Tariffs, Trump, Trade & Balance

There are a lot of folks in the news, and reading it, all breathlessly saying that tariffs are just bad and THE number one thing to do is to eliminate them.

That simply is not true.

A tariff can be a good, or a bad thing. It depends on the context and the outcome desired.

One of the first things to ask about any tariff regime is “Is it symmetrical?” Now no tariff can be perfectly symmetrical since no two economies are identical; but you can have functional parity. So, for example, if you export computers and they export steel, having no tariff on steel but a 50% tariff on computers (by both parties) is not symmetrical in impact. So if they put a 50% tariff on your computers, you put a 50% tariff on their steel. That is functionally symmetrical.

China has a long history of protectionism for their industry. They frequently (may be always, I just don’t have that data) require any ‘foreign’ company coming to their country to hand over 1/2 the business to China. That’s essentially extortion. It is essentially giving your company to China in exchange for a modest term cash flow gain. China also has tariff and other barriers to entry.

In the face of that, to NOT have any barriers to China gaming your markets is just stupid. It is showing up at a gun fight with a cream pie…

China has strong mercantilist policies.

https://en.wikipedia.org/wiki/Mercantilism

Mercantilism is a national economic policy designed to maximize the trade of a nation and, historically, to maximize the accumulation of gold and silver. Mercantilism was dominant in modernized parts of Europe from the 16th to the 18th centuries before falling into decline, although some commentators argue that it is still practised in the economies of industrializing countries, in the form of neomercantilism.

It promotes governmental regulation of a nation’s economy for the purpose of augmenting state power at the expense of rival national powers. Mercantilism includes a national economic policy aimed at accumulating monetary reserves through a positive balance-of-trade, especially of finished goods.
Historically, such policies frequently led to war and also motivated colonial expansion.

Mercantilist theory varies in sophistication from one writer to another and has evolved over time. High tariffs, especially on manufactured goods, were an almost universal feature of mercantilist policy. Even if mercantilism and protectionism are applied through the same economic measures, they have opposite aims. Mercantilism is an offensive policy aimed at accumulating the largest trade surplus. Conversely, protectionism is a defensive policy aimed at reducing the trade deficit and restoring a trade balance in equilibrium to protect the economy.

With the efforts of supranational organizations such as the World Trade Organization to reduce tariffs globally, non-tariff barriers to trade have assumed a greater importance in neomercantilism.

Since China has strong policies to promote their economic growth at the expense of trade partners and to dominate globally key markets; and since their major industries are essentially State Sponsored Entities, it is essential to have a “Protectionist” response to maintain balance. The alternative is called impoverishment and losing.

The neomercantilism wiki is pretty thin:

https://en.wikipedia.org/wiki/Neomercantilism

Neomercantilism is a policy regime that encourages exports, discourages imports, controls capital movement, and centralizes currency decisions in the hands of a central government. The objective of neo-mercantilist policies is to increase the level of foreign reserves held by the government, allowing more effective monetary policy and fiscal policy.

Yup, that’s the whole thing. Monetary emphasis and government controls at the core of it. That’s pretty much China.

So is Trump doing the right thing? Time will tell, but I think so. He, at least, is doing something about our $Billions of imbalanced trade with China. Normally currency exchange rates would adjust to fix trade imbalances, but China has a managed exchange rate to prevent that.

To do nothing when an opponent is busy raping your economy and stealing your wealth is to lose, badly. That has been our policy until now, and it is a policy of extreme stupidity. The only winners are the folks extracting wealth from the USA consumer and the cheap Chinese labor via exploiting both.

Is there a better alternative?

Well, I would require that NO company hand over an ownership stake to the Chinese Government (symmetrical to USA lack of such a requirement). I’d also establish a “loan agency” that would loan money to any US company at the same rate being offered for any China investment; but limited to investments in the USA. Effectively neutralizing any attempt to buy a location build in China via sweetheart loan terms from the Government of China.

You can generalize this broadly. Anything China offers as a requirement or inducement, you either BAN it for US companies to do it, or offer an equal inducement domestically.
Be The Mirror.

There is ONE metric overall. Balance of Trade. As long as that is a net negative for the USA, we need to indulge in “protectionist” measures until such time as China ceases being mercantilist.

It really is that simple. Balance. Symmetry. The Mirror.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Political Current Events, World Economics and tagged , , , . Bookmark the permalink.

45 Responses to Tariffs, Trump, Trade & Balance

  1. BN says:

    When the US cut taxes, China lowered their tax on US manufacturers in the country to keep them from leaving. They had some other conditions that took away some of the advantages, but one can see they play hardball.

    A big part of the problem is NAFTA. The no taxes, or low taxes on goods has resulted in China shipping goods through Mexico and Canada, getting around the taxes and limits on some products. Just go to Canada or Mexico and wander around their ports, you will be amazed at how large the Chines shipments have become. This is one of the huge sticking points with Trump on renegotiating the terms of NAFTA.

    China taxes our cars at 35% and we basically don’t tax them. Its that way all across the board. I can not believe our trade negotiators did so badly. I think the State Department keeps meddling whenever a country goes and whines about a policy. When we started NAFTA our farmers were supposed to be able to ship chickens into Mexico duty-free, but when the time came, Mexico complained it would hurt all their poor farmers so it was not enforced. The bottom line is companies like Tyson lost millions on expected business.

