Tariffs – Good or Bad? Coming to a product near you!
About a year ago, on January 18th, 2018, President Trump announced tariffs on washing machines and solar cells. This was the first major kick off for an announcement of a series of trade tariffs on imported goods.
Monday, September 17, 2018 President Trump announced he was ordering 10% tariffs on $200 billion worth of Chinese imports. These tariffs will go into effect on Sept 24th and remain in effect until the end of the year. If concession by China are not made, the tariffs will jump to 25% at the end of the year.
This is on top of the tariffs on $50 billion worth of goods
imposed earlier in the year.
Simple arithmetic, assuming sales of these imported goods remain the same, means $25 billion could be collected for the US Treasury in a year. If the tariffs were to rise to 25%, this figure could grow to $62 billion.
The Trump administration is forecasting the Federal Government budget deficit for the current budget year, which ends Sept 30th, 2018, of $890 billion. Last year the deficit was $665.8 billion so the deficit is up this year a bit over 33%.
So, you could say this extra $62 billion could help reduce
the deficit. Additionally, there are
other tariffs on other countries that could be used to help the deficit.
But, are Tariffs the
way to do this?
One June 1st, 2016 a steel worker union official
asked President Obama about job losses at a plant run by Carrier. Obama responded, “…some of those jobs of
the past are just not going to come back”.
During the 2016 election Donald Trump promised to bring jobs back by negotiating a better deal. The previous administration, Obama, preferred to just complain about IP (Intellectual Property) and used tariffs for a very small number of items, like tires. Obama tried to use the WTO, to little avail. Where Trump appears to care less about the WTO.
Obama responded, “…Well,
how exactly are you going to negotiate that? What magic wand do you have?”
Well here we are, negotiated and un-negotiated tariffs. Bilateral trade deals.
America has long stated a goal of Free Trade. America’s ivory tower economists have long stated that Free Trade should be the goal. But, what do Chinese economists espouse? It would appear to be tariffs, borrowing other countries intellectual property, internal government sponsored advertising to discredit companies and products thought to be harmful to the Chinese people in one way or another.
Who has been more successful? Hmm, the Chinese….
What do European Union economists say? Well American Cars imported into the EU get a 10% tariff, before VAT taxes. And American trucks, 25% before VAT taxes. Should we add an extra 10% or 25% tax for Porsche’s, Volkswagen’s, Audi’s, and Mercedes’s? There has been a discussion on this. Tariffs can go both ways.
America in the past did not like to impose tariffs on other countries products because we were rich. Right? We wanted to help everyone. After World War II the idea was to get everyone back up and running. Even China, starting in the 70’s with Nixon, was coaxed into being part of the world stage.
The world via globalization, is undergoing a process I call “Economic Equalization”. Under a pure free trade model consumers purchase the best goods they can for the best price. To lower prices manufacturers try to reduce their cost. They do this by being efficient, and hiring the cheapest adequate employees they can. America, in the middle of the two oceans, the Atlantic and the Pacific has been somewhat protected from a true free market. But cheap, efficient, and dirty shipping, coupled with offshore lower cost producers have had an effect on America’s job providing manufacturers. Under NAFTA American auto makers moved a number of plants to Mexico where autoworkers can be had for $2.30/hour. Much cheaper then the average American auto worker.
The only jobs really safe in America are government workers and service workers. But, is this a way to run a country?
Service workers work cheaply. Government workers are nearly the only workers left with good pensions and premium benefits.
It is easier and cheaper to buy offshore products if you don’t have to pay for silly things like pensions and medical care. Or follow environmental regulations.
The massive container ships the ply the ocean shipping lanes produce a staggering amount of pollution. The most staggering statistic of all is that just 16 of the world’s largest ships can produce as much lung-clogging sulfur pollution as all the world’s cars.
If tariffs reduced ocean shipping between the US and China by 50%. Donald Trump could make the claim that he had reduced several million tons of CO2 and other pollutants. That would put a number of environmentalist in a quandary.
Donald, the environmentalist??
Under Economic Equalization over time, theoretically all workers of a like kind would be paid nearly the same the world over. Adjusted of course for shipping costs of product and supplies. This would mean American salaries and standard of living will continue to fall. And poorer nations would see a better standard of living.
