Tariffs and Inflation

  

It seems clear, as opponents of President Trump’s tariff policy keep reminding us, that tariffs contribute to inflation. However, there are other factors that also have an impact on inflation. In particular, energy costs, which effect practically every aspect of the economy, have a major impact. Low energy costs help to keep inflation down, and high energy costs, lead to higher inflation.

Despite the tariffs imposed during President Trump’s first administration, there was practically no inflation from 2016 to 2020. Low energy costs must have contributed but the pandemic also was a factor in keeping inflation down. However, I have suspected that the tariffs imposed by President Trump during his first term might have contributed to the runaway inflation experienced during the Biden administration. Biden kept some of the Trump tariffs in place but drove up energy costs on behalf of the Green New Deal. Recall that almost the first thing President Biden did on taking office was to cancel the Keystone pipeline project.

Now in his second administration, President Trump has doubled down on tariffs, and at the same time he has acted to encouraged energy production. As a result, prices at the pump are well below those of the Biden years. So far, it seems that lower energy costs are offsetting the inflationary impact of the tariffs. 

So, why use tariffs in the first place? In a recent op-ed that appeared in the New York Times on August 7, Jamieson Greer, the current US trade administrator gave an extended explanation. He wrote:

The previous system rejected tariffs as a legitimate tool of public policy, meaning that the United States sacrificed tariff protection for critical manufacturing and other sectors. Over the past three decades, the United States slashed barriers to our markets to allow vast inflows of foreign goods, services, labor and capital.

At the same time, other countries kept their markets closed to our goods and deployed a suite of policies—such as subsidies, wage suppression, lax labor and environmental standards, regulatory distortions and currency manipulation to artificially boost exports to the United States. This approach made the United States and a handful of other economies the consumer of last resort for countries pursuing beggar-thy-neighbor economic policies. 

I think Jamieson makes a good point. I have often wondered why commentators who believe that tariffs are so bad for us never bother to explain why other countries think they are so good for them. It was amazing to see President Trump point to a chart showing how high the tariffs of our trading partners were compared to ours. 

Mr. Jamieson’s article helps to explain why my hometown in Connecticut is full of Korean, Japanese, and German cars, and why, when my wife and I travelled abroad, we never saw any American cars. Foreign countries use tariffs to protect their home industries from foreign competition. Even without tariffs, it would be hard for American auto manufacturers to compete against foreign rivals which have much lower production costs. Our salaries and benefits, from CEOs to janitors are the highest in the world. Our workplace and environmental regulations are also beyond compare. Our companies emit a fraction of the pollutants produced in China. Speaking of China, I doubt if there are any unions in the Peoples’ Republic.

Some may argue that in the past three decades the United States has achieved an incredibly high level of prosperity. The stock market is at an all-time high and business is booming. Consumers have gained by importing goods from abroad whose prices, even when you factor in transportation costs, are much less than those produced by American manufacturers. 

On the other hand, our national debt is $37 Trillion and rising. Interest on the debt alone comes close to our entire defense budget. Is this the cause or effect of our prosperity?

President Trump has repeatedly said that he is for “fair trade”, and so far, his trade deals have attempted to reduce the tariffs imposed by other countries in order to create trade balance. They are designed to stimulate American manufacturing.  Whether these tariffs work in the long run remains to be seen. 

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Trump's First Hundred Days

  

 

Recently there have been a number of commentaries on the first 100 days of the second Trump administration. One appeared as a front-page article in the Connecticut Post, my local newspaper. The reporter described several interviews he had done with MAGA types. It was a small sample, but he found that Trump supporters were not blind advocates and that they did have some reservations about the President. They generally supported his policies, but some had qualms about his manner and methods.

What was even more interesting was that anti-Trumpers he interviewed could not find one positive thing to say about the President. That is really blind prejudice. Last month I did a blog post on Bret Baier's interview with Elon Musk and members of his DOGE team. When I asked liberal friends to watch even 15 minutes, they refused.

I emailed the reporter and commented on the apparent difference between Trump supporters and opponents. To my surprise he sent me a lengthy reply in which he admitted that he himself could not think of one positive thing that President Trump had accomplished in his first 100 days.

Perhaps it is unfair to judge anyone by their first 100 days on the job, especially one as difficult as the Presidency. It will take months, even years, to determine the results of many of the changes that President Trump has set in motion. Nevertheless, I would like to mention some policies that I think even liberals could regard as positives.

First, let’s look at tariffs which even the generally conservative editorial page of the Wall Street Journal finds deplorable. Practically every day the Journal editors extol the virtues of free trade and explain how bad the tariffs will be for the American economy, but not once have I seen them explain why practically every other nation imposes much higher tariffs on their imports than we do. Rising economic giants like China and India place huge tariffs on their imports. Why? Isn’t it simply to protect their home industries? The French, for example, have imposed tariffs on wines for years to protect their native growers from foreign competition.

Similarly, Democrats who must oppose anything President Trump says or does must now oppose tariffs. However, the Biden administration let stand the tariffs and trade deals that Trump had imposed during his first administration. Apparently, they did not destroy the economy or cause the stock market to tank back then.

