The Governor of Arkansas, a Republican, complained that Mexico would retaliate with duties on Arkansas grown rice.
Oh, boo-hoo. He endorsed the Cheeto.
This is a classic maneuver in politics. Claim that your raise in spending won’t cost anything because of the wonderful economic benefits it will bring.
That claim isn’t ludicrous on its face. Infrastructure spending normally does lead to long-term economic benefits, although ironically it is often voted down because those gains are invisible, hard to quantify and personalize, and individually very small. Battling climate change is failing because of those same reasons. Keeping people alive because of safety regulations has large individual gains but might have a large annoyance factor. Adding staffers to the IRS brings in huge amounts of money over salary cost.
The claim that the amount of change is tiny compared to the overall economy is equally problematic. After the Great Recession of 2008, the GDP went down only 2% in 2009, yet the overall suffering was great. The 2015 GDP was up 22% over 2008 and yet Trump was able to win by claiming that the economy was terrible. At most this shows that absolute numbers may matter less than how they are distributed.
The worst of all claims is the apples to oranges one. Saying that Mexico will pay for the wall because the economy will grow is actually harmful. The billions of tax dollars that will pay for the wall need to be looked at for how they affect discretionary spending in the federal budget. Different people have varying definitions for what discretionary spending is, but $10B or $20B is a huge number in that much smaller pile. Either deficits go up or taxes are raised or other spending is heavily cut. That’s the true cost we need to be looking at.
Hoping that a tariff will increase tax revenues and not hurt the economy is wishful thinking. On the contrary, negative effects will be seen immediately by consumers, manufacturers, traders, and other major groups. Even given the unlikely possibility that new factories will be built here and farms will shift into growing once-imported produce and what not, those changes will need years to come into existence. And it’s hard to see how they can be cost-competitive unless wages drop precipitously, which itself would hurt tax revenue.
The thinking behind this is so nebulous that nobody really knows what outcomes any real-world decisions will produce. History is instructive, though. There’s a good reason why tariffs are now considered as a prime source of blame for the size and length of the Great Depression of 1929. You can live with tariffs and protectionism in a rapidly expanding economy, like the U.S. at the end of the 19th century and China at the end of the 20th. Once that rapid growth slows or stops - which we exacerbated by cutting off immigration in 1924 - they act as further brakes and make a bad situation much worse.
Of course prices would go up. But not to “a fortune”. Worst case*, they would go up 20%, which is what the tariff is. Why would someone pay 30% more for Australian lettuce when they can buy the same Mexican stuff that had been buying for 20% more. That’s an increase, for sure, but it would be absurd to call that “a fortune”.
*Static analysis. A dynamic analysis would probably show a slightly higher increase.
A lot of US based companies will export pieces and parts to Mexico, have them assembled there and then reimport the finished product. I know a lot of lighting fixture manufacturers do that, or at least they used to.
Cite?
Gateway PCs were assembled in Mexico just before the company went under.
Originally Posted by Exapno Mapcase View Post
The 2015 GDP was up 22% over 2008 …
That’s close, I see almost 15% from end 2008 to near end 2016 here:
The more questionable inference he drew is that everything is great economically and Trump had to pull the wool over people’s eyes to convince them otherwise. 8 yrs 15% is ~1.8% a year. GDP growth in 1981-2008 (geometrically) averaged 3.0%. And that’s besides socio-economic class and/or regional distribution effects, which especially in former case is a central focus of the left so ironic if they’d now simply flatter a sub 2% growth rate by expressing it cumulatively over years and ask what’s everyone complaining about. 
Note, I’m not saying or trying to sidetrack into whether a given Trump tweet gives the magical answer to this issue, just saying he didn’t create the widespread view the country is on the wrong track, a lot of which comes from a stalled median income IMO, growing slower than the GDP, which is itself growing more slowly than it was.
This chart, using the nominal column, comes out to 22% thru 2015.
Nominal GDP growth is meaningless in the context of how people feel about the economy, or really any context except maybe nominal debt as % of nominal GDP. 15% is the number, approximately, inflation adjusted, the measure any serious economic conversation would use. But again just because the economy has a grown noticeable cumulative % over 8 yrs, which 15% still is, that hardly proves it strange people still didn’t feel so good about it during 2016.
Direct tariff (as opposed to border adjustments in our tax code) on Mexico would take abrogation of a three way treaty with our largest trading partner, Canada. That should be fun.
Supply chains post-NAFTA run back and forth across both our land borders. I’ve seen numbers for about 40% US origin content in finished goods we import from Mexico. Depending on Mexican response we could be seeing multiple iterations of tariff being imposed on the costs behind that one manufactured end item. Near border US based manufacturing could be hammered by tariffs “on Mexico.” Maybe we’ll get another chance to debate bailing out the auto-industry during the period where they have to completely re-do their supply chains.
The agriculture effects are more than just winter fresh fruits and veggies if Mexico matches/retaliates on tariffs. Post-NAFTA we’ve become the dominant supplier of corn to Mexico.
nevermind
Or just talk out of your ass & let the relatively sane people straighten things up later…
One tiny nitpick here. Every word of this is wrong.
I was refuting the claim made earlier that that the dollar value of such a tariff would be meaninglessly small compared to GDP. That’s a meaningless puff of noise. Any number - even, say, the entire military budget - is small next to the GDP. But that says nothing at all about the perceived health of the economy because, as I wrote, the distribution of the gains is important.
Who would make such a nonsense claim? Oh. Right.
Lots of bad numbers and bad claims are tossed around as soon as the economy is mentioned. Don’t fall for them.
From the link:
Marketwatch article:
What exactly is the GOP-championed ‘border adjusted’ tax?
Huh? “GOP-championed”?
Is it true that [Republican] free traders [in Congress] might be opposed to a tariff but in support of a border adjustment tax? I don’t understand. Both seem to be equally bad, at least (to a free trader).
Or is this guy simply wrong?
Huh? It is completely clear to me. They’ll impose a border adjustment tax in return, of course! Or worse. What is the reasoning that they wouldn’t?
A VAT is due on domestic and imported goods/services equally. A VAT does not favor one or the other in the slightest. A rather huge difference! What is the argument for the two being equivalent??
Is this guy an idiot or am I?
Yep, that’s really the more ominous take-away. It’s clear that Mexico is just the first country of several to experience economic waterboarding, but not the last. It’s also clear that Trump and his economic team probably don’t really have a full understanding of the impact on the economy. They’re basically conducting their own little experiment, “I wonder what would happen if…”.
Protectionism didn’t cause the depression but it certainly made it worse.
Domestically-produced lettuce might also increase in price.
You said “The 2015 GDP was up 22% over 2008 and yet Trump was able to win by claiming that the economy was terrible.”
Besides the actual number being 15% larger in real terms from 2008 to 2016, nominal increase is meaningless, both as noted, the difference between 3% growth and 1.8% growth over that period would have been $1.7trillion larger per annum GDP by now than is the case. The tariff on Mexican imports would yield $60bil per annum static case. So there’s a real size difference there. The overall sluggishness in growth*is a lot more significant than 20% of the value of Mexican imports. The latter really would be insignificant in the big picture of the US economy, by itself. I said all along it could be more significant depending if it led to other things, but not by itself. And Trump didn’t have to be some kind of evil magician to convince a lot of people the economy has been sluggish, it’s true. As I also said, that’s exacerbated politically by distributional issues, but again ironic if the left leaning POV is now that that’s a footnote rather than a central issue.
*again, not to sidetrack onto what combination of policies of the up to recent administration, previous administrations, or factors not affected by govt policy, have resulted in that lower growth trend.