Copyright: Public Domain / Used With Permission

Having actually worked for one of the leading business magazines out there – sure, as a freelance but still – I can tell you that most of the staff are assailed by the same basic misunderstandings of business and the economy as the rest of the press corps. You know, that professional caste that votes 90/10 D/R? There’s a slight selection effect in favour of those who can do sums, obviously enough, but not much more than that.

This analysis of Trump’s trade war with China is a useful example of that:

President Donald Trump may find it harder to claim victory over China the longer his trade war runs, even as he points to America’s ebullient economy and stock market as evidence he’s winning for now.

Unlikely to be able to claim victory as he impoverishes Americans but still:

Trump does have a point about how markets have reacted to the conflict. Since the president ordered his officials to ready tariffs on a first round of $50 billion of Chinese goods in March, U.S. stocks have risen about 10 percent, while Chinese equities have dropped more than 16%.

Err, no, how stock markets react is not a good guide to the positive effects of tariffs. Quite the opposite in fact. It’s a much better guide to how we’re all getting screwed by tariffs. That is, the better the US stock market does the more evidence we’ve got of the bad effects of tariffs and a trade war.

Think on it. Why is Trump imposing tariffs? To protect American business from competition by those dastardly foreigners. Who loses in the absence of competition from the Yellow Peril? Those American consumers who would have bought those better/cheaper Chinese goods if they were able to. Who gains from tariffs? American businesses who can now gouge the American consumer a little more in the absence of those items imported from EastAsia.

So, a rise in the US stock market is a guide to how much more profit American business can screw out of the American public. It’s a measure, a reasonably good and precise one too, of how much we the people are losing from the trade war and tariffs. More exactly, it’s the capitalised value of the ongoing losses we’re suffering from this restriction of our choices, the competition those who supply us face.

That is, the better the stock market performance the higher those costs and the more we’re losing the trade war. That is, as long as you accept that it is consumers, not producers, that matter, but then that’s the standard economic assumption ever since Adam Smith even if it gets lost in Washington DC often enough.

The US stock market rising in response to US tariffs is evidence of the losses from tariffs, not the gains.

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Rhoda Klapp
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Rhoda Klapp

Did prices go up at Walmart? Will their estimable clientele have to do without chinese junk? All those impoverished USians.

Spike
Member

Prices at Walmart fluctuate. No price label breaks out how much of the price reflects tariffs. Moreover, specific products dry up and some reappear months later as Walmart buyers continually locate better values.

TD
Member
TD

Rhoda. You appear to be in favor of the tariffs. Out of curiosity, do you mind saying why?

Spike
Member

You are right that tariffs are simply taxes, and are imposed on Americans. American business leaders do welcome measures that hinder their competitors. But your point that tariffs benefit business at the expense of consumers is as wrong as lefties’ belief that they can impose punitive taxes on business without adverse effects on The Little Guy. My business is not in better shape if my products are overpriced, and my stockholders know it. We are a team, in a game that is not zero-sum. My impression is that the Dow Jones takes a hit in every new round of tariff… Read more »

Rhoda Klapp
Member
Rhoda Klapp

What I mean to say in my clumsy way is, show us the numbers. Tim has told us many a time and oft what economic theory states about tariffs. Maybe that theory is correct. In which case show us. If it don’t show by now, may we expect one of those wonderful economist’s excuses as to why this is a special case. Akin to that’ socialism hasn’t been tried’ thing.

Spike
Member

Theory says that tariffs will be paid by American consumers of designated foreign goods, and of products containing them. Theory also says that any tax causes some amount of behavior change to evade it. Virtually no one did the things that would subject himself to the 91% income-tax rate before JFK without hiring an accountant to put him in tax shelters. The Trump tariffs are quite easy to evade: Just buy American (though the tariffs will make it easier for American producers to raise their taxes to match). Yes, let’s have hard data. A 30% tariff on foreign Widgets adds… Read more »

Southerner
Member

The value of Chinese goods tariffed out of the game might account for 1% of the stock market rise. Despite the knock-on effects of tariffs on basic raw material inputs, the economy is still healthy. This is fortunate because those bad tariff decisions don’t affect only Americans. Right now it would be hyperbole to say that Trump is impoverishing Americans; wealth accumulation has merely been retarded, not reversed. Developing nations are however feeling the pinch of lower global trade. Thus Trump is in fact impoverishing me, as if my own country’s political elite (can’t call them leaders) aren’t doing enough… Read more »

Spike
Member

This would suggest that Trump knows exactly what he’s doing: Getting a first-order effect that Tim dwells on (taxing Americans, but a tiny fraction of the amount freed up by last year’s business tax-rate cuts) plus a second-order effect (major harm to designated foreigners). Lighthiser and Kudlow seem to think that China cannot withstand yet another round but the US can.

Spike
Member

PS — Yesterday, the Trump administration decided its tariffs on solar cells did not cover interdigitated back connect panels within a certain size range — a decision designed to benefit only one company, which did nothing to merit this except buy an Oregon manufacturing plant of a bankrupt competitor and announce plans to reopen it (which the company says it stands by). Trump gets to announce yet another rebirth of American manufacturing (whether or not it makes business sense). This is taxation not to raise funds for government but to get people to do things, and not necessarily wise things.… Read more »

Spike
Member

And today, FoxBusiness leads with the story that Walmart executives wrote to trade representative Lighthizer warning that, Spoiler Alert, tariffs will eventually cause prices at Walmart to rise. (Shoppers traditionally direct any anger at the retailer and not at the government.) https://www.foxbusiness.com/markets/walmart-warns-trump-tariffs-may-force-higher-prices-report

TD
Member
TD

Ironically, for those of us who do have quite a bit invested in the market, I suppose you could say that Trump has in fact enriched us. I reckon I’m much further ahead in the market despite possibly having had to pay a bit more for my last pair of jeans which I did buy at a Wal Mart. However, it is most certainly a bad deal for many people and businesses that rely on imported materials. Also, while I recall my old ’66 Ranchero quite fondly, I have no such good memories of my two ’70s era GM vehicles.… Read more »

Spike
Member

I have 6 pair of Walmart “George” jeans in reserve, as they fit perfectly right off the website. The tariff/tax is a bad idea in isolation; in combination with the massive corporate tax-rate cut, it is a good idea. My jeans say Bangladesh (no tariffs). (My polo shirts are made in Peru.) Walmart will assess its tax/tariff liability and continue to develop non-China vendors where it makes sense. Trump will get a feather in his cap, China will be crippled, but Walmart will still be able to provide good value; on balance, it will be paying less to Washington than… Read more »