Tag Archives: Trade Policy

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

New report finds that America is falling behind on international trade

This is a good editorial on why Obama’s policies haven’t led to more exports.

Excerpt:

President Obama claims he’ll double U.S. exports in five years. But a new report from Congress shows U.S. firms losing major ground to competitors because he won’t act on free trade pacts with Colombia and Panama.

In a report titled “Losing Jobs and Alienating Friends: The Consequences of Falling Behind on Free Trade With Colombia and Panama,” the Senate Foreign Relations Committee’s Richard Lugar presents a bleak picture of Latin American markets and allies slipping away as the administration fails to enact the Colombia and Panama free-trade agreements.

While President Obama tries to get on the good side of business by saying he’d go forward with the U.S.-Korea free-trade deal, he’s making only vague statements of support for the other two treaties.

“What the president says matters a lot less than what he does,” Senate Minority Leader Mitch McConnell said Monday in calling for the passage of the long-languishing other two pacts.

Staffer Carl Meacham visited Colombia and Panama in late January and has returned with a long list of horror stories for the Foreign Relations Committee report to be released Tuesday. He tells of lost contracts, evaporating market share and unhappy allies writing off America as a partner in favor of new relationships with more trade-friendly partners like China.

The trend also affects other Latin states. Obama is getting ready to visit Brazil and Chile next month and will tout those new relationships. But he’s unlikely to note that both have quietly made China, instead of the U.S., their top trading partner.

In 10 years, China will also become the top trade partner of Colombia and Panama, nations that would rather have America in that spot. Without the trade pacts, however, it won’t happen.

Meacham found that the contractual losses to American companies in the absence of the pacts are already mounting. They include $5.25 billion for Panama Canal expansion, $1.5 billion for Panama City Metro construction and millions in highway contracts in both Panama and Colombia.

These contracts are going to foreigners from countries where duty-free trade has given their companies a competitive advantage as U.S. companies pay tariffs.

Meacham also found market-share losses in the same grim league, as Colombia signs off on free-trade deals with Canada (expected in two or three months), Europe (expected this summer) and South Korea (in third-stage negotiations in Los Angeles now).

Free trade is not only good for jobs, but also for foreign policy. It gives you leverage with a country because you’re more tightly coupled to them. Unfortunately, Obama is a socialist and he opposes free trade. So not only will be lose jobs, but also influence and goodwill abroad.

Canadian prime minister Stephen Harper seeks increased trade with India

 

Canadian Prime Minister Stephen Harper

 

Story here from CTV News.

Excerpt:

Prime Minister Stephen Harper spent his first day in India selling Canada as a desirable place to invest and highlighting the need for greater trade ties between the two countries.

Harper visited the cities of Mumbai and New Delhi on Monday, the first stops on a high-profile, three-day tour of the country that is home to 1.2 billion people. It is his first visit to India as prime minister.

[…]He spoke about the advantages of investing in Canada, and he recited the many ties that the two countries share — including pluralistic parliamentary democracy, federalism and more than 1 million Canadians who claim Indian heritage.

Canada, said Harper, has “one of the most welcoming environments for investment in the world and has the resources necessary to meet India’s growing energy and infrastructure needs.”

While Harper talked much about investment opportunities in Canada, he downplayed any suggestion that he would be signing two anticipated bilateral deals that have been expected for some time.

“On the subject of nuclear energy, it is my sincere hope that our two governments will complete our bilateral nuclear co-operation agreement soon,” said Harper, alluding to a pending deal that was first announced back in January.

Harper said Canada is also “keen” to complete a foreign investment protection deal, but that too remains under negotiation.

Stephen loves his country, he doesn’t apologize for Canada when he goes abroad. He wants to reach out to other countries by signing trade deals, so that Canadians will be able to pay the lowest prices for imported goods, and will be able to export Canadian products to more markets. Meanwhile, Obama screws American consumers by shunning free trade deals and raising tariffs against other countries.

Stephen Harper on stage again, in Mumbai

In other news, Blue Like You reports that Harper also took part in a dance on stage at a popular Indian reality TV show.

Now, if only Canada could get a cricket team to participate in all the tournaments, as well as a rugby team, and a soccer team.

Michele Bachmann in defense of free trade agreements

Representative Michele Bachmann
Representative Michele Bachmann

ECM sends word of a Michele Bachmann column posted at the Heritage Foundation!