    China basically gets our trade secrets by the partnership requirements. Many companies such as glass companies have gone to China and disclosed their secret processes for making hardened, high-temperature glass. After a few years, people working for that company in China quit and with government money opened competing plants that soon drove them out of business. A company in Toledo basically lost their business by such practices. It happens all the time.

    Chinese basically pay no patent royalties and get most things by espionage and not investing in research, a tough group to compete against.

    Looking at how China trades with us and how they manipulate their currencies I welcome a big trade war. We will hurt them way more than they hurt us.

  2. Larry Ledwick says:

    Important note in the above documents, both give special status to Canadian and Mexican imports however they also include this subtle warning.

    “I expect that Canada and Mexico will take action to prevent transshipment of steel articles through Canada and Mexico to the United States.”

    That I believe is an effort to hold a bit of leverage over both countries to have them control transshipment of aluminum and steel. I know that China has moved a year or two ago a huge stockpile of their aluminum to Mexico (probably intended to allow them to side step such tariffs)

    http://fortune.com/2016/09/09/chinese-aluminum-giant-is-tied-to-a-2-billion-mystery-mexican-stockpile/

    https://www.wsj.com/articles/giant-aluminum-stockpile-was-shipped-from-mexico-to-vietnam-1480588228
    By Scott Patterson,
    Biman Mukherji and
    Vu Trong Khanh
    Dec. 1, 2016 5:30 a.m. ET

    VUNG TAU, Vietnam—One of the world’s largest aluminum stockpiles, which until a few months ago was stored under hay and plastic tarp in a Mexican desert, has been moved to a remote port here in southern Vietnam.

    Starting early this year, 500,000 metric tons of aluminum has ben trucked ouf of the Mexican city of San Jose Iturbide and shipped to Vietnam, according to shippin records and people familiar with the matter. . . .

    Note this was right after Trump took office that the stock pile was relocated.

  3. Larry Ledwick says:

    I have been watching in amazement the last couple months as an entirely new style of journalism is born. It was forced by the nature of twitter. But a group of free lance journalists are creating a new style of reporting based on the “twitter style” of reporting. Instead of long hard to read articles like you see in National Review and other traditional media, the style is formed of concise tight statements in a twitter storm of related comments – each leads to the next, and makes a clear and concise point. It is more like the the style of skilled debater than a traditional journalist.

    Here is a very good summary of “The Trump Doctrine”, how he gets what he wants in international affairs, and how he creates an environment where the final outcome is a win win for both sides. Each gets something that they need by trading “chips” of matters that are important to them.

    https://threadreaderapp.com/thread/971917397031604224.html

  4. jim2 says:

    The higher value steel products from China would be easier to route through multiple hands, each making a profit as it makes its way to the US.

  5. Larry Ledwick says:

    I don’t think “Higher value” is the right term, Chinese steel has some serious quality control issues, “higher profit margin” would be more appropriate.

    That is why President Trump is holding Mexico and Canada responsible for controlling transshipment. If they don’t, he will cut off their tariff exemption.

  6. Sera says:

    I don’t get it. China sells goods to US consumers at low prices at the expense of their own people, and they devalue the yuan at the expense of their own people. This is a win-win for the US consumer and a lose-lose for the Chinese consumer. Then they take the money and buy T-bills supporting the US treasury at the expense of their own people. And we are the ones who are complaining? If I were Chinese, I would be furious.

    If this is a complaint about steel dumping, then US industry should buy the cheap Chinese steel and refine it like the Japanese do. If we can refine other countries’ oil, why not steel?

  7. Sera says:

    And right after I posted that, I found this at Coyote…

    http://www.coyoteblog.com/coyote_blog/2018/03/addressing-the-pro-tariff-arguments.html

    Most of which I agree with.

  8. p.g.sharrow says:

    Ok Sera I read the article, but the author overlooks some facts, such as there is a lot more wealth spent on the exported high value added finished products then used to purchase the imported raw materials. While that imported Toyota from China is cheaper then one made in the U.S. there are fewer American workers able to buy it! Wealth is DRAINED from the American middle class to enrich the merchants. No matter how cheap the goods are in WallMart there is less wealth available to the buyers. You can not paper over the short fall with Notes of credit, forever…pg

  9. Sera says:

    Well, when you buy a product, your wealth has gone down but your assets have grown- I’m not sure that you can classify that as a drain. The author overlooks many facts, but you can’t fit them all in a short blog post.

    Merchants sell stuff for profit and enrich themselves- I agree.

  10. Sera says:

    “You can not paper over the short fall with Notes of credit, forever…pg”

    I agree with that too…

  11. A C Osborn says:

    Sera says: 9 March 2018 at 5:56 am
    Take it to it’s nth degree, where there are NO manufacturing Jobs because it is “Cheaper” to buy everything from China, the majority of your people are on the Dole.
    Where does the Money come from to pay their Dole?
    Where does the Money come from to Buy those “Cheap Goods”.
    Where does the Money come from to maintain and improve your country’s infrastucture.
    You cannot run a Country on Service Jobs only because you end up not being able to afford the services either.
    THe UK started down that route under Thatcher and it has been disastrous, so many skilled jobs have been lost that the “best” people emigrate to where those jobs still are.
    It is not called a “brain drain” for nothing.

