by Brian McKay
A game is afoot but it’s a game with no winners. The cult of personality and poor reasoning have this game supported by those that stand to lose the most from it. Convincing people to support things not in their best interest has always been the M.O. of the Republican Party, but even Republicans have always been anti-tariff in favor of a free market. It’s been their most reasonable policy.
Enter an orange guy that wants to make everything about winning and thinks he can win everything. A lack of macro-economic understanding coupled with a lot of narcissism will have a massive impact on this country. It’s not a good impact.
Our President (God I hate saying that), has determined that a trade deficit is a bad thing and is something he can win. Allies and the world’s largest bi-lateral relationship are now things to be challenged, instead of worked with.
A Trade Deficit Doesn’t Matter.
A trade deficit is the gap between how much our country imports relative to the amount we export. There is an absolute ignorance to thinking a trade imbalance is something that needs to be won. Imbalance is a natural expectation when the U.S. consumes 25% of the world’s production, looks for cheap goods and investors expect publicly traded companies to maximize short term profits. It can’t be escaped.
Trump sees a trade deficit as money that is being lost to other countries. This shows his total ignorance, as money is not lost in a trade deficit.
A trade deficit is impacted by a host of macro-economic factors such as a country’s growth rate relative to others, the value of its currency and its investment and savings rates. Having a deficit in trade means nothing to a country’s growth rates and economists all agree, that this metric means almost nothing to the health of U.S. economy.
If anything, the additional $1 trillion deficit Mr. Trump has added to U.S. national debt through tax cuts will be the real damage to the economy.
Tariffs Fix Nothing and Will Actually Hurt.
Tariffs will not fix a trade deficit. A trade war simply places taxes on items imported from other countries around the world. It becomes an indirect tax that middle and lower-class Americans will be paying to their own detriment.
Product costs will always have an impact on final price. Already, we are seeing substantial price increases on final products. You pay those. Trump supporters pay those. If you saw a tax decrease because of tax reform, you now get to pay substantially more in indirect taxation.
A little game theory scenario called The Prisoner’s Dilemma goes like this:
Given that the prisoners are kept in separate rooms and must make the safest choices for each of their self-interest while considering the choice their cohort will make, both will choose to confess and betray in order to eliminate the chance of spending a year in jail. Neither prisoner will win.
This is essentially a trade war. Every country will impose retaliatory tariffs to increase their own leverage in the future instead of refraining for political capital now. Retaliation impacts our ability to export products as much as the other countries playing the game. Our industries suffer as much, and consumers worldwide are all stuck with substantial indirect taxation.
To further mute the unreasonable “win” Trump thinks he can achieve, retaliatory nations are also smart enough to target the goods coming from states that have the highest percentages of Trump supporters. There is an irony to Trump voters becoming the main pawns in a game they think need be played.
You don’t win a game by screwing yourself.
Bad Macro-Economics are Trump’s Forte. Do You Really Want to Pay More?
He was a forgettable student at the Wharton School (just not in his own mind) and he must have had someone take his economics classes for him. Having had a shitty reality tv show doesn’t make up for how bad he is about to screw the American public for the sake of his ego.
One of the most basic tenants of economics is the demand curve. Quite simply, when price increases, less is consumed, and supply must decrease.
Not only will the prices of imported products go up, but so too domestic products. Domestic corporations are now incentivized to raise prices for short term profitability while they can, when similar products in the marketplace are forced increase in price.
Additionally, the increases in the costs of raw goods like steel and aluminum, increase the costs of product manufacture. Increased costs of production are also passed to the consumer in the form of higher prices.
Jobs are Lost. Period.
What is billed as an attempt to create jobs in the manufacturing sector will kill far more jobs across all sectors than will be created.
The reduced production to match reduced demand means fewer employees are needed. Increased production costs will also require companies to do more with fewer employees. Upon enactment of the steel and aluminum tariffs, economists predicted an increase of 33,000 jobs in that sector and a decrease of 200,000 jobs across other sectors dependent on the raw inputs and the final products. Even breweries were to be impacted by the increase in raw goods prices. What kind of mad man pushes up the price of beer!?!
Farm implements have already exploded in price. Feel free to go ask your local farmer if they will now be delaying purchase of that new John Deere tractor. Good money says they will. Even better money says the salesman at the local John Deere dealership has experienced some depression lately and is seeking out counseling.
Will you put off buying a new car when the prices increase by $2,000 plus? GM has already stated that it is time for a “smaller GM” with the impact of tariffs. The funny thing is that the red, southern states now account for the majority of auto industry manufacturing. Sorry Alabamans, the local Piggly Wiggly doesn’t pay enough to cover what you made at the Toyota / Mazda joint plant.
Another secondary effect is that companies will simply move some of their operations overseas. We’ve already seen this with Harley Davidson. If retaliatory tariffs will increase the cost of your product overseas, then just go manufacture there and avoid them. If countries outside of the U.S. aren’t hitting each other with tariffs that increase the cost of your raw inputs, then production in one of those countries makes perfect sense. That’s it. Your company now has every incentive to take their manufacturing and jobs elsewhere.
Look for more companies to move jobs off shore. Even a President (or a bag of Cheetos) can’t convince a company to absorb higher costs.
The Pros are Predicting Bad Consequences.
Wall Street and economists are both expressing significant risk for a recession due to a trade war. In a connected world, that is a worldwide recession.
Money is the usually the purest reflection of reality. It doesn’t have much of an agenda beyond producing more of itself and has to take into account the collective expectations of those that want that to happen. Wall Street is down for 2018, mostly due to reactions to potential trade wars and the expectation for a recession and reduced corporate top-line growth within the coming year.
There is pure idiocy in congratulating yourself for stock market growth and then enacting the policies that reverse it. Yep. We elected an idiot.
His Supporters Show They Will Believe Anything, No Matter the Stupidity Involved.
They believe false stories like Pizzagate or Barack Obama trading immigration for the Iran nuclear deal while declaring news they don’t like as fake. Poorly written articles that are filled with bad reasoning, conspiracy theories, misquotes and outright lies, have them convinced that science is wrong and global warming is a myth. Their pundits on Fox News can convince them that race is an issue in inner city violence (racism lite) where the stats show that the system is the real issue. The good guy with a gun myth makes sense to them despite all evidence showing to the contrary. Anecdotal arguments and fear will sway them to ignore good data. Most importantly, they believe we just came from 8 years under a communist dictator and elected the savior of America, despite all historical considerations that show quite the opposite.
Is it any wonder that they will all argue this article is “fake” news and completely false?
A Tweeter-In-Chief with the disposition of a child has full sway over them. Anything he says or does, is fabulous despite it being against their best interest. The thought of religious revival in America supersedes all logic and real ethics, as religion often seems to be able to do to people.
A man who thinks he can win against the rest of the world is unconsciously conning his own base, simply due to an ego that knows no boundaries.
Only time will show them, when our country once again finds itself in a massive recession where the middle and lower-class Americans can only lose. Even then, one has no doubt they will blame another factor and not the orange blob. Hey, protect them from phantom terrorists and little immigrant children and they will smooth over anything.
It deserves to be said again; no one wins this game. America became subject to the oversized ego of a moron and is about to pay for it.
Brian McKay hates tariffs. Duh! More importantly, he hates what tariffs are about to do to the hard working men and women of this country. Please, please, please vote in November.