Lobster, Soy Bean, Steel & Shoes
What do lobster, soy beans, steel and shoes have in common?
They all have something to do with U.S. imposed tariffs and possible retaliation by China. Tariffs are a really bad idea. They are a regressive tax mostly on those who can least afford to pay. Tariffs stifle innovation and growth in promising segments of the economy. They are a subsidy to businesses that are inefficient.
Since a tariff is another name for a tax, imposing tariffs results in consumers paying more for the goods they buy, such as shoes made overseas. Currently more than 70% of footwear sold in the United States is imported from China. With the new tariffs on Chinese imports, inexpensive footwear becomes costlier. Those shoes, of course, are bought overwhelmingly by the middle class. The cost of the Italian Gucci loafer for the well-heeled remains the same.
At the same time, businesses that make products using imported steel impacted by tarrifs will see their component parts increase in price. This makes everything from cars to planes to new homes more expensive. In the end, those price increases are passed on to the end consumers.
So how are tariffs beneficial to the American economy? The theory of mercantilism, of which President Trump is an adherent, believes that a positive balance of payment account is the winner. When the theory was in vogue during the height of the 17th and 18th centuries, the means of paying for goods was in gold and silver. There was only a finite supply of gold and silver in the royal treasuries, so the theory made much more sense than it does today. Since we no longer pay for goods with precious metals, that thinking is arcane to put it politely.
The President has also claimed that he wants to bring back jobs. But how many new jobs will be created? The answer is not as many as will be lost by industries hurt by the imposition of reciprocal tariffs. Mercantilism is considered a “planned economy” akin to the old Soviet system. It is the antithesis of capitalism where markets determine economic outcomes.
Favored industries and companies should not be propped up with taxpayer money. It is corporate welfare by another name. It is not a Republican philosophy or for that matter a Democratic one. The United States is abandoning what made us an economic powerhouse in lieu of favoritism to a few cronies of those in power.
By trying to re-create the economy of the 1950s in 2018, America will be at a distinct disadvantage today and tomorrow. Coal mines, steel mills and shoe factories will not provide the employment and living standard that Americans should strive to achieve. As an example, an Austrian plant built in 2014 employs 14 people to make 500,000 tons of robust steel wire a year while a 1960-era plant would need 1000 employees to achieve the same result. If built today in America, probably fewer employees than 14 could produce the same results.
U.S. politicians need to stop promising the return of jobs that no longer exist. It is a cruel and inhumane practice for President Trump, or any other elected official, to use unemployed blue collar factory workers as campaign props to make empty promises to the rest of America. They should tell the truth — that the economy of today bears little resemblance to that of 60 or 70 years ago. The days of John Henry have been replaced by the app designer in Palo Alto.
In 1900, Argentina was one of the richest countries in the world, on par with the U.S. But, for most of the 20th century and into the 21st century, Argentina imposed tariffs and other barriers to trade in the name of economic protectionism. For most of that time, it has been an economic basket case while America prospered by letting the market decide which industries should flourish and which products need to be imported and exported.
Mr. Trump seldom speaks about what we do export — services. The economy of the future will be in technology and knowledge. We run a huge surplus in that sector. So, if China or any other nation wishes to “dump” steel or any other product in the United States for less than the cost that they can produce it, then why not? It is the equivalent of a consumer buying something on sale. Remember we are not giving them gold, only a piece of paper in exchange for a valuable and usable commodity or product.
So, what do lobster, soybeans, steel and shoes have in common? The first two products are exported to China and may have tariffs placed against them by the Chinese in retaliation. One-half of our crop of soybeans (47.5 million tons) were exported to China last year. The Chinese have a growing taste for Maine lobster, increasing by 20% per year. Soybeans are a large export for our farmers and, while lobsters are not soybeans’ equivalent, they still are important to Maine’s economy. With the U.S. tariff on shoes, Americans will pay more without a corresponding advantage. Steel used in so many manufactured products now has U.S. tariffs on imports.
Adam Smith wrote in the Wealth of Nations:
By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?
Is this what we want to accomplish? We are the world’s economic leader. We are sadly losing that title through our own missteps. Liberal, Conservative or Libertarian economists would all agree that closed economies ultimately fail, hurting the majority of the people while doing the most for those who are cronies of the government elites. The Trump economy is one that only a trained Soviet or Russian economist would love.