  12. philjourdan says:

    I am against Tariffs in general. They are counter productive to both sides. However, your argument is valid. If the Tariffs are “mirrored” and tightly focused on an abuse, I can see the merit. They still run the risk of an escalating trade war, but then the war was started by the other side when they set the rules to be asynchronous.

  13. p.g.sharrow says:

    When I buy a Toyota built in America, the worker’s wife will have money to spend in my wife’d shop. It is very unlikely that the Chinese’s worker would ever be allowed to spend any of their wages in America. So any wealth that is transferred to China is lost to me, while the wealth that is transferred to the American worker might come back.
    Historically the nation that supplies raw materials and consumes finished products ” sells wholesale, buys retail and pays shipping both ways” and is considered a colony of the merchant nation. The most important export from that merchant nation is Military Power that is used to enforce the terms of that deal.
    Since the end of WWII, when the U.S.A. was the only surviving Merchant Power, the Americans have been transferring wealth to other nations to improve their wealth creating abilities to enrich all of the people of the world. Deliberately taking “the short end of the stick” in trade deals to help the others grow up. The Chinese know the way to Super Power status and are pursuing it, but the Americans seem to have forgotten the way. Time to level the playing field in world trade where the Americans are the master Super Power.
    “There can be only one!” …pg

  14. jim2 says:

    Trump has said he will negotiate tariffs with any country, so this isn’t a set-in-concrete dictate. He’s trying to do what he said and get us a better deal. He’s been complaining about trade imbalances for decades. He seems to be handling multiple situation masterfully. The yappers in the Dimowit party and in the YS media should just shut up and get out of the way, and that includes especially Rubio.

  15. philjourdan says:

    @Jim2 – When the YSM announced Trump’s plans, I was suspicious. But Trump verified them with tweets. WHich means a 30 second sound byte. And it did look bad. However, the implementation is a far cry from the hype. It seems he is using a scalpel and not an axe. Which is pure Trump.

    The markets are scared children and reacted to the YSM. Until yesterday when they saw that Trump is still Trump and knows more than anyone gives him credit.

    As always. I am surprised by his actions. But not totally disappointed. And I expect to be less so as time goes on the the ramifications belie the hype.

  16. Larry Ledwick says:

    The employment numbers appear to be telling the true story of success or failure of President Trump’s economic policies.

    https://www.cnsnews.com/news/article/susan-jones/155215000-number-employed-americans-sets-8th-record-trump-era

    More workers equals more tax revenue, and more purchasing power by individuals which equals more turn over of money in the economy, instead of single purchase and profits go off shore, you now have single purchase puts funds in someone else’s pocket which gets spent again on another need.

    In the St. Louis Fed velocity of money chart you can see that the long term fall in velocity of money has stabilized and has started to turn up slightly. This is the sign of a growing economy (provided it does not ramp up too fast and create demand side inflation)

    https://fred.stlouisfed.org/series/M2V

  17. Larry Ledwick says:

    Or in Meme:

  18. E.M.Smith says:

    Sera,

    You need to find better sources. I was gritting my teeth reading the link, then hit the Iowa story. Exporting wheat for Toyota cars. Well, first off, Iowa is corn country. Note the essentially zero wheat on this map of winter wheat in Iowa:
    https://www.nass.usda.gov/Charts_and_Maps/Crops_County/ww-pl.php
    spring wheat even worse:
    https://www.nass.usda.gov/Charts_and_Maps/Crops_County/sw-pl.php

    Then Toyotas? in the USA your Toyota is made in the USA:

    https://en.wikipedia.org/wiki/List_of_Toyota_manufacturing_facilities#United_States

    United States

    Toyota Motor Manufacturing Mississippi, Inc., (TMMMS) is located in Blue Springs. Vehicle manufacture and assembly – Corolla.
    Toyota Motor Manufacturing Kentucky, Inc., (TMMK) is located in Georgetown. Engine manufacture – 2GR-FE and 2AR-FE. Vehicle manufacture and assembly – Camry, Hybrid Camry, Avalon, Avalon Hybrid, and Lexus ES.
    Toyota Motor Manufacturing Texas, Inc (TMMTX) is located in San Antonio. Vehicle manufacture and assembly – Tundra & Tacoma.
    Toyota Motor Manufacturing Indiana, Inc. (TMMI) is located in Princeton, Indiana. Vehicle manufacture and assembly – Sequoia, Sienna, Highlander & Highlander Hybrid.
    Toyota Motor Manufacturing Alabama, Inc. (TMMAL), is located in Huntsville. Engine manufacture 1GR-FE, 1UR-FE and 3UR-FE. Engines mostly for TMMTX and some TMMI.
    Toyota Motor Manufacturing West Virginia, Inc. (TMMWV), is located in Buffalo. Engine manufacture 2GR-FE, 2ZR-FE and 1AR-FE.

    When someone can’t even get their examples right, their argument is unlikely to be valid.

    So what is the difference between good trade and predatory trade…

    Essentially this is tied up with Monopoly Practices bad effects. Both are based on someone crushing competition so that later they can extract more wealth from them. I’ll use the example of Standard Oil first, then move on to present day and China.

