Is This Where We Want To Go
Now that Biden is out of the race, we can dispense on criticizing his corporatist take on capitalism.
Since Kamala Harris has not yet fleshed out her economic policies, I will comment on them at another time. Today, I will tackle how Trump sees the U.S. economy and our position vis-à-vis the rest of the world. Anybody that thinks 17th century mercantilism was good then will love former President Trumps trade policies.
He has said in his stump speeches and his actions as president last time, he believes that trade is a zero-sum endeavor. Running deficits with trading partners puts the U.S. at a disadvantage. Depending on the size of the trade imbalance nothing could be further from the truth.
In the 17th century world, Trump’s analysis would be correct. If England bought too much wine from France at some point France would have to be paid in goods and precious metals, usually gold. Today settling balance of trade deficits between nations is a matter of computer adjustments.
Does it really matter if the U.S. produces cheap blouses for sale at Walmart? If Bangladesh sends blouses to the U.S. for “X” and it would cost “X” plus “Y” for a domestic manufacturer to produce the same quality of garment, the U.S. consumer is being given a Bangladeshi subsidy. The American has more money to spend on other goods.
Donald Trump’s solution to the problem (which I contend doesn’t even exist) is to slap a tariff on the Bangladeshi blouses to make them more expensive. Then either the Bangladeshis will absorb the cost of the tariff or pass it onto the American buyer of the goods. In either way the only beneficiary would be the U.S. government by collecting the tariff or called by another name, a tax.
Now say that a Trump administration decides that the tariff on Bangladeshi blouses should be not 10% but 50%. Foreign manufacturers can’t absorb those tariffs. The American consumer is now stuck paying at least 50% more for that foreign blouse.
The American administration may be hoping to spur domestic production. That could produce more American jobs, but the jobs produced would be low wage jobs. And the jobs produced would probably be filled by unskilled immigrants willing to work for less than Americans. Fewer consumers now could afford to buy clothes because of the increased cost.
American tariffs will beget similar ones on American goods by foreign governments. As an example, in 2021 the Biden administration temporarily suspended whiskey tariffs with the European Union. Whiskey exports to the E.U. rose from $439 million in 2021 to $705 million the next year. How many jobs were either created or saved in the U.S. by that one action. Tariffs on foreign steel and aluminum increased U.S. production in 2021 by $2.2 billion dollars. However American factories that use steel and aluminum in their products paid higher costs of $3.5 billion the same year.
Trump’s threat of imposing 10% tariffs on almost every import and 60% on Chinese goods would result in $4300 more cost for the average American household according to the American Action Forum, a right leaning think tank. There is also a good chance that those increased tariffs would result in a recession. That would be especially true if the rest of the world placed retaliatory fees on us, which they probably would.
You would never know it if you listened only to Trump but there is an acute labor shortage especially in construction, hospitality, and agriculture. Today the unemployment rate is at a 50-year low. And the explanation is simple Americans do not have enough babies. The only reason we are not in as bad a shape as most of Europe and East Asia is because of immigration.
Further limiting new arrivals will only result in less economic output. Just like trade is not a zero-sum game neither is immigration. Not only do newly arrived immigrants fill job vacancies they create new opportunities as they and their communities gain a foothold. They open businesses and their children excel in schools.
As to Trump’s contention that immigrants take away “Black jobs” Nearly 40% of Blacks in the workforce have managerial, professional or are office workers. The stereotype regarding Black Americans only in menial and low paying work is Trump thinking of the 1950s and not the American economy of today. That doesn’t mean there isn’t racial disparity in both income and wealth, but we are a much more integrated society than 60 years ago.
His theory that tax cuts will spark the economy has been disproven over and over. The 2017 cuts resulted in much higher deficits and much lower taxes for those in the upper brackets. Many provisions are due to expire next year. If Trump is elected, he promises to extend them and make them larger for wealthier people.
No one likes to pay taxes, but we are bankrupting future generations by running up trillion-dollar deficits during a time of unprecedented economic growth. Remember Trump succeeded in having the largest deficits in his four-year term than any other U.S. president. When a recession happens, we will have no tools to fight it.
Trump is no fiscal conservative. He is worse than a spend and tax liberal because he does not curb spending but has no desire to raise taxes. He would bankrupt America like he has his businesses.
We need to see where Harris wants to take us. If she follows the Biden playbook, she will be in favor of helping targeted industries, more tax equity, and social programs. Those all come with their own drawbacks. But until the policies are more fleshed out commenting would befruitless.
