Posts Tagged ‘trade’

The Trump Tax on cars

September 6, 2018

NAFTA was a bad deal, the worst deal ever, sending jobs to Mexico. Our imports exceed exports, a bad thing. Trump’s tough talk of tariffs against Mexico made them give us a better deal. A big win. So much winning!

That’s the Trump story. Every word is a lie, including “the” and “to.”

NAFTA reduced trade barriers among Canada, Mexico, and America. This enabled Mexico and Canada to produce and export more — thereby becoming richer, and hence a bigger market for stuff we produce. (After NAFTA we export more to Canada and Mexico than we import from them.) Low production costs in Mexico enable Americans to buy stuff cheaper, and thus to buy more. Which creates more jobs — more than the ones lost to Mexico. That’s how free trade makes everybody better off.

That’s Economics 101. Which Trump flunked. (He got rich as a con artist.)

But isn’t Trump’s new deal with Mexico better for America? No, it’s worse — and worse for Mexico as well. Mexico agreed to it because the Trumpian alternative of full punitive tariffs was worse still (and Mexico’s incoming and outgoing presidents both wanted this issue resolved before the handover).

Cars are the main target. Trump’s deal will make Mexican car production costlier, so more production will occur in America. Good, no? No, because North American car makers don’t compete just against each other, but against the whole rest of the world. Making North American car production more expensive makes it less competitive against cars from all those other countries. And Trump’s idiotic trade policy raises the costs of not only Mexico’s car production, but our own. Cars use a lot of metal, and tariffs on metal, like aluminum, raise prices for it. Surely a plan for killing both U.S. and Mexican jobs and making us all poorer.

We don’t know yet how things will wind up with Canada. But meantime it’s estimated that Trump’s “great deal” with Mexico will add over $2000 to the cost of your next car purchase. Call it the Trump MAGA tax. (But don’t forget the big tax cut he gave millionaires.)

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It’s your economy, stupid

March 25, 2018

Presidents are usually judged mainly on the economy, which most voters care most about. (“It’s the Economy, stupid.”) Yet in truth a president’s economic performance is mainly just luck. He doesn’t run the economy; his actions normally have very little impact on it.

The start of Obama’s term was a rare exception, an economic crisis where he was looked to for leadership. Influencing the economy more than the actual measures he took was their psychological effect. You can argue all day about those measures, but they did combat pessimism, which shaped people’s behavior, and thus boosted the economy. So it’s fair to give Obama some credit.

Trump came into office lucky on the economy. It was doing great. And the prospect of tax cuts and deregulation added to the fizz. All Trump had to do, really, was not screw things up. Which — given a president’s limited ability to actually impact the economy — should have been a piece of cake.

But Trump is a poster boy for the Dunning-Kruger effect I’ve written about: the dumber people are, the less they recognize their dumbness. Trump understands nothing about the global economy while feeling certain he understands everything. A deadly combination.

And he managed to find the one thing within his power to screw up the economy. He can’t set interest rates, regulate the money supply, or by himself make tax and spending policy. But he could start a trade war.

I’ve explained before why this is so dumb. It doesn’t take a PhD in economics to understand that import tariffs — virtually always — hurt more people than they help and weaken the overall economy in multiple ways. U.S. businesses mostly become less competitive, consumers pay higher prices, jobs are lost not gained, interest rates rise, our exports become costlier and hence fall, so our trade deficit is more likely worsened than improved.

And that’s even without other countries retaliating. When they do, as China and others are, that hurts U.S. businesses, jobs, consumers, and our trade position even more.

But do those other countries also take a hit? Oh yes. Tariffs make the whole world poorer. It is a “beggar thy neighbor” policy. An overall poorer world is not good for America — not for our economy, nor our national security.

It’s true that China is guilty of bad things in the realm of trade and commerce (like stealing intellectual property, to name just one). But the self-inflicted wounds of tariffs are surely not the right answer. A far better one would have been the Trans-Pacific Partnership trade deal, which America had negotiated with 11 other Asian nations, precisely to combat China on trade. Trump pulled out of TPP on his first day.

His tariffs make Trump like the character in “Blazing Saddles” who took himself hostage by pointing a gun at his own head. Trump has pulled the trigger.

Dow down another 1150 points.

Trump: Making China great again

November 27, 2016

unknownThanks to president-elect Trump’s opposition, the Trans-Pacific Partnership (TPP) trade deal is dead. And considering all his China-bashing in the campaign, it’s a supreme irony that they’re high-fiving each other in Beijing – because Trump has handed China one gigantic geopolitical triumph.

This is America forfeiting – to China – Pacific region trade leadership. The TPP, painstakingly negotiated over many years, was our way to unite the other regional nations with us to resist Chinese bullying. unknown-2With America pulling back, now they’re left to fend for themselves, which will mean accommodating to China as the region’s big Kahuna.

But the words “trade deal” have become so politically toxic here. Shame on Democrats for their cowardly unwillingness to defend one of President Obama’s key initiatives. He himself was forced to give up on it. Not to mention Republicans, who until recently knew better on this issue too.

America’s share of global manufacturing has not been falling. Manufacturing jobs have been disappearing — but due more to technological advancement than trade. And trade-related job losses are overwhelmed by the benefits to U.S. consumers when prices we pay are lower. That savings translates into more consumer spending, which creates jobs, making up for any lost. Furthermore, if trade makes countries like China and Mexico richer, that’s good for us — they can buy more from us. And anyhow, the TPP would not actually have given other countries much added ability to sell us stuff – our tariffs were already quite low. unknown-1But it would have required those other nations to reduce their trade barriers, enabling U.S. businesses to sell more to them. For us, it was a no-brainer. But I guess we have no brains now.