Why Are Tariffs Uniquely Disastrous?

Hi,

I've noticed that a lot of people seem to think income tax hikes do very little. Indeed, they seem to think most taxes have very little effect on the economy except by providing the social system with more cash.

Then we consider tariffs and the same people freak out if even a 1% tax increase is levied.

Take Brexit, where they are facing WTO rules which average 2.8% tariffs in non-agricultural sectors - this is apparently the literal end of the world.

How does one hold these two ideas simultaneously?

A cost on a business is a cost on a business. They don't particularly care if they lose $50,000 in profit from tariffs on steel imports or a minimum wage hike to $15, or an increase in company tax.

 

Yeah, it is kind of strange how people can be for tariffs, but against the minimum wage, since both are a cost on business....

The reason why I am FOR the minimum wage is because it will put money in the pocket of people who tend to have a need to spend it all, thus increasing demand.

That's why I am AGAINST tax cuts for the rich, who, in an demand-limited economy, tend to hoard the money, giving a much smaller economic benefit.

 

It is called hypocrisy. Globalists are blantantly hypocritical in order to push their agenda.

 

What galls me is that us dems who used to push for tariffs to protect American jobs, and limited immigration to protect the least educated and skilled workers now expound policies that are polar opposite. We budget say $50 per kid per month for food stamps and we provide food stamps to illegals instead of providing $55 to legal families. The same hold true for every social program. LA would be able to give thier teachers 10,000 more a year if they did not have to teach 1/5th of the kids that they do now.

We have illegals here depressing wages while we fight to increase the min wage in an effort to alleviate the economic condition that illegal immigration has caused. If there were no illegals they would be forced to hire people of color and whites too that have criminal records and now find the employment market closed to them because they got busted doing drugs.

 

An interesting article.
"BEFORE THE INCOME TAX, OUR NATION WAS SUPPORTED BY TARIFFS"
http://www.jdpendry.com/2019/06/11/before-the-income-tax-our-nation-was-supported-by-tariffs/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+JDPendry+%28JDs+Bunker%29

 

Dude depends on the type of tariff. Protective tariffs like Smoot-Hawley are generally awful, Punitive Tariffs like those put in place by Trump are a recognition that you are being pillaged and are an effort to bring the other guy to the negotiating table in order to end his depredations against your people. By the way that isn't the only bit of economic illiteracy in your response.

 

The rich make money by making their money available to others; not by hoarding it. This isn't 1932; no one is sticking their wealth underneath their mattresses. Rather, financial institutions facilitate issuance of credit, which fosters economic growth.

 

The oldest rule in the book in order to make money you have to spend money. And there is the wall street corollary, Bulls make money and bears make money but pigs always get slaughtered.

 

Sounds like you are "woke".

 

Yes, tariffs do put a cost on our businesses and thereby our people. So do poor trade agreements. I for one am not "for" the tariffs- but I am for fair trade that doesn't have us over the barrel with our butts bare. Saying "please don't screw us" has never worked and never will- it takes leverage and courage to negotiate change. If you want change without pain, all you have to do is figure out how to get fair agreements in a way that penalizes only the other player for taking advantage of you, so your own side of the game isn't suffering while it's going on. Got any winning ideas on that?

We could just continue to get screwed while China grows stronger. The long-term consequence of having allowed that is already looking very unwise.
We could just quit doing business with China. That would pretty well decimate their economy for a long time.

Then, because we have already given away much of our manufacturing, our technology and allowed our skills to fade away-
We would have to build new factories. Acquire a vast amount of machinery.
Teach and train people how to do things like make clothes, shoes, small appliances and tools and a multitude of things that haven't been done in America for around 30 years now.

Assuming of course- that we could find the needed quantity of people who actually wanted to learn and work, which I think is unlikely. But assume we could.
Then, we will have to adjust the prices of all those goods to reflect the much higher labor cost in the US, and the much lower productivity rate of our labor.

Just a few inconveniences, right? This is a situation we got ourselves into with poor management decisions, poor foresight. I don't think there is a painless solution.
Your choices are,
First- to let it continue unabated, or to do something about it.
Second- decide what the options are and choose one. They all have a price to us in one way or another.

It's always preferable to present a solution to the problem you criticize- IF you have one. Do you have a better idea?

 

This is a nice theory and some of it is obviously true. Experience and data show us, however, that a lot of the excess wealth at the top goes overseas or into speculative investments at home. This speculation by wealthy individuals contributed to financial and housing meltdowns in 1927, 1929, and 2007. A lot of less wealthy speculators followed the money and went broke. Nothing new there.

On another front, our recent big tax breaks for corporations resulted in stock buy backs, not increased hiring. The CEO's got big bonuses for increased per share earnings, everyone else, not so much.

