So, my father-in-law and I were having a political discussion yesterday. He is a longtime FoxNews devotee. I know I won’t convince him of anything, but I want to have something intelligent to say. My argument was that Trump knows nothing about international trade and is royally screwing everything up with these stupid tariffs of his. Unfortunately, international trade isn’t my strength either, so I rather ran out of much to say.
My FiL restated a FoxNews talking point. Germany builds cars and sells them in the United States. The US puts a 2.5% tariff on those imports. The United States builds cars and sells them in Germany. Germany hits those imports with a 10% tariff. My FiL argues that this is not fair. So, the argument goes, the US is not treated fairly by our trading partners and Trump is playing hardball to fix it.
So, is the above tariff arrangement with Germany remotely accurate? Whether it is accurate or not, is an arrangement as described fair to the United States? Why or why not?
On the surface of it, I can see why the FoxNews crowd says this is unfair. Of course, the surface is all they care about. There must be more to it than this.
I don’t know if the above details are accurate or not, but one angle is that tariffs are all paid by American buyers. So by raising tariffs, America simply restricts its own internal car-supply somewhat so that the only viable options for customers to buy are domestic American cars, thus restricting buyer options - which isn’t good for buyers. And I don’t know if Germans buy or want to buy American autos anyway.
What about in a more broad sense? Forget Germans and cars. What about Chinese and soybeans? Or Russians and wheat? Canadians and dairy products or lumber? Aside from raising revenue, how are tariffs useful?
I think the right response is that it’s not really fair to compare one country’s tariff on a specific product with another’s. Germany wants to protect its auto industry, so it has a high tariff on that. However, the US has huge tariffs on sugar to protect our sugar plantations and our corn producers to the point where soft drink producers and other food manufacturers use corn syrup instead of sugar, where other countries use sugar because it’s cheaper.
It’s difficult to find what tariffs level prior to Trump because it has been dominating the news so much. But, it’s definitely the case that we also have high tariffs to protect industries we want to protect.
There is a 10% duty on cars imported from the US into the EU, not just Germany. There is a 2.5% tariff on cars imported into the US from the EU. But there is a 25% tariff on trucks imported into the US.
Keep in mind that many of the “German cars” you buy in the US are made in the US. BMW and Mercedes have factories in the US.
I’m no tariffs expert either, but here are a couple of points I can add to your discussion:
First, your FIL seems to assume that foreign markets have no other options to purchase their goods but the USA. That’s not true. If they can’t get soybeans, corn, wheat, etc. from the US, they’ll go elsewhere for those goods. And once lost, those trade partnerships are likely lost for good. It is very hard to reestablish them. How does that help our farmers in the long term? This is why Republican Senator Ben Sasse from Nebraska characterized the 12 billion dollar proposed bailout as a pair of “golden crutches.”
Second, your FIL is apparently ignorant of the fact that one of Germany’s largest BMW manufacturing plants is in South Carolina. If we impose stiff tariffs on German import cars, what incentive does Germany have to continue to invest in plants in the USA? This much. (Reuters)
Same for Toyota in Alabama. Same for Honda in Ohio. These plants brought good paying jobs to areas that were previously steeped in poverty. Does your FIL want to put all those auto workers out work? Because carry this nonsense far enough, and that could happen.
International trade is a complicated and delicate balance. For better or worse, there is no going back to the 50s, when the USA effectively had no other competitors in the world. Today, we play nice so everyone gets a few wins, or we get left by the wayside. As usual, Trump is trying to take a sledge hammer to a task that requires a fine chisel. Unfortunately, our economy may well be shattered by the time he’s done.
Tariffs do primarily exist to protect specific industries from adverse competition by nations with cheaper labor pools or more accessible resources (although they are also a method of revenue generation for the nation applying the tariff) but this is part of the larger issue of trade deficits and foreign investment (where external investors loan money or gain ownership in domestic property such as real estate, stock, bonds, et cetera), which fiscal conservatives view as a negative. They do this in the apparent belief that the global monetary supply is a fixed value, and that a deficit in trade means that the country in question is ‘losing’ money. Technically, this is true, in the since that the money going out is less than the money coming in, but neglects to consider the fact that a healthy economy in a state of controlled growth that exceeds the size of the deficit and outpaces inflation over the long term is economically advantageous, as is increasing the purchasing power of consumers, both to enable better savings and domestic investment, and to spur innovation. Note that the transportation and merchandizing of foreign-produced goods is a major domestic industry in its own right which will be severely impacted by tariffs and trade wars that reduce purchasing power.
There are certain reasons to apply tariffs or other measures to protect strategically critical industries, but as a general means to protect the economy they tend to stiffle economic growth both for proximate reasons (reciprocal tariffs, reducing foreign investment) and downstream (decreased purchasing power, impact on associated industries reliant on tariffed goods and commodities). And many of non-perishable goods and commodities industries which have largely moved offshore have done so because of the costs and other impacts, such as safety and environmental; it is absolutely true that coal and steel are formerly major industries that the United States has ‘lost’, and while that is terrible for the people who were employed in those industries it is good for the nation overall in reducing pollution and the overall cost of goods. A sensible approach would be to apply a small tariff or value-added tax to such goods to be used for economic stimulus and vocational training for the people who have lost employment rather than a high protective tariff intended to preserve an otherwise non-competitive industry.
Fox News, of course, will not go into the nuances of macroeconomics and international trade policy, and will simply insist that any trade deficit is a bad thing regardless of the underlying economic issues. Donald J. Trump, of course, knows exactly fuck all about economics on any level, being a man who has run multiple casinos–a business with a statistically guaranteed gross profit margin–into bankruptcy.