Other nations, such as the European Union and China for example, attempt to protect their citizens and economies. But America has remained a stalwart free trader. Preferring instead to offer unemployment insurance and welfare instead. And handing out Most Favored Nation Status to all but 37 countries.
Can America remain a staunch free trade nation?
American citizens have increasingly purchased larger amounts of Chinese products. The quality of these products has continued to rise. With the money from the American market the Chinese government has increasingly flexed it muscles. They have over past few years claimed additional property and lands from other nations, such as the “Nine-Dash Line”, in effect stealing these lands from other nations. The Philippines won a case against China under the United Nations Court. But China has ignored the ruling and has continued its military control of all lands within their “Nine Dash Lines”. These lands include islands that were thought to belong to the Philippines, Vietnam, Taiwan, Malaysia, and Indonesia. Tibet is no more.
The Philippines took China to the United Nations court on the seizing of their islands and won a case against. But China has ignored the ruling and has continued its military control of all lands within their “Nine Dash Lines”. These lands include islands that were thought to belong to the Philippines, Vietnam, Taiwan, Malaysia, and Indonesia. In April of 2015 Obama stated that he had concerns of China using “its sheer size and muscle to force countries into subordinate positions.”
The American consumer has in affect, financed a large portion of the growing Chinese Military Army, Navy, and Air Force that will be used to control this area and others in the future. This financing has occurred as America runs larger budget, and larger trade deficits.
In closing it appears that America will start using Tariffs more than in the recent past. It is hard to say whether America’s tariffs will reach parity with what over countries charge. But at some point they need to be fixed for a period of time for stability.
No one in America is going to invest in a local factory if competing products can undercut them in the next year. It’s easier to invest in a foreign factory, hire cheaper labor, work them to death with longer hours, they don’t need insurance, maternity leave, or good working conditions. Then ship the products long distances polluting the world.
American’s talk a mean game on the environment and working condition. But it really comes down to what’s cheapest on Amazon.
Much has been said about the 2017 tax law changes. Tariffs can help this deficit, but they are paid for by consumers. America may need to consume less, and build more, or pay a bit more, to prevent budget deficits and trade deficits from growing. Tariffs are similar to Europe‘s VAT tax.
Closing
In closing Tariffs against the United States have been nominally higher for goods exported from the US then for goods being imported in. Globalization and “Economic Equalization” have caused the US standard of living to slip on an aggregate level with the rest of the world. Donald Trump has talked about this disparity for years before he was President. And he is now executing on a patchwork of tariff changes. Ideally we would be kinder to our nearby neighbors, Canada and Mexico. And additionally the EU whom we work with under the NATO umbrella. We need to be kind to our strategic friends such as Japan and Australia. But we cannot let other countries take advantage of us. And shipping world wide, along with it’s attendant security concerns, causes enormous pollution.
TIMELINE
The following Tariff timeline, part of which was derived from china-briefing.com, at times helps folks understand how we get to where we are and maybe a trend on where we are going. Tariffs are a form of the Monopoly game’s, Luxury Tax. Note that the timeline is somewhat boring and dry as it’s difficult to piece this information together.
2019-Mar-01 – Decision by the US on whether up $200B of Chinese goods from the 10% category, to the 25% category.2
2018-Dec-14 – China temporarily lower tariffs on US auto’s and resumes buying US soybean exports.
2018-July-03 – Micron Technology Inc, a US company, is ordered to halt sales in China.
2018-June-22 – The EU imposes tariffs on U.S. exports valued at $3.2 billion, including bourbon, orange juice, peanut butter and denim
2018-June-15 – China schedules 25% duties on 545 U.S. products, worth $34 billion in trade and promises duties targeting $16 billion in U.S. energy exports.
2018-June-05 – Mexico responds to steel and aluminum tariffs by imposing duties on $3 billion worth of U.S. pork, steel, cheese and other goods.
2018-May-22 – China announces they
will cut import duties on cars from 25% to 15%.
2018-May-09 – China stopped buying soybeans from America. Buying resumed on Dec-14.
2018-Apr-17 – China announces “antidumping” duties, (tariffs), of 178.6% on US Sorghum.
