Donald Trump’s plan to introduce tariffs is just a tax on consumer goods

I have a key that will unlock a puzzling mystery
I have a key that will unlock a puzzling mystery

What are the consequences of adopting tariffs for all of the people who are affected? What happens next, after stage one?

Here’s a lesson in basic economics from Joe Carter, writing for the Acton Institute.

He writes:

Both Sanders and Trump propose increasing tariffs on goods imported from other countries — and increase them significantly.* This isn’t that surprising for Sanders, a socialist who, on the issue of economics, is one of the most ill-informed candidates in modern history. But Trump should (and probably does) understand the detrimental impact tariffs have on the poor. And yet he has proposed an economy-crippling, poverty-increasing tariff.

In 2012, Trump proposed a tariff on China of 25 percent. In 2016 he bumped it up to 45 percent. (He later tried to lie and say he never proposed the 45 percent increase, but there is audio of him making the proposal.) A tariff is simply a tax on imports or exports, so Trump is proposing to raise taxes on imported goods by 25 to 45 percent. (To keep this point in mind, I’ll hereafter refer to tariffs as “taxes.”)

You might be thinking, “ So what? That’s a tax the Chinese have to pay.” But that’s not the way tariffs works. China doesn’t pay the tax — you do. If a tariff on Chinese goods is increased by 25 to 45 percent then you pay 25 to 45 percent more for those goods.

Here’s a way to think about it. Imagine there are two hamburger stands in town. One is owned by the mayor’s wife, Veronica, and one is owned by a woman who lives in the next town over, Betty.

Of the two, Betty makes the tastier burger. She is also able to charge $1 a burger since she is able to buy her supplies in her own hometown for much cheaper. Veronica’s burgers aren’t quite as good and cost more to make. She has to charge $1.30 per burger.

The mayor decides to implement a new tax of 45 percent on producers (like Betty) who don’t live in the city limits. Since Betty’s profit margin is already low, she has to pass the bulk of the 45-cent tax on to her customers. Instead of $1 she now has to charge $1.35.

So who is better off in this scenario? The only winner is Veronica. Since her burgers are now cheaper, she is likely to sell more. And who is worse off? The customers who now have to pay 30 to 35 cents more for every burger. That is money they could have used to buy other products or services. Now they have to spend additional money on this new tax.

The same principle applies to taxes on goods and services imported from other countries. Customers simply have to pay more for goods and services they used to get much cheaper.

To understand how Trump’s tax increase would affect consumers, take a trip to Target or Wal-Mart and add 45 percent to almost all the prices. That’s money that comes directly out of your pocket into the hands of the federal government — all to punish you for buying goods that are cheaper to make in China.

Harvard University economist Greg Mankiw explains what most professional economists agree on. The economic benefit of free trade tied for first place, with 93% agreement:

The recent debate over the stimulus bill has lead some observers to think that economists are hopelessly divided on issues of public policy. That is true regarding business cycle theory and, specifically, the virtues or defects of Keynesian economics. But it is not true more broadly.

My favorite textbook covers business cycle theory toward the end of the book (the last four chapters) precisely because that theory is controversial. I believe it is better to introduce students to economics with topics about which there is more of a professional consensus. In chapter two of the book, I include a table of propositions to which most economists subscribe, based on various polls of the profession. Here is the list, together with the percentage of economists who agree:

  1. A ceiling on rents reduces the quantity and quality of housing available. (93%)

  2. Tariffs and import quotas usually reduce general economic welfare. (93%)

He is the author of his “favorite textbook”, which is published by Harvard University Press.

This is not controversial among professional and academic economists. Economists across the ideological spectrum understand that free trade lowers the prices of consumer goods, and allows individuals, families and businesses to get more quality for their dollars. We can do better than Donald Trump and his naive, populist economic pablum.

Related posts

Andy Bannister and Michael Ruse discuss how atheists find meaning in life

Two horses fight it out, may the best horse win!
Two horses fight it out, and may the best horse win!

I’m summarizing the most recent episode of the Unbelievable show.

Details:

Atheist philosopher Michael Ruse joins Justin as we spend a second week looking at Andy Bannister’s new book ‘The atheist who didn’t exist’.