    Standard Oil had a practice of “price wars” where they would put a gas station in a town and price gasoline below the cost to produce. They would support this station with money from other stations elsewhere in the country that charged much higher prices. This “predatory pricing” would be maintained until other stations were driven out of business. Then prices would be raised to highly profitable levels and used to support the next low priced station in the next town. This process was to be repeated until Standard Oil had a monopoly position everywhere in all markets, at that point, prices would be raised everywhere and profits placed at the maximum for a monopolist. NOBODY would build a station to “compete” with them in this context as Standard Oil could undercut them to ruin at any time, being the biggest monopoly producer. This is not speculative, it is the economic history of Standard Oil (later broken up into many companies by the USA government applying anti-trust laws). So low prices are NOT always a good deal to the consumer, they can often be “predatory pricing”.

    What does China do? Well, first off, you must remember that China is a Communist Country. You are NOT competing with some small company in China, you are competing with ALL of China. State Ownership is rampant. Protectionist policies are rampant. WHEN the Central Committee decides to make socks, they plan to own the entire global market and fund it from all other revenues to China, not just the sock market. (They built factory capacity that is enough to make all the socks for the entire world. Now who else can do that but a large government? So 100% of global demand for socks telling every other producer in the world “You are screwed” and prices do not matter.) Your choices are “buy Chinese” or “be ruined”. Making a quality product at a competitive price is NOT enough, as you will be faced with non-competitive pricing from a government entity that does not need to show a profit for decades.

    Now repeat that for ALL manufactures. One industry at a time.

    Are you really comfortable with China becoming THE only manufacturing center in the world for all goods AND setting the prices to whatever price they want once they have the monopoly power to do so?

    Look at car batteries today. They once were quite cheap, now not so much. Partly this is due to our own ‘green laws’ making lead refining very expensive here, but partly also due to the industry being driven out of country by lower costs to manufacture abroad. Price to the consumer? Maximum to generate profit…

    So a predatory regime will undercut prices here with State subsidy of industry there until our industry is ruined and gone. Then they will raise prices to the monopoly profit level. Also any competitor who decides to re-enter the market will face price wars to destroy them. After one or two of those, everyone knows not to try it ever again.

    Eventually you have no industry left, and you are essentially a satrapy of the predator.

    When you have no industry, what do you have to sell to buy those manufactures? Raw materials and agricultural products. What happens when those predatory companies buy the farm land and the mines? Oh, right, you die.

    China is busy buying up mining and agricultural lands globally, BTW.

    Now don’t get me wrong. I’m NOT complaining about China. They are doing a masterful job of it. They have a Billion people to lift to modernity and are doing exactly the right thing to move themselves to global dominance as rapidly and as effectively as possible. Bravo to them!

    I’m complaining about OUR stupidity in not doing anything to assure that rise to dominance and power is not placed on a foundation of our dry bones…

    So lets say you run a nice little shop selling candies you make in the back. What happens when China Inc. sets up a candy store across the street selling candies made in a Mega-Factory in China? Your wealth is run to zero if you continue to sell against them at a loss, so you go out of business. Your customers now get a cheaper product (perhaps only for a while…) as their money goes to China. That money is then used to build another candy store in the next town over and drive those local candy stores out of business. Repeat until nobody is in business making candies but China. So now ALL candy sales send the money to China for the Central Committee to use to drive the next industry into Chinese hands. Folks here are no longer making candy and no longer making money from that industry. Good for candy buyers for a while, but in the end, you will work for whatever wages China chooses to pay and you will buy at whatever prices China chooses to charge.

    Now compare with a truly free and competitive market without monopoly practices. A new candy store sets up across the street. They can not undercut you on price forever since they must make a profit too or face ruin. There is no cross subsidy from Chinese car batteries nor Chinese socks to support them. Now you must both compete by making good quality candies at low prices but with enough profit to keep you in business. You each get more efficient and work on making unique products that compete on features other than price. Local workers are employed and local buyers get a nice selection of candies at a decent price.

    Notice that from the point of view of the China Central Committee giving folks in China a shit job at $200 / month is a big win. They are happy to do that, even if it means they can’t afford the candies they make and ship to your town. They are interested in pacification of their population, not profit. Similarly, if they can monopolize strategic industries (like metals and electronics) essential to military manufactures, profit is less important than the ability to decide who can get steel for tanks and ships or electronics for computers and radios.

    BTW, once a steel mill is gone, the price to re-enter steel making is vastly higher. It is essential to keep the facilities in operation rather than hope for their return “someday”and “when needed”. When the facilities are gone, the knowledge and skills in the craft are gone with them. It takes decades to recreate that industry even with economic profits in evidence.

    So your choice is simple:

    Accept that China will be the global provider of goods and materials. You will work for whatever wages they set for you as a non-Chinese (i.e. less than that $200…) and you will praise The Chinese Central Committee at your daily mandatory “orientation” (where you get your food ration).

    Or

    Take steps to prevent a mercantilist takeover of global industry by the Chinese Central Committee via monopoly practices.

  19. Larry Ledwick says:

    In the late 1960’s and early 1950’s we saw that same thing play out in gasoline stations, even after the Standard Oil breakup. We used to have gasoline price wars. One station would under cut the local market by a few cents and in a matter of hours they would have a line of cars filling up at their new low prices. I can remember in a bout 1955 my Dad coming home and telling my Mom that a local gas station had gasoline at 21 cents a gallon, and then going back to fill up the tank.