2018-Apr-04 – China announces an “additional 25% tariff on imports from the US. This includes automobiles, chemicals, aircraft, some farm products. This is in response to proposed US duties on high tech goods.
2018-Mar-23 – China announces new
tariffs of $3B on US Imports in response to the steel and aluminum tariffs.
2018-Mar-22 – In response to China’s “unfair trade practices”, the US proposes additional tariffs.
2018-Mar-18 – The EU states it will consider trade “rebalancing” tariffs on US Exports.
2018-Mar-9 – Trump signs tariffs on imported steel and aluminum from all nations. This was a big step, might be a bit of overreach if the true focus of the target is China. But, America needs to have a steel industry. If in WW2 we bought our steel from Asia, where would we be?
2018-Jan-22 – The US imposes tariffs on washing machines and solar cell imports. Washing machines come out of the EU, South Korea, and Japan. Solar cells come out of Japan and China. Strategically, the US should maintain a footing in the Solar Cell arena.
2019/02 Whiner of the Week – Donald Trump(Calif Fires)
mike.editor@midpush.com, updated 190409
Since the original date of publishing, 190116. Gavin Newsom has become Governor of California. He seems to agree with Trump that Calif needs to begin managing it’s forests better. He declared a “State-of-Emergency” on March 22, 2019. This action by the Democratic governor follows President Donald Trump’s repeated criticism of California’s wildfire prevention efforts. California’s esteemed legal community, still looks to PG&E as the fall guy however.
This week’s, 2019-Week-02, Weekly Whiner is none other than Donald Trump. On Jan 9th, 2019 Trump warned he would cut off federal funds to fight California fires. House Speaker Nancy Pelosi, D-Calif immediately took the emotional ground and responded that Trump’s threat, “insults the memory of scores of Americans who perished in wildfires last year & thousands more who lost their homes.“
The California and the Federal government both need to take a non-emotional look at how they want to handle fire prevention and fire fighting in the future.
The last two years, 2018(8,527 fires burning 1.893 million acres) and 2017(9,133 fires burning 1.381 million acres), have seen California have a number of deadly fires. The biggest of which are:
Camp Fire 2019 – The nation’s deadliest fire in a century. 153,336 acres, at least 85 people dead, 19,000 buildings destroyed. Nov 8-25.
Mendocino Fire 2019 – The largest California fire at 459,123 acres, 157 residences destroyed, 1 fire-fighter killed
Donald Trump has stated that California mismanages its forests. And Governor Brown and now newly elected Gavin Newsom have stated that California is a victim of climate change. They both have stated that Trump is wrong.
When I was a small boy, as a Boy Scout, I used to watch out the window as we drove off to go camping thru out the state. I used to see fire breaks everywhere to help prevent and fight, the fires that start easily in California forests as California does not receive any rain at all from May to sometimes November/December. Driving these same roads I no longer see these breaks, but I can still see where they were as the trees are smaller.
Where did these fire breaks go?
In the years of 1960-1990 foresters used to harvest 10-12 billion board feet from its national forest’s. Given California’s growth and housing need this should be a much larger figure 28 years later.
Then as the Sierra Club and other environmental groups started gaining more control, this harvest reached a low of 2.5 billion board feet in 2013. California became an mass importer of lumber. Effectively moving perceived environmental damage to another location, a common California tactic. Not to mention the extra trucking environmental costs to bring this imported lumber across the continent.
People had complained the loggers damaged the forest floor and harmed wildlife. The Spotted Owl was a poster child for the environment. California, to build the homes needed by its burgeoning population, switched to Canada as a provider of choice to build its homes. In addition, prescribed burns for Southern California’s chaparral and grasslands, done in the semi-moist period of March-May, were stymied by environmental lawsuits and air quality concerns.
If you go back a few hundred years, large portions of California would burn until the winter rains came. The Indian tribes have stories and legends of these fires. There was nothing anybody could do about it except stay out of the way. And it will continue.
California’s oak and redwood trees adapted to these fires that occurred every 15-20 years. California has a stated 3.5-million-person housing shortage. The homeless count is large and growing, the sanctuary state and city policies create a magnet, and a healthy economy has real workers wanting to move to California.