Have you fact-checked this? Is it absolutely true? Or true from a particular perspective? Or just false? Because for certain values of true you need to admit that your FIL is right. Calling something that Trump or Fox say may be the percentage move but it isn’t always the correct one.
As economists Gary Clyde Hufbauer and Zhiyao Yu of the Peterson Institute for International Economics point out, several forces influence the size of trade deficit:[LIST=][li]More government spending, if it leads to a larger federal budget deficit, reduces the national savings rate and raises the trade deficit. A portion of the budget deficit is effectively financed through a rise in the total amount Americans borrow from abroad.[/li][li]The exchange rate of the dollar is important, as a stronger dollar makes foreign products cheaper for American consumers while making U.S. exports more expensive for foreign buyers.[/li][li]A growing U.S. economy also often leads to a larger deficit, since consumers have more income to buy more goods from abroad.[/LIST][/li]Economists generally see these factors as more important than trade policy in determining the overall deficit. That’s because making it easier or harder to trade with specific countries tends to simply shift the trade deficit to other trading partners. Thus, economists warn against conflating bilateral deficits, which reflect the particular circumstances of trading relationships with specific countries, with the overall deficit, which reflects underlying forces in the economy.
There is the legitimate argument that China in particular is using currency manipulation and its artificially cheap labor pool to unfairly undermine the US and other Western economies, but that is a difference issue than trade imbalances in general, and their remedy is more complex than “winning a trade war”, whatever that even means?
So, are you actually going to contribute anything of substance to this discussion or just engage in pettifogging with asemantic word jumbles about “…certain values of true…”?
Sure, say he’s right but also say, “So what? Comparing tariffs on a particular product is dumb since it’s unlikely that both countries care equally about the same product. For example, the US imposes 25% tariffs on trucks, and lots and lots of tariffs on agricultural products. I’m sure Fox News went into all the ins and outs of international trade and how looking at a particular industry is a fool’s errand.”
Basically, the comparison is irrelevant without looking at the overall trade picture and, pre-Trump, tariffs between the EU and the US were really quite low.
As Stranger points out Chinese abuses of the WTO do exists (not so much currency manipulation anymore) and since all of the US’ former allies suffer as well it might have been a good idea to join together to correct the problem.
But America Fuck Yeah! So it’ll be more painful, less useful and more damaging to US interest but really at this point fuck you.
Another thing to keep in mind is that one of the worst things for business is unpredictability. When you launch a trade war, and I think it’s fair to say we are in one now, you don’t know where it is going and when it’s going to end. Businesses have to plan for worst case scenarios and adjust pricing and investment accordingly. Introducing a big unknown, like what will the tariffs be 1 or 2 years from now, introduces instability in the markets. That’s not good for anyone.
Trump is running the country like he’d run a construction or real estate business-- by bullying his suppliers and trying to win at their expense. He may change with the wind on some political issues, but he’s been railing about this trade deficit thing for decades. He’s a true believer and nothing is going to convince him that he’s wrong. Sucks to be us.
Germany also has a smaller population and an economy that’s diverse, but not quite as extensive and diverse as ours. You can’t just look at the automobile industry; we have agriculture. We have motorcycles. We have Levi’s jeans. And Polo shirts. We have California wine and Samuel Adams Boston Lager beer. We have Whiskey. We have Google, Apple, Microsoft, Facebook, Uber, AirBnB. We have oil. And we…you get the idea.
America’s auto manufacturing industry is important to the U.S., but Germany’s auto manufacturing might be even more important to Germany. Even so, I would argue that German’s auto manufacturing industry is important to…Americans. As others have said, many “German” cars are made in places like South Carolina and Alabama. BMW’s impact on Greenville-Spartanburg cannot be overstated.
Do tariffs apply to “foreign” cars built in the USA? In other words, is that 2.5% applied to BMWs and Mercedes built in the USA?
So, who wins with the trade chaos that Trump has created? Sure, Trump wins political points with his base, but they’ll stick with him even if he shoots someone in the middle of Fifth Avenue. So, the people who pull his strings must be getting something out of it. Farmers are hurt. Auto makers are hurt. I’m sure Russia is pleased with the chaos, but are they making money out of all this mess?
Ask your father-in-law this; is he more likely to buy a car or own a company that makes cars?
When tariffs on imported cars are raised, it costs more for people to buy cars. The tariffs makes imports cost more and domestic manufacturers can raise their prices because import prices got less competitive.
The people who own those domestic car companies will benefit in the short run because of that reduced competition and ability to raise their own prices. But they’re going to be on the other side of the tariff in other countries and will be losing sales in those countries. When everyone erects tariff barriers, companies sell more products at home and fewer products overseas.
That’s assuming car sales remain steady. In reality, as car prices rise, people buy fewer cars. Or maybe they pay the extra money for a car but they don’t have money left over for a new TV or a vacation trip. Some businesses will be losing customers.
Where is that money disappearing to? The government. They’re the ones who are collecting those tariffs. Trump’s tariffs are a bunch of new taxes people are going to have to pay. So Trump, who promised to reduce taxes, is instead introducing a bunch of new taxes.
This is what the morons who support protectionism don’t fucking understand. This what companies like Whirpool don’t fucking understand. Yes, that little protectionist tariff makes furriners’ products more expensive; it also makes the products that they purchase in their supply chain - and products generally - more expensive. Not only has Whirpool not really sold more dishwashers; they’re pricing themselves into potential oblivion. In short, they got what they thought they wanted…and now they’re paying the price. Just like some of the thicker than pig shit American farmers who were bawling about how unfair their trade was, forgetting that American subsidies have crushed farmers in developing countries (note: there’s a reason 2 million Mexicans want to move north and work in American agriculture).
FTR, I’m not just picking on Republican protectionists. Protectionists of any stripe are fucking 'tards.
Here’s the answer it yielded: