimes, we’ve had something of a competitive advantage. And when you’re the biggest competitor, the smaller competitors feel justified in… ah, well… cheating.

In world trade, a lot of cheating takes place in the form of tariffs. But the tariffs are now hidden in the fine print of multi-lateral “trade deals,” which Trump has pointed out seem always to benefit America’s “partners” at the expense of America.

When our trading-partner nations levy tariffs or other one-way costs on their imports – much of which comes from our companies – they are basically cheating us. And when we don’t employ tariffs on their return streams of goods, we’re allowing the cheating to work against us.

Sometimes, tariffs can be a political tool – a way to convince a “partner” country that they need to alter their behaviors. If trade is important enough to them, it can work, because taxes (tariffs) always retard trade.

The most informative discussion I’ve seen about this came from Jim Cramer, a successful investment fund manager for years before becoming the host of CNBC’s Mad Money. Cramer is a highly-respected voice in the business community. He knows a thing or two about money, and he knows a player or two in the international business world.

Cramer has a personal perspective on Chinese misdeeds in global-trade. His “Pop” had a gift-wrapping business in New York for decades, and watched his entire set of U.S. paper mill suppliers driven out of business by the Chinese “dumping” paper goods on the U.S. and world markets at far below the cost of production. The U.S. mills simply could not compete, and thousands of manufacturing jobs were lost over time, as the Chinese took over the paper market.

The Chinese have used the same approach to bankrupt the American steel industry. Cramer tells of steel CEOs complaining bitterly for years that their profitability and ability to stay in business has been threatened by Chinese “dumping” steel at far below cost. Indeed, many steel companies have gone bankrupt or sold out to competitors, and most of American steel mills have been closed down or severely curtailed.

The President rightly considers that a threat to national security.

Cramer identifies why the Chinese were using these tactics. You might suppose that China wanted to damage America’s steel industry, and that certainly may have been part of their thinking. But it’s not like damaging America’s gift-wrapping industry would have a lot of strategic value to China. No, their dumping practices have another, more fundamental purpose: To make Chinese jobs.

Here’s an excerpt from Cramer’s Mad Money diatribe:

The simple truth is, China uses massive steel subsidies in order to put their people to work. Making a profit is secondary – if it’s a concern at all! Steel mills put a lot of people to work – which is real good if you’re trying to avoid unrest or revolution… The Chinese government put a lot of their people to work producing way too much steel, which crushed the [global] price to the point where most mills in America simply couldn’t survive. And whenever the remaining companies miss their numbers, it’s because of Chinese dumping!

I used to hear the same thing from Klaus Kleinfeld at Alcoa, who would painfully walk me through how the Chinese dumped aluminum well below their cost of production, simply as a kind of make-work program… [I was] a furious reporter, asking these execs how in heck they could [keep missing their numbers.] They convinced me that the Chinese were [doing the same thing] they did to Pop’s gift-wrapping industry. But there’s a big difference with steel and aluminum: You can’t fight wars with gift-wrap. There’s no national security issue with Chinese holiday paper…

But aren’t all tariffs evil, like the ones Smoot and Hawley jammed on to exacerbate the Great Depression? Honestly, No! Lots of times, they work, and our trading partners change their tune. Countries like China want our markets badly! If that means wiping out their own steel jobs to retain access, they’re gonna do it! I wouldn’t be surprised if a lot of these countries start building factories here, to take the heat off!

I heard a lot of grousing from the ‘captains of industry’ about how much these tariffs would cost them. I wanted to throw up! These guys just got the biggest darn corporate tax breaks in the history of the Republic, and now they’re whining that their raw costs might go up a bit? I am speechless!

It’s no surprise that the President sees the steel-and-aluminum “problem” exactly as do the CEOs of those embattled industries. We’ve lost hundreds of thousands of jobs and thousands of manufacturing plants due to unfair trade practices; and many of those plants were key to our sustained national defense and security.

When Trump insists, “I believe in fair trade,” he’s pointing out that, historically, “free trade” has only been “free” for our nation’s competitors. It’s cost us plenty – especially in the loss of millions of manufacturing jobs, many of which have migrated overseas, either because they’re now employed by foreign companies, or because our own companies moved plants overseas to avoid foreign tariffs!

The knee-jerk Republican reaction to “tariffs” is to scream that this will interfere with “free trade.”

Says Cramer: For ages we’ve kept our markets open because our government is run by “free traders.” Their approach to unfair trade practices is to turn the other cheek… The status quo means we get cheaper steel and [other products], but American workers in these industries get gutted! The economists don’t seem to care at all!

What the President has been saying since the 1980’s is that “free trade” isn’t really “free” for us – it’s cost us, big time, in terms of jobs, industries, and national self-sufficiency. In proposing tariffs on steel and aluminum, he’s proposing a way to make trade more “fair,” while regaining control over our own national security.

That doesn’t sound so scary-wrong to me.

Phil Erwin is an author, IT administrator and registered Independent living in Newbury Park. He would like to support some Democrat ideals, but he has a visceral hatred for Lies and Damn Lies (and is highly suspicious of Statistics.) That pretty much eliminates supporting most Democrats, and a bunch of Republicans to boot.

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