Anyway, President Trump’s new tariffs seem to have led to significant deals with the UK and China and more seem to be in the works. We will have to wait and see.

It is hard for me to imagine why liberals can’t applaud the President’s border policies. Illegal border crossings have reached an all-time low since Trump came into office a few months ago. As the old saying goes, where there is a will, there is a way. I believe that the open border policy promoted by the Biden administration and financed by massive grants to non-government agencies (NGOs), was cruel and inhumane to those attempting that arduous journey.

I also find it hard to understand why liberals object to the DOGE findings to the point where they will not even listen. Some, for example, still can’t believe that the Small Business Administration (SBA) gave away hundreds of millions to fraudsters during the pandemic, something the SBA now admits, and claims to be correcting.

What is really puzzling is how Democrats cannot support the President’s foreign policies. It used to be an axiom that no matter how fiercely opposing parties would battle on domestic issues, they would come together to support the President on foreign affairs. But no more. Ukraine is a good example. Now, we have a President who wants to end the killing. So far, it has not been as easy as he thought, but it would be easier if his efforts were supported by the opposition.

Finally, the personnel of the second Trump administration so far seem a significant improvement over the Biden team. Just look at the top three Cabinet posts. Marco Rubio, who received almost unanimous confirmation support seems to be doing an excellent job as Secretary of State. There is really no comparison between him and his predecessor Anthony Blinken, the creator of the Hunter Biden laptop hoax. Scott Bessent seems to be doing a fine job as Treasury Secretary. No one questions his qualifications or experience. From the day he was nominated as Secretary of Defense, Pete Hegseth has raised bitter opposition. But at least Hegseth is a civilian, and so far, his email gaffes pale in comparison with the abject withdrawal from Afghanistan orchestrated by his predecessor.

Speaking about personnel, can anyone doubt that we now have a real live President guiding the ship of state. I don’t know how he does it, but every day Trump seems to be out there making decisions, meeting with all comers from heads of state to hostile reporters. At last we know who is running the show.


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President Trump's Brand of War

President Trump has just parted ways with John Bolton, his National Security Advisor. It is difficult to determine what particular bit of advice led to the rupture. Was it the recent last minute cancellation of the President’s planned Camp David meeting with representatives of the government of Afghanistan, and the Taliban? Perhaps, it was a difference of opinion on the importance of the recent exchange of prisoners (hostages) between Russia and the Ukraine, a development that President Trump praised.

It would seem more likely that the resignation of Bolton was the result of a series of differences that stemmed from a fundamental difference of approach. Bolton was a well-known “hawk” who had even publicly discussed the merits of preventive military strikes against North Korea and Iran before taking his post in the Trump Administration.

President Trump, despite his talk of American greatness and fervent praise of the military, has consistently expressed his willingness to deal and negotiate with America’s perceived enemies. Political commentators on both the left and the right like to characterize him as a madman, a psychotic, or at least mentally unstable. But maybe, he is just crazy like a fox.

The President has consistently advocated economic rather than military confrontation. He has imposed economic sanctions on Russia, China, North Korea, Iran, and even Venezuela. Moreover, he has used tariffs as a form of threat to bring enemies, as well as friends to the bargaining table without firing a shot.

Politicians and political commentators can debate the pros and cons of tariffs ad nauseum but there seems to be no doubt that they can be used as a weapon. It certainly seems clear that the autocrats in Russia and China understand. For years the government of China has imposed high tariffs on imported goods to support its own manufacturing capabilities as well as an enormous military build-up. More than a Communist country, China resembles an old-fashioned mercantilist state that seeks power through trade and currency manipulation.

In a letter to the Wall Street Journal, Peter Navarro, President Trump’s chief trade advisor, recently stated that 75000 factories had been closed in the USA under the previous two administrations and relocated abroad. Coincidentally, the paper also featured an op-ed by the President of the company that manufactures Penn tennis balls. He complained that President Trump’s tariffs on imports from China were making a serious impact on his American owned company.

At the recently completed U.S. Tennis Open, Penn’s rival manufacturer, Wilson, was the ball of choice. Although a US company, Penn’s balls are made in China. As a result, they are having difficulty competing with Wilson whose balls are made in Thailand which is so far exempt from the Trump tariffs. Moreover, Wilson, a famous American brand, has just been acquired by a Chinese company, an obvious move to circumvent the tariffs.

The Penn executive complained of unfair competition but he did not bother to explain why his company had built its manufacturing facility in China in the first place. Why, for that matter, did Wilson move its factory to Thailand? Is it so hard to make tennis balls? Obviously, both companies found it profitable to shift their plants overseas due to a combination of high corporate tax rates in America and foreign subsidies during prior administrations.

It seems to me that engaging in economic warfare is far preferable than engaging in outright military action. It would be even better if economic negotiations could be used to lessen tensions throughout the world. We should, for example, have some real collusion with Russia and help it to become a prosperous country after a century of Communist failure.

The Trump administration has forged a new trade-deal with Japan, one of the world’s largest economies. It has re-designed the trade pact with Canada and Mexico, a deal that just awaits approval by the Democrats in the House of Representatives. It has been trying to forge a workable deal with the Chinese. What is so crazy about these efforts?