    So in self defense the other stations would price match within hours. In the 1960’s it was for local market share. Then after the oil embargo and fuel rationing the major suppliers decided to drive all the locally owned gas stations out of business. First they did this with low prices. If they held them at low enough prices for their company owned stations they forced the independent station owners to have no profits if they bought gasoline a the local rack price. Eventually they went for a double whammy and started over hauling gas stations (corporate owned) and adding convenience stores to the station. This was about the time 7/11 got into the gasoline business at their convenience stations. Then they moved to adding car washes to the stations. Now almost all gas stations in the country are corporate owned or owned by large groups which run dozens of stations. It is the only way they can compete in that market.

    Same sort of economic warfare happened in the fast food industry. The small mom and pop road side dinner and small bar and lunch operations got their food traffic stolen by fast food chains like Arby’s McDonalds, Burger King, and chain operations like Chili’s.

    Those small little family owned dinner bar/lounge operations are becoming very rare outside of small towns too small to attract the big fast food chains.

  20. beng135 says:

    Bottom line is how much is a tariff going to raise domestic consumer prices? If the amount is small, the tariff isn’t “harmful” to the consumer.

  21. Sera says:

    @ Chiefio:

    I agree with your assessment of the postscript, but the body of the article was about technological trade. Also, that would be subsidized corn for subsidized durable goods.

    Japan did, what China is now doing, back in the late eighties and it did not work well for them. No one noticed or cared about the Japanese snapping up real estate and businesses here in America until a Japanese businessman purchased Pebble Beach GC. For those who can’t relate, it would be like Elon Musk going over to Japan and purchasing one of their holiest Shinto shrines.

    If China wants to purchase farmland and mines globally, that’s fine- but they will have to deal with the locals and the governments of those countries (good luck). If they do it here in the US, they will have to deal with unions and SJWs (good luck). Also, when things go south (they will) then they will sell. And if they try to corner the market on a commodity, well, resource substitution and technological advancement will take care of that. I’ve seen this movie before, and the hand-of-fate will come down in a way that no one anticipated. Things that look good now will turn out bad, and things that look bad now might end up being a good thing.

  22. Sera says:

    I think I have a comment in the spam filter?

  23. Larry Ledwick says:

    And the Japanese had to sell a lot of it back when their economy cratered, and they have been stuck in stagnation ever since.

    I expect the same chicken to come home to roost in China as well, you cannot grow at 10% plus rate indefinitely. If your economy depends on rampant growth to survive eventually it will hiccup and a lot of folks will loose their shirt as the books get balanced.

  24. Sera says:

    @ Larry Ledwick:

    Exactly. Pebble Beach GC was sold back to an American group- and they added a clause stating that the GC will never be sold to any corporation again (self protectionism).

  25. Sera says:

    And I also believe, Larry, that the avian flu will come home to roost in China for the exact reason you gave. Sooner or later, the books get balanced.

  26. E.M.Smith says:

    @Beng135:

    As I noted above, about $75 to $150 on a BIG car. I.e. down in the noise level. Hardly even measurable for things like steel cans, aluminum cans, and airplanes.

    @Sera & Larry:

    While I agree with the notion of a very long term ‘resolution’:

    There is a huge difference between a competitive market economy (even one with the massive keiretsu system of Japan) and floating exchange rates v.s. a single centrally planned communist economy with managed exchange rates.

    It can easily take a 1/2 century for that to need “balancing”. During that time, not just entire industries, but entire countries and populations can be ruined. (See U.S. steel capacity that has gone from world dominance to only some specialty steels in my lifetime under foreign pressure, much of it via government subsidy).

    So part of Political Economy is finding ways to mitigate that kind of damage from economic warfare while having the beneficial effects of economic competition. See the history of Harley Davidson as an example. Several US motorcycle companies “bit the dust” as the Japanese made low cost product and flooded the US market. The last maker, Harley, was on the ropes and about to go POOF! A short term protective tariff on large motorcycles was put in place. Harley did a major redesign, and recovered. Today we have USA made motorcycles largely because that process of destruction was stopped at the “competitive” level and short of the “destroyed” point. (Generally trade laws and rules allow for this to be done, for good reason.)

    So you really have two paths to the “re-balance”.

    Allow complete destruction of your industry, loss of control of your basic materials and assets, and hope for a recovery in a lifetime to two when things finally run their course. Or:

    Apply mitigations to preserve enough of your industry and basic materials and assets so that a recovery can be reasonably assured inside a decade or two.

    (There’s a third point, which Trump is exploiting, where for things needed for military use you can preserve enough of it regardless to assure that when your industry is damaged to near death, your “trading partner” doesn’t just waltz in with guns and take the rest… See the history of Mercantilism where exactly that outcome often happened. That’s why mercantilism is so bad, BTW, it often, perhaps usually, ends in outright warfare. So pretty much all trade rules and organizations allow a military defense exception to ‘open kimono and take what you want’ trade rule.)

