Tariffs are a tax on consumers and businesses, and damage economies. When it costs more to import something, like appliances or smart phones, prices naturally rise. And the price of similar domestically produced items also rises. To date, the relatively modest 10% tariffs added months ago cost the average family almost $800 per year. What will happen if they go to the announced 25%?
Tariffs are also a tax on businesses. When it costs more to export goods, fewer will be sold. For example, if a country, either retaliating or simply initiating a tariff, puts a tax (that’s what a tariff is) on American farm goods, the American farmers will be hurt. As they are being hurt now. And the government is subsidizing them to ease tariff pain. That hurts the taxpayers. Apple stock was down 6% on May 13th–a one day drop–due the announced increase in tariffs. (Apple smartphones are made in China.) Now we are hurting shareholders, including public and private pension plans and 401(k) individual retirement plans.
Tariff and trade wars have no winner. That’s the subject of today’s 10-minute podcast
“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually and then suddenly.” This dialogue is from Ernest Hemingway’s 1926 novel, The Sun Also Rises. That’s exactly how things like this go; it looks okay for a long while, then all the wheels fall off at the same time, seemingly with no warning.
Pause for a moment of truth: We live in a global economy. As we live in a national economy. Different states in the United States have different economic strengths and weakness. Nobody is pushing for all regions in the US to be able to supply everything; we are interdependent. For example, no one is trying to fund a social media startup in Iowa to dethrone FaceBook. And no one is trying to produce pork bellies (bacon) in Silicon Valley. In exactly the same way, different regions, different countries on the planet, are far better at economically producing different and excellent goods and services. Smartphones are made in China. Wheat comes from “America’s breadbasket of the world.” Again, we are interdependent.
We can easily break that interdependence, but inevitably we will pay a lot more for a whole lot of the things we buy, often getting lower quality goods and services for the higher prices we will need to pay. Mercantilism, a trade policy that pursues/demands a balance of imports and exports–or better a favorable ratio–is a justifiably discredited way of handling global trade.
So, Will, what happens when we buy $500 Billion a year more from, say China, then they buy from us? The first thing we need to observe is that we obviously have more money and better lifestyles than those in China. We buy 4 times as much from them as they do from us. We have the money and want the stuff. China needs the money, and sells us the stuff. If someone else came along with a better deal, we’d take it. Buying stuff made in China is a good deal for us, or we would not do it. Selling us stuff is a good deal for China, or they would not do it either. Long-term trade imbalances are “balanced out” with borrowing or foreign investment. If we don’t want to do that, we will need to pay a lot more for far less quality.
To date, the average family is paying about $800/year more for more things than before the new tariffs of a few months ago. Imagine what you would have to pay for a smartphone if they were suddenly included in the tariffs, and the tariffs went to the announced 25%? And aren’t smartphones already overpriced?
Now to retaliatory tariffs. When we add or raise tariffs on imports, the other country imposes tariffs on things they buy from us. Retaliatory tariffs. Farmers and ranchers are already hurting due to depressed prices, environmental disasters and chronic oversupply. Retaliatory tariffs are adding to that hurt, because that makes what they sell more expensive in that other country, so they sell less. Remember, governments get the tariffs; individuals and businesses get the hurt. And the economy as a whole will suffer.
But, Will, doesn’t China cheat with trade? Yes. And they have for as long as I could spell the word trade. And well before that. They ignore intellectual property rights. When they are not ignoring intellectual property rights, they are stealing them. They make it unfairly difficult to sell them things, and to do business in China. But tariff wars that hurt people, businesses and national economies are not the answer. The best tariff is no tariff. Just like between states. Address cheating directly, not indirectly with tariffs that hurt just about everyone.
Let’s hear another voice, “That the US and China couldn’t have a breakthrough shows there’s some big fundamental divides there, and all the happy talk that we were getting earlier, from both sides, was misplaced,” said Rufus Yerxa, president of the National Foreign Trade Council and a former deputy US trade representative for President George H.W. Bush and Bill Clinton.
Segueing from the specifics of today’s topic to overall principles, the core, driving principles at Revolution 2.0, are:
And do it all in love; without love, these are empty gestures, destined to go nowhere and mean nothing.
If we apply those two core principles, personal responsibility and brother’s keepers, simultaneously, never only one or the other, we will always be on the right path. Depending upon what we face, one principle or the other may appropriately be given more emphasis, but they are always acted upon together.
The Founders, Revolution 1.0, were declared traitors by the British Crown, and their lives were forfeit if caught. We risk very little by stepping up and participating in Revolution 2.0™. In fact, we risk our futures if we don’t. I am inviting you, recruiting you, to join Revolution 2.0™ today. Join with me in using what we know how to do–what we know we must do–to everyone’s advantage. Let’s practice thinking well of others as we seek common goals, research the facts that apply to those goals, and use non agenda-based reasoning to achieve those goals together. Practice personal responsibility and be your brother’s keeper.
Let’s continue to build on the revolutionary vision that we inherited. Read the blog, listen to the podcast, subscribe, recruit, act. Here’s what I mean by “acting.”
Revolution 1.0 in 1776 was built by people talking to other people, agreeing and disagreeing, but always finding ways to stay united and go forward. Revolution 2.0 will be built the same way.
Join me. Join the others. Think about what we are talking about and share these thoughts and principles with others. Subscribe, encourage others to subscribe. Act. Let’s grow this together.
And visit the store. Fun stuff, including hats, mugs and t-shirts. Recommend other items that you’d like to see.
Links and References
As we get ready to wrap up, please do respond in the blog with comments or questions about this podcast or anything that comes to mind, or connect with me on Twitter, Facebook, and LinkedIn. And you can subscribe to the podcast on your favorite device through Apple Podcasts, Google, or Stitcher.
Now it is time for our usual parting thought. It is not enough to be informed. It is not enough to be a well informed voter. We need to act. And if we, you and I, don’t do something, then the others who are doing something, will continue to run the show.
Know your stuff, then act on it. Knowing your stuff without acting is empty; acting without knowing is dangerous.
Will Luden, writing to you from my home office at 7,200’ in Colorado Springs.