Donald Trump has just announced, or at least mused, that he’s going to make all Americans poorer. This is not a known function of economic policy so we must conclude that he’s wrong. Which Trump is, he’s not got the slightest idea of what trade is nor why we indulge in the practice. Imports are the purpose of the activity, exports only what we have to do to get them. To try to limit imports by taxing them is therefore to prevent ourselves from gaining the benefits of trade, the reason why we do it in the first place.
Not just not sensible, but aslo no good, terrible. But you know, Trump not understanding trade:
President Trump has said that he will impose steep tariffs on steel and aluminium imports, prompting alarm from trading partners and threatening to trigger a trade war with China.
The US will impose tariffs of 25 per cent for steel imports and 10 per cent for aluminium from next week.
This makes Americans poorer because it makes, indeed is designed to make, Americans pay more for steel and aluminium.
World stock markets have tumbled after Donald Trump said the United States would impose tariffs of 25% on steel imports and 10% on imported aluminum next week.
The threat of a trade war with China and higher goods prices led to a sharp sell-off in Wall Street on Thursday, causing Asian markets to take fright on Friday.
There’s that pesky efficient markets hypothesis in action there. New information comes in, prices change to reflect the new information. Trump’s going to make Americans poorer, there will be less profit to be made from Americans. Stock prices tank therefore. This is idiocy, obviously:
Jean Claude Juncker, the European Commission president, hinted at a trade war as he said: “‘The EU will react firmly to defend our interests.
“The Commission will bring forward in the next few days a proposal for countermeasures against the US to rebalance the situation.”
As Joan Robinson riffed off Fredieric Bastiat, just because they throw rocks in their harbours no reason for us to throw them in our.
What’s worse is that we already know all of this. The last Republican President did something similar:
The Consuming Industries Trade Action Coalition (CITAC) Foundation requested a formal examination of the impact of higher steel costs on American steel-consuming industries,1 and in particular, a quantification of employment losses at those companies. This study employed straight-forward and widelyaccepted regression analysis using a variety of price and employment data to maximize the reliability of the results.2 We found that: • 200,000 Americans lost their jobs to higher steel prices during 2002. These lost jobs represent approximately $4 billion in lost wages from February to November 2002.3 • One out of four (50,000) of these job losses occurred in the metal manufacturing, machinery and equipment and transportation equipment and parts sectors. • Job losses escalated steadily over 2002, peaking in November (at 202,000 jobs), and slightly declining to 197,000 jobs in December.4 • More American workers lost their jobs in 2002 to higher steel prices than the total number employed by the U.S. steel industry itself (187,500 Americans were employed by U.S. steel producers in December 2002).
No, it’s a damn stupid idea, imposing tariffs upon imports. But then we did already know that Trump doesn’t understand trade, didn’t we? And also that his trade bod, Robert Lighthizer, has spent his private sector career arguing for steel tariffs? We did? Good, so we shouldn’t be surprised then even as we deplore.
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I'm afraid the 'free trade makes us all richer' concept is being tested to destruction at the moment, with the wholesale destruction of manufacturing jobs in the West and their shipping to the Far East. Its all very well to say that American will pay more for steel, maybe they're happy to do so in order to keep jobs in towns that would otherwise become ghost towns? You know, the American public may care more about the inhabitants of Nowheresville Pennslyvania over the inhabitants of Shanghai?
There's also the fact that the benefits and detriments of the free trade are not universally distributed. The US public at large may benefit from cheaper steel, but only to the tune of a few dollars each. Whereas the person whose job goes east loses everything. And the peasant who gets a job making steel in China gains a fair amount too.
You can't keep making more and more people lose everything in the West, all the while telling them 'Its making you richer!', because for the losers its a lie. Eventually a Trump (or worse happens).
Workers are consumers too, so those steel workers are getting poorer too because of import tariffs.
And have you noticed Trump and others always talk about protecting jobs, never protecting shareholders’ profits, which is in fact the main reason for protectionism?
And are there no jobs connected to imports? How many people who have a job... truckers, logistics, manufacturing... connected to imports will lose their jobs when imports of steel decrease? Or do they not matter?
If American consumers pay less for goods produced from steel, then they have more things to spend on other things which increases the demand for other goods, increases economic activity and that creates jobs.
It is the total economic activity which determines how many jobs there are, but jobs may change in nature due to a variety of factors including innovation, new technologies.
Millions of jobs have been ‘lost’ in the US economy since 1776, yet despite the population being 100 times greater now, there are more jobs now than ever. How?
If you think protecting jobs is fair, then you must agree it is only fair to protect everybody’s job, not just some jobs. That means no economic or social progress.
Cars put carriage-makers and harness-makers out of business; planes put railroad workers and passenger liner crews out of work; automated telephone equipment put switchboard operators out of work; washing machines, dish washers, vacuum cleaners, kitchen appliances, central heating all put domestic servants ou5 of business; containerisation put dock workers out of work; antibiotics put workers making iron lungs out of work; tractors and other farm machines put agricultural workers out of business.
So we should have allowed none of those things.
Back to the fields everyone, no progress in case somebody loses their job; dawn to dusk back breaking toil scratching a living from the soil.
The trouble is that that most of world trade is far from "free". Just look at the tariff walls and other walls erected by the EU to do with labelling and disclosures and environmental regs etc. So another trade barrier is surely not going to make much difference. You might as well rail against the EU's wine tariffs or kiwi fruit tariffs or exhaust gas regulations.