    I can not stress enough how important it is in the Japan vs China comparison to realize Japan is about 1/2 the size of the USA and China has about 4 x the population. Japan was a competitive market economy, China is a Central Planned Communist one. Japan has floating exchange rates, China is a managed exchange rate to their advantage. In a monopoly situation “Fattest Wallet Wins”, and China is structurally one giant monopoly (the Central Committee in the end can fund anything it wants) indulging in predatory pricing. No single company nor industry can stand against that without some countervailing power. US Law makes such actions illegal for companies (“anti-trust” law) but we allow it from China as they are not subject to US Law. Comparing China to Japan must take account of those differences.

    Please read the history of mercantilism. It isn’t pretty and it does not naturally end well.

    One example is the British Empire…

    http://www.u-s-history.com/pages/h622.html

    Mercantilism

    Mercantilism was the theory of trade espoused by the major European powers from roughly 1500 to 1800. It advocated that a nation should export more than it imported and accumulate bullion (especially gold) to make up the difference. The exportation of finished goods was favored over extractive industries like farming.

    Mercantilism was a reaction against the economic problems of earlier times when states were too weak to guide their economies and when every town or principality levied its own tariffs on goods passing through its borders.

    The modern age brought the rise of powerful nation states (Holland, France, Spain and England) and was marked by almost constant warfare. Money (bullion) was needed to support ever-expanding armies and navies. Mercantilist concepts developed from this need.

    Underlying this theory was the belief that wealth was finite. If one nation hoped to grow richer, it had to do so at the expense of some other nation.

    The development of colonies became very attractive during this era. Wealth could be kept by a nation if its colonies provided raw materials to the mother country and the mother country could sell finished goods to the colonies.

    In England the application of mercantilist theory led to the development of a skilled labor force at home and the creation of a large navy and merchant marine. However, mercantilism also led to inflation and alienation in the colonies.

    The theory of mercantilism was put into practice in the English colonies through the Navigation Acts.

    Eventually leading to many wars and much strife.

    The goal of China is no less than making all manufactures in the world and reducing the rest of us to material supplying colonies in function. It may well end in a re-balancing, but the nature of that process is unlikely to be pleasant and the timing of it after a generation of suffering. History and big economies move slowly…

  27. Larry Ledwick says:

    In small scale we have already seen much of that destruction. In the performance auto parts domain the Chinese have already just about wiped out a lot of the small specialty manufactures. Companies that used to make specialty racing crankshafts were wiped out by stupid cheap Chinese performance crank shafts. They had big quality control problems (cranks would break at horsepower levels that US crankshafts had no problem with) but since most hot rodders don’t really push the maximum design limits there were enough that made their purchase decision based on price that they killed the classic California custom shop companies. Same happened to small foundries all over the US. 30+ years ago if you had an idea for a custom intake manifold or cast iron table for the patio you could get the custom casting done by a small shop foundry here in the US. Now they are almost impossible to find except for a few foundries which specialize in art castings of bronze sculptures.

    The US performance community fought the Chinese tooth and nail for years trying valiantly to “buy American” just like the US auto workers did but eventually they both got swamped by the economic tide running against them.

    Same thing happened in ship building, we only have a few ship yards left that do original manufacture of shipping and they are almost all still alive because of getting contracts for US military production in the case of Nuclear Submarines there are only two US manufactures who can build our nuclear boats, General Dynamics and Huntington Ingalls Industries.

    At least in this area (much like in space launch capability) the government finally recognized the strategic risk of losing both the infrastructure base and the manpower skill pool needed to make these specialty products. Same happened in the military air craft manufacture field as all the smaller companies over time got bought up and merged and now aircraft procurement contracts are so large and expensive that almost every contract is now shared among those players who are still around, as no one of them has the capacity to build a clean sheet fighter or bomber in house.

    Almost all the economic wizard community that constantly talks about free trade completely dismisses strategic risk of sole source production.

  28. Zeke says:

    Where were all of these tariff purists when every other trade partner on God’s green earth was slapping tariffs on us? Wait…
    …crickets and tumbleweeds….

    This is just a reciprocal policy, as Cheifio said.
    This is also national security.

  29. Sera says:

    Just to be fair, I do have some problems/reservations about China- here is one of them that can be fixed immediately…

    https://www.forbes.com/sites/wadeshepard/2017/11/05/how-the-usps-epacket-gives-postal-subsidies-to-chinese-e-commerce-merchants-to-ship-to-the-usa-cheap/#4748442c40ca

  30. Rhoda Klapp says:

    Sera, USPS charges prevent me (in the UK) buying small items from the USA via Ebay or Amazon.

    I can buy stuff from other nations including China and Japan and have them sent quickly at far lower charges. US sellers sometimes won’t ship overseas, perhaps due to insularity but more likely the sheer hassle of the USPS. The USPS is the problem, not the Chinese.

  31. Sera says:

    @ Rhoda:

    I’ve tried sending packages to the UK, but it is expensive and the UK customs tend to be quite intrusive. If I send anything of value, my sister has to pay an import tax, or something.

  32. Rhoda Klapp says:

    I’ve sent things both ways and USPS charges seem to be higher. Every parcel I ever got from the UK when I lived in Tx stopped in Chicago for at least two weeks. I make no claims for superiority for British mail services. The charge your sister paid would be partly import tax but mostly 20% VAT, whereas between-country shipments arriving in the US don’t pay the state/county sales tax.

    As a temporary resident I found the USPS with its lines, charges and weird rules one of the most annoying things, now the beer has been fixed.

