Trump misuses tariffs, driving up costs for U.S. consumers, weakening U.S. position worldwide
Editor:
Don’t forget the basic when you hear false equivalents used to justify things that are fundamentally bad economics. Tariffs, trade, deficits, interest rates, savings, all tax cuts are being mixed up in a witches stew of nonsense.
1. Most counties use tariffs to protect particular strategic industry and we also use them to combat unethical trade practice(s). They are not used to increase the costs of goods and parts you need. That is what is happening.
2. Foreign countries buy our Treasury bills and finance our debt. After 40 years of tax cuts and huge deficit spending – our interest on debt now is more than our entire military budget – a smidge under 1 trillion.
As the value of our dollar goes down, and so to demand for Treasury bills, the interest rates on Treasury bills will have to increase to attract buyers. That’s what a busted up trade situation causes. Also continued huge deficits could do this if the economy is weak – 5 trillion in just the last tax cut package for the top 1 percent was 1/7 of the problem all by itself.
3. In respect to consumer and business interest rates, they are increased to dampen inflation when we pay more for the same thing – and sometimes possibly more for less.
4. Consumer and business interest rates will be under pressure to go down only if demand drops or the job market starts falling. That would happen when broad based tariffs get to the point they crush spending on goods and business investment.
This may be what OPEC sees in our future as it’s increasingly pumping oil thus dropping prices in expectation of decreased demand.
5. We are only going to save under 200 billion from cuts in essential government services (Elon Musk’s current number). Moreover all these cuts and firings will cost well over 1.3 billion to implement. (PIRG)
The 2 trillion in savings advertised before the election was claim was snake oil to justify tax cuts. Dismantling supporting programs and firing people without a plan is not rational. Unfortunately, that relates back to the interest cost on Treasury bills as net losses in tax revenue and perception of disintegrating government causes downward pressure on the dollar.
6. Economically tariffs do not create or solve trade deficits. Trade deficits are a combination of economic considerations.
The BRAC group of countries are proposing an alternative currency for international trade. With countries waiting to join, they already have 49% of the world’s population. If the Dollar is not used for pricing, interest rates can go up just as US businesses slow down thus compounding the problem. Pricing business in US dollars and interest rates is a huge advantage which is at risk.
Similarly, Japan’s threat to sell 1 trillion of US debt at a discount if the trade deal on tariffs goes poorly, has to be taken very seriously as it would devastate our status as the reserve currency and balloon our external interest rate.
7. We have a trade surplus with the UK and they estimate they came out 38 billion ahead on the partial deal just announced. Their cars now have tariff advantages our cars makers which are sourced in the US and Canada do not get.
Comment:
We have an amazing economy with momentum. We need changes in bidding and some management issues that are obvious. But we need to go back to our most prosperous days when the rich paid their fair share of tax. As it is these tax breaks could, for example, start paying down the deficit, albeit slowly, and also leverage some for job creation this trade war is claimed to address.
Curiously, if we want jobs why are we cutting Biden’s investments in the future of jobs?
Trump has had many financial failures. All have been characterized by a trail of broken promises and dashed hopes for everyone but himself and friends. Watch your personal pocket books to know where you stand.
Conrad F. Cropsey
Albion