Its amusingly titled chapters include ‘The Peculiar Case of the Postmodern Penguin (or: Why Life without God is Meaningless). Michael and Andy debate whether it’s a problem that atheists can’t have meaning with a ‘capital M’.

Here is a summary of the discussion between Ruse and Bannister, and my comments below the summary.

The MP3 file is here.

Summary:

  • Ruse: ultimate questions are serious questions, and some religions are attempting to provide serious answers to those questions
  • Ruse: there is a psychological element to belief in God but it’s not a complete explanation, but it can apply to non-belief as well
  • Bannister: there are psychological reasons why people would prefer unbelief (quotes Thomas Nagel and Aldous Huxley)
  • Bannister: (to Ruse) what do you think would follow next if you got new information that caused you to believe in God?
  • Ruse: I’d feel scared, I’d think of all the reasons that God would dislike me, rather than any reasons why God would save me
  • Bannister: according to the Bible, God is not so much interested in mere belief, but in active trust in him
  • Ruse: without being smug, I just completed 50 years as a college professor of philosophy, and I have a sense of worth from that
  • Ruse: if God turns up, and says that 50 years of being a professor is not good enough, well, I don’t know God, I’m sorry, I did my best
  • Brierley: Andy, explain to us this story of how a penguin explained to you how he invented a subjective meaning in life for himself?
  • Brierley: (reads the story)
  • Bannister: when it comes to reading a book, the real meaning is the meaning the author intended the book to have
  • Bannister: readers can inject their own meaning into the book that has nothing to do with it, but the author gives the real meaning
  • Bannister: meaning in life is like reading a book – you can make up your own meaning, but the author’s meaning is the real meaning
  • Brierley: (to Ruse) on atheism, is there any objective meaning?
  • Ruse: “obviously, someone like myself cannot have meaning with a capital M in that sense”
  • Ruse: the real question is and atheist can find a sense of self-worth, “I find that I’m happier within myself, I can find meaning”
  • Bannister: what would you say to someone who drinks away the family inheritance and gets the same sense of happiness you have?
  • Bannister: what would you say to all the people who are unable to get “a sense of self-worth” from their career, because of where they are born, sickness, etc.
  • Ruse: I have nothing to offer them, some people are born into such awful situations that they are bound to be bad people
  • Ruse: these unfair accidents of birth, etc.,  fits with atheism better
  • Ruse: what we should do is change society so that more people can build a sense of self-worth through achievements
  • Ruse: that way, they can say to God “I used my talents” so they can create feelings of self-worth and happiness (apart from God)
  • Bannister: meaning in life cannot be answered without answering questions related to identity, value, which are rooted in the overall worldview
  • Bannister: on the Christian worldview, you have an infinite worth, your value isn’t determined by circumstances, earnings, friends, etc.
  • Bannister: your value comes from what Jesus was willing to pay to save you, namely, giving his own life for you
  • Bannister: when I travel to meet other Christians in other parts of the world, they have a happiness that should not be there if they are getting happiness from wealth, fame, achievements, etc.
  • Bannister: but when you come to the West, many people who have wealth, fame, achievement, etc. are unhappy
  • Ruse: well maybe who look after a flock of sheep every day may get a sense of self-worth from that, or from other jobs
  • Ruse: I do take Christianity very seriously, it is a grown-up proposal to answer grown-up questions – it works if it is true
  • Ruse: we don’t have to follow Nietzche’s statement that if there is no God, there is no meaning in life – we can find a middle way, we can achieve meaning in life by using our talents to achieve things
  • Bannister: I disagree with Michael, I don’t think that the meaning you invent for yourself is authentic meaning
  • Bannister: distracting yourself with amusing things and happiness is not an answer to the problem
  • Brierley: (to Ruse) are you saying that you have searched for ultimate meaning, and you are settling for subjective meaning?
  • Ruse: my subjective meaning is not second class to objective meaning, “I feel a real deep sense of achievement, of meaning, of self-worth, of having used my talents properly, and I don’t feel in any sense a sense of regret” (what matters to him is how he feels)
  • Bannister: notice how Michael keeps bringing in value judgments. e.g. – “use my talents well”, that implies that there is a right way and a wrong to use your talents, which assumes an objective scale of right and wrong, which makes no sense in atheism
  • Bannister: an atheist can sit in a sun room and enjoy the feelings of happiness generated by the light and heat of the Sun, without asking whether there is a Sun out there
  • Bannister: ultimately, at the end of the day, my concern is not whether something makes me happy or makes me feel fulfilled
  • Bannister: ultimately, at the end of the day, I think there is only one real reason to wrestle with these questions of meaning, and that is to find truth
  • Ruse: sometimes we reach a point where we cannot get to true answers to some questions, sometimes we look for truth, but then give up and confess “I cannot find it” and then move on from there