Existing business and old time residents have Proposition 13 to assist them in staying in the state as new businesses and residents shoulder the costs. In addition in 1986 and 1996 respectively, California voters passed Propositions 58 and 193, which extended Prop 13 to exclude from reassessment property transfers between parents and children (58) and grandparents and grandchildren (193). So California has really pushed immigration in order to obtain funds to expand government services. This has created a quasi-feudal system taxes between old and new neighbors for a similar abode which are taxed differently. The new owner may pay taxes 10 times more than their next door neighbor, an old resident. Not quite “Equal Protection” under the law.
Under Prop-193, a grandparent can pass multiple rental properties to their heirs without a step up in basis. In a few more decades, this will become a much larger issue
California has a choice. They can balk and complain about paying Tariffs for Canadian lumber to build houses, yet they don’t seem willing to gently and wisely harvest their own forests.
If they did build the number of houses needed, house values would fall, and impact the value of the higher priced houses, possibly causing California to have a tax shortage. But more houses would make up the lower house prices as demand would ease.
You can harvest the lumber wisely. Or let it all eventually burn.
California might look at their new houses being built by California harvested wood as Carbon Banking. In 2018 alone, it is estimated just California’s wild fires caused 50 million metric tons of CO2 into the atmosphere. California’s environmentalist need to look at the macro-environment picture rather than the pretty forest floor in their backyard.
California’s present population is ~40 million. In 2030 it is estimated to be ~44.1 million. These new people and a lot of existing people will need a few million new homes. Other materials than wood can and should be looked at. But California needs to use some of its own wood. It should try and avoid it being used up in fires.
California is ranked 49th out of 50, per capita in building homes. California is short 3.5 million houses. California politicians love to talk about high house prices. But, building material costs are high, (we can’t use Calif wood). And permit and other building fees are near the highest in the nation. They really try and import people.
The earth’s population at about 7 billion now, is expected to grow to 9.6 billion by 2050. California is a magnet for a lot of these people because of the jobs and great weather.
I live here because of the weather.
Last August the California legislature authorized $200m for more firefighting related expenditures. On Jan 8th, 2019, Governor Gavin Newsom had added an additional $170m for similar expenditures to his proposed budget.
But as of yet nobody in the state government is talking about managing the fuel load with fire breaks, forest floor management, and thinning of the trees.
PG&E today is being blamed for the Camp Fire. Their liability is being estimated at $30B which will bankrupt the company. Nobody is talking about the homeowners and business owners that created unsafe conditions that encouraged the fire to spread. Wood roofs, dense brush around homes, dry wood around the buildings. It’s easier to blame PG&E rather than your neighbor.
Some might say that PG&E is a victim of climate change. There has been discussion of burying power lines. Some have estimated this would cost $100B to do this. A lot of money. This would save money in the long run. But the rate payers would pay.
Many homes survived the Camp Fire. The factors they had in common were:
- Having a fuel break around the house. No over-hanging trees, tree’s set back. No firewood storage near the house. Dry brush cleared away, 50-75 feet plus. Fuel breaks can be thinning of the brush under the trees as a secondary break.
- Being built of combustion resistant materials. Non-wood roofing. Stucco outsides or cement based products
- Fences or Walls made out of non-combustible materials. Californians seem to love walls or fences around their houses. Privacy breaks, walls, forests or fences should be combustible resistant.
- Limited dry landscape material around the house. A good fire break, but with dry material around the house does not help if it’s windy on fire day!
- Not being near a neighbor who didn’t follow the above practices. This is key. If PG&E had a fire start, the forest will burn, yes. But in a town, it highly likely your neighbors and your fire prevention techniques will determine your outcome.
Hmm, this weeks Weekly Whiner is Donald Trump and we’ve barely mentioned him here. He is what I would call a Butt-Head for his comments to withhold FEMA funds. He is correct California should do more.
Ask a Californian politician if they could manage the forest better, they will say, of course. But you will never get a California politician to admit blame for our past forest practices.
But FEMA is set up to assist people in these types of situations. He shouldn’t withhold funds. Donald Trump would get more done if he was a kinder and gentler president.