Tariffs, Protectionism, Trade Deficits, and Trade War

[Fife]

In the spirit of DB's excellent recent work, I wanted to throw out some simple economic commentary on the new Trump tariff talk, not the political "they took ur jobz" cable TV crapola.

I'm not trying for any lecture or new synthesis here, I'm just thinking some of you will get a kick out of some straight, normal economic stuff.

Some of you already know Peter Schiff, and if you don't, you should.

https://www.schiffradio.com/america-can ... ar-ep-334/

America Can’t Win a Trade War – Ep. 334
Trade, Comparative Advantage and Protectionism
I want to devote this entire podcast on the subject of trade and comparative advantage and protectionism, and this trade war that President Trump is so confident about. He wants to declare war because he thinks we are going to win. He’s a winner, and he wants America to win and so he wants to launch a trade war so that America can win.

The Trade Deficit is the Problem
I’ve been talking about how the trade deficits are at record highs. We have the biggest trade deficits ever and Donald Trump, when he was a candidate rightly criticized these trade deficits. They are a huge problem. They are endemic of an even bigger problem, and Trump understands that. He knows enough to realize that trade deficits are bad. I will give him credit where credit is due because most economists don’t even see the problem with these trade deficits. They are wrong. Trump is right. The trade deficit is a problem.

Tariffs Will Not Solve the Problem
But where Trump is wrong is in thinking that these tariffs are going to solve the problem. They won’t. They will make the problem worse. This is the irony of these tariffs. They will result in larger trade deficits, not smaller trade deficits. And that’s even without any foreign retaliation; meaning, if China, if Europe, if our trading partners do nothing in response to these tariffs, the result will be larger, not smaller deficits. Manufacturing jobs – the very jobs that Trump is hoping to save will be lost as a result of these tariffs.

Mr. Trump: Slash Regulations!
I wish someone in the Trump administration, would share this podcast with President Trump. He needs to really this about economics, to understand what needs to be done. If Trump really wants to shrink America’s trade deficit, there are ways to do that. He could slash regulations, not just talk about all the regulations, but actually slash a bunch of them.

Shrink Government
But the most important thing that Trump could do to make America more competitive in manufacturing is to shrink government. We need to cut government spending on a massive scale. We need to reform entitlements. These are things that President Trump doesn’t want to touch. He’s making government bigger. What we need is more savings. We need more capital investment in plant and equipment – but that’s not happening. These larger deficits are going to crowd out what little investment we have.

If you're interested in a straightforward academic piece, here's a PDF of a 1967 paper from one of the good ones, Gordon Tullock: The Welfare Costs of Tariffs, Monopolies, and Theft

Also, I of course wouldn't be satisfied without the obligatory Crazy Uncle Ron video:

[DBTrek]

I supported the protectionist policies Trump campaigned on before digging deeper into economics. I mean, on the surface it makes sense, right? If other countries are using cheap labor, child labor, prison labor, slave labor, for pennies on the dollar to compete with us, our workers lose. How do you right that ship?

Seems like charging higher taxes on the imports of these countries to drive the costs of their products higher would make our products more attractive in the marketplace, right? If China can ship shirts over here and sell them for $5 apiece, and American manufactured shirts cost $7, then you hit the Chinese with a $2 per shirt tariff, right?

But that's not right. Once governments get in there and start monkeying around with what is tantamount to national price fixing, things start to go sideways. They go even further sideways when other nations retaliate with their own tariffs - which is stupid, because they're going to suffer the same economic backlash we will by imposing tariffs.

I think Trump should go back to the whole "Let's renegotiate these trade deals" and leave the protectionist game alone.

[Okeefenokee]

Capps would tell us that that is exactly what the plan is.

Hope he's right.

[ssu]

Tariffs, subsidies, or bans on using foreign products simply hinders the domestic industry that is intended to be protected and in the long run is very detrimental to it.

The most logical thought for protective tariffs is if it would help your domestic industry to catch up to the foreign industry and in the end compete freely in the Global Market. Perhaps only Germany in the 19th Century could do this, because typically tariffs, subsidies and other protective legislation slapped on to help an industry that cannot compete with it's foreign counterpart simply makes that industry even more stagnant... because of safety of the protective legislation. Why bother to improve because you have your niche thanks to the tariffs.