  33. Steve C says:

    I heard, a couple of years ago when I bought an item from a US trader, that the USPS will not insure parcels headed for the UK, mainly because of the reputation of “Thiefrow”, a nickname which tells you why.

    The item ended up being sent insured from the US to the Netherlands, where a friend of a friend very kindly took care of all the extra EU import charges (which none of us had thought about so ‘just turned up’). I repaid him when our mutual friend, who was going over anyhow, picked it up for me a week or two later. $135 on the page translated to about £200 in the hand. It can be done, but it ain’t pretty and it’s a rotten exchange rate …

  34. Sera says:

    As long as the beer has been fixed, we’re good.

  35. E.M.Smith says:

    Was the beer broken before?

    I’d not really noticed. We’ve got thousands of brands and kinds in all possible styles. Even some imports from Britain. What temperature you serve at is up to you…

    While my preference was never for what is sometimes called American Style Lager (or sometimes Buttwiper Pisswater Beer) that’s but one of the options (though the most common). Though I do have to say on a hot afternoon in the sun, a cold Coors (NOT the “lite” crap, the original) is refreshing.

  36. Sera says:

    FIX is a brand of Greek lager beer. The FIX brewery was founded in 1864 by the Fuchs family.

    That’s all I got.

  37. R.de Haan says:

    The US Senior Executive Service
    How bad a deal is this.
    Over 9000 civil servants planted by Obama each earning more than the President of the USA who can’t be fired and who sabotage, plunder and rail road the Presidential Appointees and the current administration. Mueller by the way is one of them. This is the Shadow Government occupying positions in virtual every Government agency.

  38. R.de Haan says:

    Call in the Marines, arrest them (and Obama) and trial them for Treason.

  39. E.M.Smith says:

    How can there be anyone who can’t be fired? That’s nuts.

    https://www.federalpay.org/ses/2018

    Senior Executive Service (SES)

    Level Description Minimum Salary Maximum Salary
    Agencies with a Certified SES Performance Appraisal System $126,148 $189,600
    Agencies without a Certified SES Performance Appraisal System $126,148 $174,500

    Executive Schedule (ES)

    ES Level Education Level Salary
    ES Level 1 Ph.D. $210,700
    ES Level 2 Ph.D. $189,600
    ES Level 3 Ph.D. $174,500
    ES Level 4 Ph.D. $164,200
    ES Level 5 Ph.D. $153,800

    The Senior Executive Service (SES) sets the yearly salaries for top government officials, including the leaders and senior personnel in over 75 Federal government agencies. Generally, the SES is comprised of high-level officials who are above the GS-15 level of the General Schedule (GS)

    Payscale.

    These pay levels represent guidelines for agencies to use for setting the salaries of their top officials. Minimum pay under the ES scale is set at 120% of the basic pay for a GS-15 Step 1 employee, while the maximum compensation that can be paid to an ES employee is the current salary of the Vice President of the United States.

    Click on any ES level for details and a list of government officials who are paid at that ES level.

    So the video claims higher pay and starting at the V.P. level, not capped at it.

    One of them must be wrong.

    https://www.usajobs.gov/Help/working-in-government/unique-hiring-paths/senior-executive-service/

    Eligibility

    Anyone is eligible to apply to an SES position (as long as you’re a U.S. citizen or national), but to be qualified, you must meet the five Executive Core Qualifications (ECQs).

    Executive Core Qualifications

    The ECQs help determine if you have the broad executive skills needed to succeed in a variety of SES positions. The ECQs are required for entry to the SES and are used by many departments and agencies in selection, performance management, and leadership development for executive positions. The five ECQs are:

    Leading Change
    Leading People
    Results Driven
    Business Acumen
    Building Coalitions
    […]

    Applying for Senior Executive Service positions

    There are two ways you can apply for a Senior Executive Service position:

    Apply directly to a federal agency for a specific SES position.
    Apply for an SES Candidate Development Program (SESCDP).

    An SESCDP identifies and prepares aspiring senior executive leaders. If you graduate from this program and your ECQs are certified by an OPM-administered Qualifications Review Board (QRB) then you’re eligible for (but not guaranteed) career appointment to an SES position without further competition.

    So no real qualifications needed but if you have the right connections (QRB) you are set.

    https://en.wikipedia.org/wiki/Senior_Executive_Service_(United_States)

    The Senior Executive Service (SES) is a position classification in the civil service of the United States federal government, somewhat analogous to general officer or flag officer ranks in the U.S. Armed Forces. It was created in 1979 by Kristine Marcy when the Civil Service Reform Act of 1978 went into effect under President Jimmy Carter.

    Origin and attributes

    According to the Office of Personnel Management, the SES was designed to be a corps of executives selected for their leadership qualifications, serving in key positions just below the top Presidential appointees as a link between them and the rest of the Federal (civil service) workforce. SES positions are considered to be above the GS-15 level of the General Schedule, and below Level III of the Executive Schedule. Career members of the SES ranks are eligible for the Presidential Rank Awards program.

    Up to 10% of SES positions can be filled as political appointments rather than by career employees. About half of the SES is designated “Career Reserved”, which can only be filled by career employees. The other half is designated “General”, which can be filled by either career employees or political appointments as desired by the administration. Due to the 10% limitation, most General positions are still filled by career appointees.