After President Trump’s inaugural, I believed that time would tell. Remember that some thought he would not last more than a few weeks, and that some even plotted his overthrow. Others felt that the country would go down the drain. Did any of his critics envision a booming economy?

I hoped that people would look at the deeds of the President’s administration and not his words, or past behavior. Now, I realize that I was naïve. I have come to believe that the whole Russia collusion issue was just a smoke screen designed by the President’s opponents to drive any Trump achievements off the headlines. Now that the Mueller investigation has turned up nothing, the opposition has come up with other headline grabbing issues like Insanity, White Supremacy, and even Impeachment.

It has become increasingly clear that the Democrats do not want the President to score any points in office. They will find it hard to ratify the NAFTA replacement. They do not want a trade deal with China even if it might be beneficial to the United States. I suspect that the Democrats would even welcome a recession and stock market collapse as the 2020 election approaches.

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Statistics 2018

                                             

On a recent trip to India Citizen Hillary Clinton found another reason for her loss in the 2016 Presidential election. To the list that includes Russia, and James Comey, the former director of the FBI, she added White Married Women living in deplorable states that contribute little to the Gross National Product (GNP).

Perhaps forgetting her origins as a white, married woman married to a controlling husband from Arkansas, she believes that these women were influenced to vote for Trump by their husbands, sons, bosses etc. She cannot believe that these married white women could have been reasonable or intelligent enough to make up their own minds.

Clinton’s statement must mirror the feelings of many of her former fans. Her complaint about “deplorables” in the campaign only mirrored Barack Obama’s remark about people clinging unreasonably to their guns and religion in the 2008 campaign.  The idea that anyone opposed to the liberal/progressive agenda must be an ignorant, superstitious redneck has become ingrained in a large segment of American society.

People like Citizen Clinton, former President Obama, and Socialist Democrat Bernie Sanders cannot believe that reason, knowledge, and experience can exist on the other side of the political spectrum. Their more progressive followers cannot even stomach independence or moderation in politics. The way in which they shout down or even ban speakers on college campuses is just a sign that they cannot imagine that these speakers have anything reasonable to say.

To act in such a way means they must ignore certain inconvenient facts or truths. Here are some statistics on current issues culled from articles in the most recent issue of the St. CroixReview, a small independent, mid-western journal of opinion.

Issue 1: Tax cuts.

In 1980, the last fiscal year of the Carter administration, total Federal tax revenues were $517 billion. By 1988 after the implementation of the Reagan tax cuts, total Federal revenues had grown to $909 billion.  The economic growth stimulated by lower tax rates had caused Federal revenues to grow by almost 50% during the Reagan years. Reducing the highest tax rate from 50% to 28% did not cause government revenue to decline.

By 2003, the year in which the so-called Bush tax cuts were passed, total Federal Revenues were $1723 billion. By 2007 Federal tax revenues had grown to about $2568 billion although they did drop in 2008 to $2524 billion at the start of the Great Recession. Once again, economic growth had led to increased Federal tax revenue despite lower tax rates.

The evidence that lower tax rates cause Federal revenue to increase would make you wonder why conservative opponents of big government usually are the ones to favor lower rates, while liberals are the ones who oppose tax cuts. Of course, despite increased revenues federal deficits continued to increase as spending regularly outstripped income.

Issue 2:  Progressivism, Socialism, and Communism

Exhaustive studies in recent years have shown that the death toll in Communist regimes during the past 100 years has been more than imagined. The death toll in the Soviet Union during the Stalin years alone is now estimated at between 60 to 70 Million. The death toll in China under Chairman Mao was also about 60 to 70 Million. These were not war casualties but murders of their own citizens.

Although they pale in comparison with Russian and China, Communist regimes in southeast Asia, like North Korea, Vietnam, and Cambodia have also caused the deaths of millions either by famine, imprisonment, or execution. The Communist regime in Cuba, the darling of progressives in this country, is no exception. It is estimated that 100,000 Cubans have died at the hands of the Castro regime; 1000000 have fled the country, and about 500000 have been through the Cuban prison systems.

The numbers are still rising but the total deaths now attributed to Communist regimes in the past 100 years is put at 140 million. Why are these regimes so admired in progressive circles?  The Holocaust with its 6 Million dead is the subject of innumerable books and films. How many films have been made about Russia’s Gulag prison camps, or the millions who died in Mao’s cultural revolution?  Why is the murderous Che Guevara lionized on American college campuses? Even today thousands are fleeing Venezuela where the Communist/Socialist regime is systematically starving its own people.

Given these statistics, is it unreasonable to be suspicious of those who advocate a larger and larger role of government in our lives?

Issue 3: Tariffs.

In 2005 China’s share of global solar cell production was 7%. By 2012 China’s share of global solar panel construction had increased to 61%. During that period 30 American solar panel makers went out of business.  The Wall Street Journal always plumps for free trade but it is not free trade when a country subsidizes its own industries whose products, of often inferior quality,  flood the American market. After all, who cares if a solar panel lasts only five or ten years?

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