And even if those tariffs are imposed, in many cases it doesn't mean that demand for domestic goods would rise. It simply makes things more costly and hence the demand of the products shrink.

Contrary to popular belief, the perfect example of this are... African countries. Typically it is declared that for these countries it is so unfair to compete in the global market and the bogeyman for this is the IMF. But the truth is that nearly all African countries decided not only to have socialism after their independence, but also protect their small or nonexistent industries with protectionist policies. Not only did was this detrimental to any domestic industry, but also to agriculture as well. Hence a lot of countries that earlier exported agricultural products have now to import food. And when nothing is working, only then has the IMF demanded that the countries should end their protectionism.

Perhaps the only industry were protectionism works in America is defence because there if the industry would make crappy products, out in no time would the superiority of foreign products be noticed and raise hell in the military and in the political leadership.

[Fife]

Sowell haters are gonna be really, REALLY upset with Rothbard.

:goteam: :drunk:

[Fife]

How to Look at Tariffs

The upshot is that protectionism is not only nonsense, but dangerous nonsense, destructive of all economic prosperity. We are not, if we were ever, a world of self sufficient farmers. The market economy is one vast latticework throughout the world, in which each individual, each region, each country, produces what he or it is best at, most relatively efficient in, and exchanges that product for the goods and services of others. Without the division of labor and the trade based upon that division, the entire world would starve. Coerced restraints on trade-such as protectionism-cripple, hobble, and destroy trade, the source of life and prosperity. Protectionism is simply a plea that consumers, as well as general prosperity, be hurt so as to confer permanent special privilege upon groups of inefficient producers, at the expense of competent firms and of consumers. But it is a peculiarly destructive kind of bailout, because it permanently shackles trade under the cloak of patriotism.

[Fife]

Anybody interested in the Austrian thinking on Tariffs and Protectionism will find lots of quotes and leads here:

https://mises.org/wire/against-trumps-tariffs-0

The effect of tariffs will be to impose a higher tax burden on Americans, while increasing the cost of living, and the costs imposed on entrepreneurs using the taxed materials.

For centuries, economists have examined and explained the negative consequences of tariffs. And for more than a century, the economists of the Austrian school have added even more sophisticated and modern arguments against tariffs.

Thus, on the matter of tariffs, there is no need to re-invent the wheel.

[DBTrek]

Protectionism is simply a plea that consumers, as well as general prosperity, be hurt so as to confer permanent special privilege upon groups of inefficient producers, at the expense of competent firms and of consumers. But it is a peculiarly destructive kind of bailout, because it permanently shackles trade under the cloak of patriotism.

That would seem to cover it, though I think two pertinent details deserve mentioning:

1. The appeal of the tariff is that the “competent” producers are foreign, and therefore hurting them is actually the goal. The inefficient producers are domestic, so of course we want to “confer permanent special privileges” on them, because we want to rig the game for our side. Which leads to the next point.

2. What’s missing here is that the attempt to rig the game fails. By Trying to “confer special privileges” on our inefficient domestic production we ultimately damage their sales, which means they require less people to meet the diminished demand. They lose jobs and sales. The exact opposite of the task the tariff is intended to perform.

[Fife]

Protectionism is simply a plea that consumers, as well as general prosperity, be hurt so as to confer permanent special privilege upon groups of inefficient producers, at the expense of competent firms and of consumers. But it is a peculiarly destructive kind of bailout, because it permanently shackles trade under the cloak of patriotism.

That would seem to cover it, though I think two pertinent details deserve mentioning:

1. The appeal of the tariff is that the “competent” producers are foreign, and therefore hurting them is actually the goal. The inefficient producers are domestic, so of course we want to “confer permanent special privileges” on them, because we want to rig the game for our side. Which leads to the next point.

2. What’s missing here is that the attempt to rig the game fails. By Trying to “confer special privileges” on our inefficient domestic production we ultimately damage their sales, which means they require less people to meet the diminished demand. They lose jobs and sales. The exact opposite of the task the tariff is intended to perform.

Schiff nails those points dead on in the podcast ep in the OP if you haven't had a chance to listen to it yet.

[DBTrek]

I never have time for videos or podcasts that exceed 10 mins.
I listen to Audiobooks as I exercise, that’s about it. Listen to the Martin Hash podcasts too since they’re short enough to get through on the crapper.