    Senior level employees of several agencies are exempt from the SES but have their own senior executive positions; these include the Federal Bureau of Investigation, Central Intelligence Agency, Defense Intelligence Agency, National Security Agency, Transportation Security Administration, Federal Aviation Administration, Government Accountability Office, Members of the Foreign Service, and government corporations.

    So yet another Jimma Carter crap pile. 1/2 lifer bureaucrats, the others a mix of political hacks and career seat warmers…

    OK, so if Obama expanded it, what prevents shrinking it?
    “No, I didn’t fire them. Their job went away…”

    The classic way to fire folks you can’t fire is the “reorganization” where they just end up not having a seat open when the music stops.

  40. E.M.Smith says:

    @Inverted:

    Read your posting. Essentially promoting the Adam Smith view that a tariff is a bad thing. My response is “Yes, but.” If it is a permanent feature, it is just another dead weight tax. If it is a temporary thing, it can be very beneficial. 2 cases:

    1) A small player wants to gain entry to a market, but can’t when faced with the size of global competition. A protective tariff can let that industry grow in the domestic market until it is big enough to stand alone on the global stage. Essentially China has done just that with protectionist strategies for many of their industries (that are often now world dominating…) Without that early protection, the established globally dominant players would crush that domestic industry in the cradle.

    2) A fairly matched global player is using Mercantilist Policies & Practices to destroy the competition. Applying a tariff can prevent that destruction while give a leaver with which to move them to stop their mercantilism. This is the present status with China. Their list of abusive practices is long, but a few of them:

    a) Manipulated foreign exchange rate preventing normal competitive realignment of economies
    b) Mandated 50% ownership of foreign companies entering China
    c) State Sponsored Enterprises (essentially infinite credit to domestic China industries)
    d) Mandated handing over of “Intellectual Property” to sell into China
    e) Chinese import limits and tariffs (asymmetrical trade rules and costs)

    There’s more, but you get the idea.

    In those circumstances there is NOT a “free and open market”. It becomes a “Heads China wins, tails you lose” structure. In that context it is rather stupid to play by free market capitalist rules in a socialist managed market asymmetrical economic warfare context. So a tariff is a good first step.

    Note that China does things like build (on the Governments dime and direction) a large factory that is sized to manufacture the total global production of socks. They actually did that, BTW. It need not make a profit ever, but certainly for years to decades. Then they turn it on and drive all other suppliers out of business, selling “below cost” with mandated low currency exchange rates. Eventually, when everyone else is driven out of business, prices can be raised. At that point, NOBODY can reenter the market faced with a mega-factory sized to total global demand as the competition.

    So you get to chose:

    1) Accept that and accept that ALL global manufacturing will move to China, one industry at a time, and all of it will be shipped to you on Chinese ships, and they will use the profits to buy all your resources as you make nothing to trade in return.

    2) Recognize the Mercantilism game and take steps to stop it. Starting with a tariff shot across the bow and escalating as needed from there.

    Trump is taking path #2, while RINOs, Globalists, and the Clinton / Obama DNC took path #1.

  41. Larry Ledwick says:

    The one other issue with tariffs is that they have other uses. For example they can protect critical strategic resources that a totally free market would move to the cheapest producer. If that producer is a potential enemy in war time, that is a very very bad thing.

    Historically tariffs have been used to retain some critical production capacity in country even if it costs a bit more that to depend entirely on a potentially hostile cheapest producer.

    Take wheat production, and corn production a country does not want to be in the situation where all of its food comes from other countries (or even a significantly large fraction). To do so sets you up for food blackmail by the other suppliers if you have a crop failure.

    Large industrial producers learn this lesson time after time, it is bad to depend on sole source suppliers. Back in the 1960’s they had a list of strategically important resources many of which the government retained wartime reserves in storage.

    In real terms, many tariffs are trivial to the consumer, it is only in the aggregate that they look big. For example steel in large quantities sells for about 0.50 cents a pound, that makes the cost of the steel in a standard soup can (2 ounces of steel) cost about 3.125 cents. If you double the cost of steel that can only goes up in price 3 cents on a nominal sale price of $1.89 an increase in cost to the consumer of only 1.6% on a doubling of steel price. Same goes for corn the actual value of the corn in a box of corn flakes is just a few cents (about 11 -13 cents when corn prices were a hot issue) all the rest of the costs were in the packaging manufacture, shipping and profit.

    To judge the value of tariffs you need to look at more that just prices you have to also include issues like protecting industrial capacity, avoiding risk of sole source supplies, maintaining health of other related critical industries (merchant marine capacity) etc. You cannot look at them in a penny wise pound foolish tunnel vision focused on just one part of the problem.

  42. cdquarles says:

    As with any tax, tariffs are subject to diminishing returns. The “inverted quadratic relation” applies in a lot of areas. That said, “out of sight, out of mind” also applies. People tend to not “value” the “invisible” relative to the “visible”; so they do fall prey to the “broken window” fallacy.

    As much as I am fond of President Trump’s policies, I do so wish that he’d address the 800# gorilla in the room. As long as the US Dollar is the equivalent of monetary gold and that the USA must supply the rest of the world with it, we will *always* run a “trade” deficit with the rest of the world since we must *export* dollars. Within loose bounds, this is a good thing. I don’t worry about my “trade” deficit with the businesses that I buy from. as long as my income exceeds the outgo.

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