A Trump-sympathetic economist at Bastiat's Window explain why tariffs are a bad idea more clearly than I had previously understood. Megan McArdle had explained why Trump's tariffs might be temporarily useful a couple of month ago as a political club that hurts both parties but one side can take the damage more easily. That would be similar to selling at a loss in order to increase market share by forcing your competition out.
A key insight here is that America cannot increase its inflow of foreign investment money AND reduce its trade deficit simultaneously...
and concludes with
Memo to President Trump: Voters in 1932 dumped both Smoot and Hawley into the electoral dumpster when they saw the damage their 1930 tariffs had done to the economy. A Democrat defeated Smoot, but Hawley got the boot from fellow Republicans. So far as I can tell, neither Smoot nor Hawley has any significant memorial—even in their own hometowns. Voters do not take kindly to politicians who crater the economy.
Bob Graboyes, the author, proudly resorts to algebra to prove his point.
1 comment:
Perhaps I've been inadvertently drinking the kook-aid, but two things come to mind in relation to this:
• China is building 'landing ships' with incredible frequency that seem to have no other practical purpose than as an invasion fleet against Taiwan. We saw with the shipping slowdown in COVID how dependent our whole economy -- including American manufacturing -- on products and inputs from abroad that won't necessarily just keep coming in any-and-every emergency. Europe found the same thing when the EverGiven blocked the Suez Canal, and businesses managed to build in enough resilience in their supply-chains that the Houthi blockade hasn't been as much of a shock to most of them as it would have been otherwise.
In mil-blogs I'm seeing that defense contractors really hate the tariffs because it greatly increases their expense now, and while we can re-establish non-China input sources it will take years to ramp-up production in the US and friendly countries of the inputs needed to get our weapons production rate capacity to the level we would need it to be in case of a major war that we were fighting ourselves.
Maybe I read it somewhere but I think the thought came to me Ab initio: We are now nearly 100% dependent upon China or the places at risk from China for some of the inputs that are essential for weapons production. If we pretend our defense-industry economic disconnect from China (in rare-earths, chemical precursors, components for electronic circuits, and other areas where China's aggressive price cutting has resulted in the atrophy of the industries everywhere else in the world) is because of general economic arguments rather than military readyness ones, then is it less likely to provoke timing advances in China's plans for aggression against their neighbors?
• Other than Canada, it seems that the possibility of the Trump Tariffs has led to the friendly countries quickly starting negotiating for deals that reduce their own tariffs and non-tariff barriers on many US exports. We're even managing to get some leverage on getting peer countries to temper their abuses against freedom of expression. So on net the peurile-tantrum on trade is having the effect of making trade more free/less protectionist with most trade partners other than China.
I haven't really done the research and calculation to make the bold "on net" claim above, but it's one of the things I've noticed over decades is that the rest-of-the-world tends towards peace and freedom in the periods where we've got a US president who is perceived as being capricious.
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