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Trump’s Awful Tariff Plans Will Hurt America

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He plans a 35% tariff on goods manufactured by American firms abroad: The U.S. is going to substantialy reduce taxes and regulations on businesses, but any business that leaves our country for another country, — Donald J. Trump (@realDonaldTrump) December 4, 2016 fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. …… — Donald J. Trump (@realDonaldTrump) December 4, 2016 without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies …… — Donald J. Trump (@realDonaldTrump) December 4, 2016 these companies are able to move between all 50 states, with no tax or tariff being charged. Please be forewarned prior to making a very … — Donald J. Trump (@realDonaldTrump) December 4, 2016 expensive mistake! THE UNITED STATES IS OPEN FOR BUSINESS — Donald J. Trump (@realDonaldTrump) December 4, 2016 This is less coherent economic doctrine and more puffed-up pseudo-alpha male posturing. Unfortunately, given that the man is about to become President, it will also be executive policy. Things, in other words, are about to get an awful lot more expensive for the American consumer. Because it will be the consumer who pays the price to subsidize American manufacturing.

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He plans a 35% tariff on goods manufactured by American firms abroad:

This is less coherent economic doctrine and more puffed-up pseudo-alpha male posturing. Unfortunately, given that the man is about to become President, it will also be executive policy. Things, in other words, are about to get an awful lot more expensive for the American consumer.

Because it will be the consumer who pays the price to subsidize American manufacturing. As this excellent rundown by Taos Turner and Paul Kiernan of The Wall Street Journal explains, that is what happens when countries engage in naked protectionism via import tariffs:

As U.S. President-elect Donald Trump contemplates tariffs and other limits on trade, he might consider the results of such protectionist measures in two economies on the other end of the hemisphere, in Argentina and Brazil.

For decades, South America’s two largest economies have tried to shield their workers from global trade, largely through high tariffs and regulations that promote domestic production over imports. The World Bank ranks Argentina and Brazil among the world’s most closed big economies.

In Brazil, locally made products are enshrined in the constitution. Gadget-loving Argentines often use the black market or go to Miami to buy iPhones, which were barred for years because Apple wouldn’t produce them in Argentina.

These protectionist policies have created tens of thousands of well-paid factory jobs and may have helped avoid factory layoffs like those that rattled Midwestern U.S. states like Michigan. But they have come at a huge cost to consumers, who now pay higher prices, and to taxpayers, who underwrite the subsidies. Taken together, these measures essentially transfer wealth from society at large to a smaller group of workers.

These policies have not transformed Argentina or Brazil into industrial powerhouses. Far from it. These two countries—sitting in 36th and 54th place in the world—lag way behind the United States in terms of manufacturing value added per capita.

In other words, the consumer pays massive tariff costs for the high quality foreign-made goods they want—things like, for example, iPhones, Japanese and German cars, etc—to subsidize unproductive and non-competitive domestic operations. And those subsidized operations don’t do much in terms of adding economic value. That’s because they’re not internationally competitive. Protectionism weakens a country’s domestic industry by shielding it from market competition. A choice between a cheaper but inferior subsidized domestic good, and an artificially more expensive foreign good of higher quality is a choice between the worst of both worlds.

Today, this kind of protectionism may not even do much to create subsidized jobs. Companies may well take up Trump on his offer and manufacture domestically. But that doesn’t mean jobs will come roaring back. Robotics, A.I., and automation are advancing to an extent where automated factories can churn out huge volumes without employing many people.

This would be a worst-of-both-worlds scenario. Domestic production may increase without an attendant increase in industrial employment. International goods will become inordinately expensive, hitting the American consumer—and every American is an American consumer—hard in the pocketbook.

It’s just the kind of policy you’d expect if the President was an ignorant, overconfident blowhard who spent his hours trolling on Twitter, rather than listening to economics experts, or intelligence briefings.

About John Aziz
John Aziz
I am interested in global trade dynamics, debt dynamics and the flow of credit, moneyness and currencies, unclearing markets, futurology, civil libertarianism, drone warfare, market democracy, solar technology, ecology, the psychology of bubbles, behaviourism, Bayesian statistics, subjectivism and a whole load of other stuff.

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