Is it possible to dispense with God’s advice on your decision-making and achieve something that affects a lot of people, or makes people like you, or makes you famous, etc., and then have that please God? “Look, God, I did something I liked that affected a lot of people, and made them feel happy as they were on their way to Hell because they rejected you”. Will rap musicians answer God by pointing to 50 years of leading people away from chastity with godless music? A lot of people went to see the “NWA” movie that celebrated musicians who have an anti-Christian view of women and violence. Can NWA present their “artistic work” to God and claim that God should be pleased with their successful efforts to get rich and famous? Having feelings of achievement doesn’t mean anything to God.

So what is the standard? How you imitate Jesus – self-control, self-denial and self-sacrifice to honor God – that is the standard. If I had to choose between giving up two hours of my life to summarize this discussion for my readers, and all the fame and fortune that people who make godless TV shows, movies and music have, I would choose to make this debate summary. My goal in life is not to have fun, thrills, travel and feel happy in this world. I have a Boss. Doing without fun, thrills, travel and happy feelings in order to put points on the board for my Boss is objectively meaningful. It’s may not seem like much compared to what James Bond does in million-dollar movies, but at least I am wearing the right uniform, and playing for the right team.

I was telling Dina recently, isn’t it remarkable how rarely in our culture that people actually talk about the big questions? If you look out at the culture, everything seems to be about feeling good, having fun, being liked by others. Not much about ultimate questions, and certainly not a truth-based assessment of the alternatives. .

Is government good at spending taxpayer money to stimulate the economy?

Canada Election 2015: Socialists in red, Communists in Orange, Conservatives in blue
Canada Election 2015: Socialists in red, Communists in Orange, Conservatives in blue

I’ve been seeing a lot of talk up north in Canada from the substitute drama teacher they elected about how he wants to stimulate the economy by taking money out of the productive private sector and putting into the inefficient, wasteful public sector.

Here’s an example of how he intends to stimulate the economy, as reported by Life Site News. (H/T Kevin the Super-Husband)

It says:

The Liberal government is pledging $81.5 million to the United Nations’ Population Fund to fund “sexual and reproductive health services and rights,” International Development Minister Marie-Claude Bibeau announced Monday.

And that could include access to abortion in countries where it is legal, according to a “senior government official,” who told iPolitics reporter Amanda Connelly that the individual countries in the UN Population Fund (UNFPA) are free to allocate funding to provide access to abortion.

“Sexual and reproductive health services and rights” is well-known UN-speak for contraception and abortion on demand, noted Campaign Life Coalition’s Matt Wojciechowski, who represents CLC at the United Nations.

The Liberals’ decision is a reversal of the Conservatives’ stated ban on abortion funding as part of international aid in the 2010 Muskoka Initiative on Maternal Health.

At that time, the Conservatives pledged $2.8 billion over five years towards improving maternal health and the lives of newborn infants in developing countries, but the initiative, including the Tories apparent refusal to fund abortion, was subject to ongoing criticism.

The Conservatives pledged a further $3.5 billion from 2015 to 2020 for maternal, newborn and child health care projects in developing nations in May 2014, at which time Harper was again criticized when he reiterated that his government would not fund abortion overseas as part of that initiative.

The Liberals promised during the October 2015 election campaign that they would “cover the full range of reproductive health services as part of the [Muskoka] initiatives,” which a Liberal Party official at the time confirmed included abortion where legal, reported Connelly.