Excerpt:

Each day in Minnesota and all across the nation, billions of dollars worth of products begin their journey to be sold overseas. American farmers, manufacturers, and businesses rely on exports to strengthen and grow both their bottom line, as well as our economy’s.

Free and fair trade agreements help spur economic growth; improve efficiency and innovation; create better, higher-paying jobs for hard-working Americans; and increase the availability of lower-priced products here in the United States.

Furthermore, the role of free trade as an expression of liberty and opportunity for all individuals signifies the very principles our country was founded upon.

Yet, the free trade agreements with Panama, South Korea and Colombia negotiated under the Bush Administration remain little more than words on paper. Despite having been carefully negotiated over a period of two and half years, these agreements have become bogged down by partisan divides. In the meantime, with an average tariff of 53% imposed on U.S. agricultural products by South Korea last year, for example, there is little wonder the United States International Trade Commission estimates U.S. sales of agricultural products could increase by as much as $3.8 billion once the U.S.–South Korea agreement is fully implemented.And while Congressional leaders seem content to leave these agreements on the back burner, America’s fragile industries are left hanging in the balance. The impact of depressed exports is fully evident to those who make their livelihood from them. In fact, Minnesota’s manufacturing exports experienced a 19% decline during the first quarter of 2009, mirroring a similar decrease nationwide. And our agricultural sector, especially our ailing pork and dairy producers, certainly needs no reminder of the importance of expanded export channels to the survival of their farms.

Click through and read the whole thing.

Reading this column filled me with joy and admiration, because Michele Bachmann shows  how good a Christian woman can be if she puts her mind to it. It’s so good that she has an informed view of economic policy and realizes how prosperity is important to Christians who are trying to marry and raise a family. Money is the fuel we use to run our life plans, so we all need to have jobs and to make sure that our dollar buys as many useful things as possible, by keeping prices low.

Here are my recent posts on Michele Bachmann:

You can click here for her video blog.

Please contribute to her 2010 campaign, if you can.

Here are all the posts tagged “Michele Bachmann”.

New Alfonzo Rachel video

By the way, for my female readers, the male equivalent of Michele Bachmann is Alfonzo Rachel. You can see his latest video which explains why Christianity is not compatible with socialism. He’s a devout Christian and he understands economics. He also is very entertaining in these videos he makes for PJTV.

Evaluating Sarah Palin’s speech in Hong Kong

Sarah Palin giving a speech on economic policy
Sarah Palin giving a speech on economic policy

Story from the Wall Street Journal. (H/T Caffeinated Thoughts, Muddling Towards Maturity)

Let’s take a look at her speech.

Somebody has been reading Thomas Sowell’s book “A Conflict of Visions”, in which he talks about “the constrained vision” and “the unconstrained vision”.

We don’t believe that human nature is perfectible; we’re suspicious of government efforts to fix problems because often what it’s trying to fix is human nature, and that is impossible. It is what it is.

Here’s her defense of the free market.

Lack of government wasn’t the problem. Government policies were the problem. The marketplace didn’t fail. It became exactly as common sense would expect it to. The government ordered the loosening of lending standards. The Federal Reserve kept interest rates low. The government forced lending institutions to give loans to people who, as I say, couldn’t afford them. Speculators spotted new investment vehicles, jumped on board and rating agencies underestimated risks.

The speech also discusses cap-and-trade, free trade, and more.

Critical acclaim

Caffeinated Thoughts did a great job of linking some of the reactions from the left.

The New York Times:

A number of people who heard the speech in a packed hotel ballroom, which was closed to the media, said Mrs. Palin spoke from notes for 90 minutes and that she was articulate, well-prepared and even compelling.

“The speech was wide-ranging, very balanced, and she beat all expectations,” said Doug A. Coulter, head of private equity in the Asia-Pacific region for LGT Capital Partners…

[…]Mr. Goodé, a New Yorker who said he would never vote for Mrs. Palin, said she acquitted herself well.

“They really prepared her well,” he said. “She was articulate and she held her own. I give her credit. They’ve tried to categorize her as not being bright. She’s bright.”

My view? I say that Thomas Sowell prepared her. She probably ordered all his books from Amazon.com. Then she read them all at the kitchen table, with her glasses on and a laptop in front of her for her notes.

I am becoming more and more comfortable with her as a solid advocate for my point of view.

Check out her Facebook page where she’s been writing lately.

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