 

One of the problems we have is the perception that if others have money, it belongs to those who don't. Sort of like we have a village apple tree and a limited supply of apples which must be divided equally. That of course is ignorance. One person is not poor because another is rich, no matter what they do with their money. And those who are able to build wealth do not do it by making bad investments or hoarding it- they want it to work and return benefits. Granted, they make mistakes like all people do, but they certainly don't do so intentionally. It's also true that the investors in a business are like the last ones to get paid- if there is no profit left from operations to create dividends or drive stock prices higher, they get zip. Employees on the other hand do not work for a speculative return, they are on a guarantee of compensation according to the agreement they made when accepting the job- and the government will see to it that they do indeed get paid.

Another problem is the perception that somehow a business must be a social service agency that exists to provide jobs and benefits above all else. That illusion drives a lot of hostility towards successful business- with anyone who thinks they helped the company succeed believing they are owed something beyond what they agreed to. I've had one of my own foremen tell me that if a contract made a good profit. that was due to good labor and he should get a bonus. I said and what if it does not make a profit, like the last one you worked on? He explained that this was due to bad management; labor had nothing to do with it.

It's comforting to know that you can always place the blame on somebody else.

 

No. No, it doesn't. You just made that up. Domestic household net worth has increased each year since 2009, while U.S. Deposits in Foreign Countries has remained relatively flat (Section F202).

https://www.federalreserve.gov/releases/z1/20181206/z1.pdf

Also, what is an "speculative investment at home?" I don't know what you mean by that, but I'm not sure you do either...

There is also nothing meaningful that you've said there. Speculation is a normal part of the financial sector; to speculate is to seek risk. As long as arbitrage opportunities exist, people will speculate. Financial crises don't happen simply because people speculate; they occur when there is a misallocation of resources.

The tax break changed the capital structure of most Corporations; stock buybacks are merely a way of correcting that. That is basic Corporate Finance. Companies increase hiring when they earn more revenue; not when taxes are reduced.

 

I doubt you understand much of economics and political activities surrounding them.

 

Both Trump and ANTIFA are against Globalism

Therefore

Trump = ANTIFA

 

Trump's trade war with China began March 22, 2018. https://en.wikipedia.org/wiki/China–United_States_trade_war

This chart shows how serious the problem is, the problem being Trump's trade war with China. Readers should take a close look at this chart and use the scanning tool provided. It will show the stock market has been treading water for the past twenty months because of his trade war.

https://www.macrotrends.net/1358/dow-jones-industrial-average-last-10-years

Since Trump started his trade war with China, the Dow has actually lost ground.

On Jan. 29, 2018, the Dow hit its 2018 high of 26,439. Today, the stock market rallied (hooray!). The Dow soared 258 points to reach 26,036.

That is only 403 points shy of where we were on Jan. 29, 2018.

 

Tariffs are like quitting smoking

It gets worse before it gets better

 

Economics courses offered in my MFE curriculum:

- Advanced Corporate Finance
- Financial Econometrics (Panel and Time Series)
- Econometrics and Statistical Inference
- Empirical Asset Pricing
- Game Theory

What about you? How many economics courses have you taken?

 

The opponents of the corp tax cuts argued that they wouldn't lead to much additional hiring, and the execs agreed, however, we were sold a different narrative by the Trump admin and the congressional critters propagandizing the tax cuts. They said that the tax cuts would lead to more and better paying jobs, with an average of $4,000 additional in people's pockets. Now you are telling this the propaganda was all bunk?

Well, I already knew this, but it is good to hear these kind of admission from the other side.

 

If a $15 mim wage for low skill employees causes business to hire fewer workers then its a bad law

Whats next, a law that says mcdonalds must have 20 people on duty at all times?

 

Since you asked, I have an advanced degree in economics and a BS degree in business. The corses you mentioned more properly belong in a Business Administration curriculum. I usually don't dwell on this.

 

Just an observation-
While the study of any field you intend to be part of is an information resource, the real degree in financial education is- sustained financial success. IF you can actually achieve that, you have the knowledge and the mental aptitude and the drive and the skill, and that is what makes you a winner. If you can't do the job but you have the sheepskin on the wall- you have a sheepskin.

One of my teachers used to tell us that "Those who can, do. Those who can't, teach..." He was also the best teacher I ever had in anything- I still benefit from his wisdom.

 

You think Game Theory and Financial Econometrics belongs in a Business Administration curriculum?

No offense, but probability of you having an advanced degree in economics is low.

 

No one ever made such arguments... Taxes are a bottom-line item; most arguments made in favor are related to capital-expenditures, not expenses.

I don't know what arguments you are referring to; sounds like a strawman.

 

So you understand the idiocy of trumps policies and support them anyway. There's a word for people like you.
Further, china is not "screwing us". Trade is, by f$%^ing definition, beneficial to both parties! IP theft? Everyone arguing that is a gdam MORON. You think these multi-billion dollar corporations are run by fools? They agree to share the IP because it makes sense to do so!