“Canada is committed to universal access to sexual and reproductive health services and rights,” Bibeau stated in a press release Monday. “We also believe that programming decisions on these matters should be driven by evidence and outcomes, not ideology.”

Trudeau has been very energetic about how he is going to stimulate the economy by taking money from job creators in the private sector and spending it to “create jobs”. Well, this is what happens when Christians vote for government to “create jobs” by “infrastructure spending”. And they are going to be running budget deficits much worse than what they promised. This is what the vast majority of Canadians voted for in their last election.

But we also waste money down here in the United States, too. Do you ever wonder what happens to the cut that the government takes out of your pay for your private sector activities? The Constitution sets out areas where the federal government is authorized to spend money. But the Democrat Party doesn’t believe in the Constitution, they believe in buying votes and pushing the culture to the left.

Congressional Budget Office: Debt to GDP ratio
Congressional Budget Office: Debt to GDP ratio

Here’s a story from the Daily Caller to explain what stimulating the economy looks like in the United States. (H/T Dad)

Excerpt:

Academics at the University of Oregon have determined that glaciers and the science that studies them are deeply sexist.

“Merging feminist postcolonial science studies and feminist political ecology, the feminist glaciology framework generates robust analysis of gender, power, and epistemologies in dynamic social-ecological systems, thereby leading to more just and equitable science and human-ice interactions,” reads the paper’s abstract. The research was published in the peer-reviewed journal Progress in Human Geography in January.

The study, by historian Dr. Mark Carey and some student researchers, was financially supported by taxpayer dollars. The National Science Foundation (NSF) gave Carey a five-year grant which he used to write his “feminist glaciology” paper. Carey has received $709,125 in grants from the NSF, according to his curriculum vitae.

“Most existing glaciological research – and hence discourse and discussions about cryospheric change – stems from information produced by men, about men, with manly characteristics, and within masculinist discourses,” Carey wrote. “These characteristics apply to scientific disciplines beyond glaciology; there is an explicit need to uncover the role of women in the history of science and technology, while also exposing processes for excluding women from science and technology.”

Carey concluded glacier research is intertwined with gender relations, masculine culture, geopolitics, institutional power and racism — these apparently led to to glacier-related academic and governmental jobs being predominantly filled by men. Damages from melting glaciers target women and ethnic minorities, who “are more vulnerable to glacier changes and hazards than are men,” according to Carey.

That’s a shovel ready project, right there. That will create jobs for sure. And no wonder that people in academia tend to support Democrats. They support Democrats for the same reason that people on welfare support Democrats – because that’s where they get their money for sitting around doing nothing. Private sector research into new products and services is more useful, and doesn’t cost taxpayers a dime.

Public Works

Henry Hazlitt’s book “Economics in One Lesson” explains the problem with taxing the private sector to build public works.

Henry Hazlitt’s Economics in One Lesson, chapter 4, entitled “Public Works Mean Taxes”.

Excerpt:

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.

And consider Chapter 5 as well, entitled “Taxes Discourage Production”.

In our modern world there is never the same percentage of income tax levied on everybody. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds. These taxes inevitably affect the actions and incentives of those from whom they are taken. When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only fifty-two cents of every dollar it gains, and when it cannot adequately offset its years of losses against its years of gains, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. People who recognize this situation are deterred from starting new enterprises. Thus old employers do not give more employment, or not as much more as they might have; and others decide not to become employers at all. Improved machinery and better-equipped factories come into existence much more slowly than they otherwise would. The result in the long run is that consumers are prevented from getting better and cheaper products to the extent that they otherwise would, and that real wages are held down, compared with what they might have been.

There is a similar effect when personal incomes are taxed 50, 60 or 70 percent. People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a fraction of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

We need to realize that outside of Constitutional spending authority, taxes are a waste of money. We’re $19 trillion in debt. We can’t afford talk of “stimulating the economy” through government spending. It’s a lie. Government spending kills job creation. They can hide the impact by adding the spending to the debt, but eventually, we do feel the impact of wasting money. Especially the foolish young socialists, who are going to have to pay it all back.