Yes, it is a horrible idea; any time government sets the prices of things wrong by gunpoint as a "gentler" way to affect our decisions than pointing the gun at us directly, it is still a horrible idea. Add to Tim's essay: "Even if China doesn't retaliate." The earlier steel tariffs were styled as giving American industry a breather from foreign competition during which it could modernize. By and large, it did not; it didn't have to.
Diogenes - The monetary effect is not the point; it was seeing which way the needle was moving, in terms of the reward for individual effort versus lobbying with cronies at the Capitol. The same for the tax reform, which moved the needle the other way in disproportion to its monetary effect. PS - I expect Tim will tell you that, even if the EU shoots a hole in its side of the rowboat, we don't have to do the same.
Jim - That was a masterpiece of static thinking, in which I am only capable of doing one "job," and when my desk and pencil cup cross the border, I am devastated.
Disclaimer: Trump has announced border taxes now against four industries. But he has also announced that we are going to "grab guns now and do due process later," and that the libel laws should be tightened to make it easier to imprison reporters. Sift out the bluster and see what really happens.
Spike - You accuse Jim of static thinking implying that those whose jobs are affected by cheap imports need to be more flexible and do something else. That way the rest of us can enjoy the cheap imports. The theory is a good one, trouble is it’s mostly expounded by those whose jobs aren’t threatened.. There’s a similar argument about cheap ‘imported’ labour, it’s usually made by people whose own jobs are not done by migrant labour. Think about losing your job, then think about seeing a few hundred of your co-workers lose their jobs at the same time, then think about the effect on your community when the major employer shuts down and the town slowly decays into a benefit-dependent ghetto.
Jim. Consider all the manufacturers that use aluminum and steel. Now their costs will increase. Perhaps some of their employees will lose their jobs as sales decline or as they shift production outside of the US. The government really can't help one group of people without harming another.
"Cars put carriage-makers and harness-makers out of business; planes put railroad workers and passenger liner crews out of work; automated telephone equipment put switchboard operators out of work; washing machines, dish washers, vacuum cleaners, kitchen appliances, central heating all put domestic servants out of business; containerisation put dock workers out of work; antibiotics put workers making iron lungs out of work; tractors and other farm machines put agricultural workers out of business."
Of course they did, but slowly. Technology change doesn't decimate entire industries over night, one slowly grows and the other declines. Change comes (relatively) gently. Suddenly opening the doors and letting all the manufacturing jobs fly out to the East is very quick change.
Also new technologies used to create new jobs. When horses were replaced by cars, the cars were made in the same country, so yes people could adapt. The blacksmith became the car mechanic and sold petrol that sort of thing. In this case there's nothing coming back except cheap goods that used to be made in the West. Great for those who can afford wide screen TVs, not so great if you used to make TVs for a living.
Look, I get the theory, and in the long term it may be correct. But in the short to medium term it ain't. And politics works in the short term, so if you keep impoverishing voters in the West, they'll notice, as will people who maybe doing pretty well out of globalisation, but still care about their fellow countrymen. And you get enough pissed off people to vote in a Trump to close the stable door on the jobs going abroad by bringing in trade barriers.
Its no good quoting Adam Smith at people whose job's gone to China. They not going to listen. You need a bit more compassion and understanding of their position. You may be doing fine, they're not. And in a democracy, the majority get to call the shots. All those demanding 'Free Trade at all costs' are effectively the same as the Remainers - We know whats best for you proles, so forget your voting and do as we say!'
"Its no good quoting Adam Smith at people whose job’s gone to China."
Quite. There is a word for it: "Beggar-Thy-Neighbour-Fuck-You-All-Asiatic-Mercantilism."
It is a mouthful but it does adequately describe what China does when it produces steel and aluminium and is doing so either at cost or even for a loss, in the hope of wrecking your own ability to independently provide such commodities yourself.
The mantra that free trade makes us all richer is only true if every participant is being honest.
Ironically, Trump takes this action at a time when blue collar jobs and wages are increasing.
Trump often takes an extreme position at the beginning. It's a starting point for the negotiation he thinks he is expert in. There is no need to take him too seriously. In fact this one may be really aimed at energy prices and maybe other costs which contribute to the uneven playing field.
The negotiation technique practiced in UK government, much older and wiser than the brash American, is to surrender the whole thing first then hope your opponent will feel sorry for you and give some back.
It's quite difficult to build ships and tanks and aircraft if your enemy holds the supply of all your materials; to eat when he controls your food. We all know the economic arguments against tariffs and protectionism, but it seems not all of us appreciate that economics isn't the be all and end all of running a country.
The government could stockpile materials. That would probably do less damage that tariffs which will apparently soon result in retaliatory tariffs. This was a dumb, dumb move.
"The government could..."
But it won't, and certainly not enough to run WWIII. Sadly, dingbat-socialist poor Communist China has become state-corporatist rich Communist China. Communist China is not a trading partner, it's the enemy. It couldn't have bombed America's industrial base more effectively.
@Tim,
Are you sure?
Somerset House, London 28 Feb
I do. One was called the exchange rate mechanism and it was pursued, disastrously, by some idiot of a PM in the early 1990s simply out of dogmatic attachment to the EU
Another is Blair/Miliband's Climate Change Act
and another is Cameron's DFID 0.7% GDP and another Brown's Gift-Aid and another ad infinitum
Jean Claude Juncker said: “‘The EU will react firmly to defend our interests"
Outright admitting that the EU's trade policy is firmly based on protectionism, not trade.
The EU had already acted last year to defend its interests:
http://www.dw.com/en/eu-ups-import-tariffs-on-china-steel/a-38321597