We hold these truths to be self-evident: Tariffs are taxes, selective taxes imposed on buyers of goods that move across an international border into the country imposing the tariff.
These truths are less self-evident: Though taxes are paid by the buyer, they harm both buyer and seller by inhibiting the transaction. The transaction would not have occurred unless both buyer and seller (neither one the entity imposing the tariff!) felt they were better off. With the additional load of tariffs, an increasing set of transactions no longer have buyer and seller feeling they are better off, and business starts to cease.
Incidentally, since tariffs are imposed on selected goods only, they highlight some of the gross inefficiencies of government, which we only see when a Customs inspector reviews purchases in a foreign country to see whether the traveller must pay a duty, or are properly classified as that nearly identical thing that is exempt. And businessmen lobby furiously to get their industry exempted from the tariff, so that it appears to “punish” them, but doesn’t really.
Now, the United States has several problems with China:
- China steals intellectual property of U.S. corporations, reverse-engineering some products, insisting that companies manufacturing in China disclose their patented processes (which are then often copied), and looking the other way when duplicates of U.S. music and movies are sold.
- China is paving large numbers of atolls and islands in the nearby Pacific Ocean, in apparent preparation to expand its military footprint and inhibit navigation on the open sea.
The first violates the free-trade regime of the World Trade Organization, which should be redressed by the WTO itself. The second is a military problem, and if the U.S. believes it is a significant military problem, there should be a military response. The main response to date has been the U.S. deliberately sailing through waters that China hoped to wall off.
A third fact is that China sells the U.S. more goods than it buys. This is not a problem at all. Those dollar bills return to the U.S., as they must, perhaps through third countries. Chinese kids get student visas and pay for educational services, or the Chinese invest in the U.S., buying its bonds, stocks, and real estate. China essentially “buys the product” of American management and a safe place to store money. To the extent that China does not return the dollar bills, the exchange rates of the two currencies change to make doing so more rewarding.
Unfortunately, President Trump views this imbalance as an act of war, his constituency including a lot of American workers who made potato parers, now underbid by the Chinese (whose workers are not subject to the Department of Labor’s Wage And Hour Division and neither have to provide an Obamacare-compliant health insurance policy nor a non-threatening work environment for cross-dressers).
One could solve these problems. Instead, on Monday, the Trump administration imposed tariffs on China, and the stock market plummeted, anticipating an inhibition on trade and a likely reaction from China. The reaction ensued in 11 hours and the Wednesday market plummeted again, an odd surprise to an event that was already a certainty. (See China retaliates, slaps duties on U.S. soybeans, planes; markets skid from Reuters.)
The Chinese retaliation is highly political. It deliberately focuses on goods manufactured in states whose Electoral Votes went to Trump. And—
Tobacco and whiskey, for example, are both on Beijing’s list and are produced in states including Kentucky, home of Senate Majority Leader Mitch McConnell.
Trump is getting famous for bizarrely harsh opening moves, followed by backing off, his choir singing that the goal was simply to get everyone to the negotiating table for The Art of the Deal where Trump can win, win, win. (This is hardly an art, once the adversary learns your style and tunes out the overture.)
Unfortunately, though Trump may view damaging tariffs as an opening salvo in a war that achieves lasting peace without casualties, he is attached to a government with a sprawling, formerly dormant bureaucracy designed to maintain the damage and convince itself it is doing good. The shocking pull-quote from the article mentioned above is that
USTR developed the tariff targets using a computer algorithm designed to choose products that would inflict maximum pain on Chinese exporters, but limit damage to U.S. consumers….”The remaining products were ranked according to the likely impact on U.S. consumers, based on available trade data involving alternative country sources for each product”….
That is: The federal bureaucracy spent valuable computer time hoping to identify transactions which, if inhibited or prevented, would harm the foreign participant but not the other one. The computer identified countries that were “alternative…sources” for the American, but ignored the fact that the American had not chosen to buy from that country, and the fact that, once it becomes infeasible to buy from China, that country is likely to adjust its prices upward.
WILL CONSUMERS PAY?
Nice subheading by Reuters. Ya think? The real question is whether the Deep State, finally able to ply its trade of arbitrarily cherry-picking individual persons and companies for punishment under false assumptions, will relent even if the President decides to declare peace.