Trump Likely to Impose New Tariffs Today: Is This Bad Economics or Madman Theory?
Frankly, I do not know how folks like Mark Perry and Don Boudreaux do it. They are able to keep going, day after day, year after year, refuting the same stupid anti-trade arguments over and over again. I don't have the patience or endurance. Long-time readers will remember I used to spend a lot of time on climate. But the debate never went anywhere. It was like Groundhog Day. At some point I just thought "I've said what I have to say, and now I am done" (though I actually do have a climate update in the works).
Anyway, Trump has put tariffs on Mexican and Canadian steel and aluminum and is poised to do so for European products soon, a tax that will ultimately be paid by every American consumer. Sigh. This is just so economically ignorant it is hard to take it seriously, yet here it is. In the name of 150,000 or so US steelworkers and a bare handful of obviously politically well-connected corporations, we are going to raise prices on essential raw materials that are consumed in one way or another by a huge number of American businesses and hundreds of millions of US consumers. Two or three years ago when US manufacturers are moving oversees for lower raw material costs, you will know why.
Republicans are really supposed to know better on this sort of thing, which to me is just proof #12,465 that our political parties represent tribal rather than consistent ideological differences. Republicans have twisted themselves in so many knots trying to support Trump while knowing better on tariffs that some have actually brought back a version of madman theory.
I am not entirely sure of the intellectual and historical origins of madman theory, but I have always ascribed it to Nixon and Kissinger.
President Richard Nixon and his national security adviser Henry Kissinger believed they could compel "the other side" to back down during crises in the Middle East and Vietnam by "push[ing] so many chips into the pot" that Nixon would seem 'crazy' enough to "go much further," according to newly declassified documents published today by the National Security Archive.
The documents include a 1972 Kissinger memorandum of conversation published today for the first time in which Kissinger explains to Defense Department official Gardner Tucker that Nixon's strategy was to make "the other side ... think we might be 'crazy' and might really go much further" — Nixon's Madman Theory notion of intimidating adversaries such as North Vietnam and the Soviet Union to bend them to Washington's will in diplomatic negotiations
Speaking of Kissinger, the new Conservative explanation of Trump trade (and foreign) policy also includes an element of old-time brinksmanship. I remember reading something in college from Kissinger, which I can't find now so maybe I have it wrong, but I would paraphrase it as, "it is very dangerous to go to the brink over an issue, but one can never make progress without going to the brink."
Some Conservatives are now arguing that Trump's protectionism is "good" protectionism because it is an opening move in a bargaining game where the US can make headway and perhaps get better rules all around. As such, Trump's seeming irrationality and willingness to ignore basic economics is a feature, not a bug, supporting the madman model of negotiation.
Ugh. This might perhaps all be reasonable strategy in a zero-sum game such as, say, negotiating shares of the assets in a bankruptcy settlement (something Trump is actually super experienced at). Trade, though, is not a zero-sum game. By definition, trades that are executed voluntarily have to help both parties, or else they would not be agreed to. As such, anything that reduces the amount of trade between people in two countries is guaranteed to be a net loss for BOTH groups of people. There are no winners.
"Yes, they were advanced for the day."
Well, that's the point- they were as advanced for their day as the spendy stealth aircraft are for ours, only the country was able to build them by the thousand, despite having to build them inside the US without the wondrous free trade advantages of outsourcing and offshoring. And we certainly aren't going to be converting Ford factories to anything, even if we wanted, because a great many of them aren't even in the country or don't use US-sourced components.
But the situation for aircraft is fantastically better than for shipbuilding or semiconductors. The US shipbuilding industry is a sad joke, and I've read that the microchips used in precision guided munitions come from Asia. These are not problems China faces. A different world indeed.
"Partly because it is easier to sell airplanes to countries if some of
the components are produced there"- Sure, but what happened to free trade? I know- other countries simply aren't interested in that dogma, so they simply act in their national interest.
"And partly to reduced their
vulnerability to stupidities like the current aluminum tariffs"- But Boeing had no reason to suspect tariffs ante-Trump, anymore than anyone else did. No, it was foreign merchantilism, combined with the American-globalist indifference to the actual United States. But even worse, instead of being held hostage by potential Trump tariffs, Boeing is now hostage to various governments and foreign companies too- including when those foreign companies fail to meet requirements.
If I recall, this became a serious problem for Boeing early in 787 production, because one of their overseas suppliers was causing major delays. Of course this didn't inspire Boeing to dump that supplier- they couldn't, because of the politics.
There's a lesson there, and we need to learn it.
And doing nothing when foreign mechantilists disembowel your economy is what made Trump president of the United States.
There is now no military need to build 'disposable' (e.g. we expect to lose lots in combat) aircraft or ships or tanks in vast thousands and there would not be any such need even in the event of a major war. That's just not the way armed forces fight now. So the national security pretext for steel and aluminum tariffs is completely bogus.
Good comments! Great discussion.
I disagree, strenuously. The idea that aircraft will not be shot down and ships will not be sunk is simply ridiculous. The United States simply has not fought a war against a nation with much capability to do so since WWII.
The last time we came close- during Vietnam, when the North was backed by the Soviets- we did lose significant numbers of very expensive and advanced aircraft, requiring lots of expensive and advanced replacements.
Against a nation such as China, which has advanced industry of all types and is using it to create an enormous advanced military with the best technology they've been able to steal, buy, or build on their own, the US military would either lose quickly, lose, or go nuclear.
None of these are good options.
Not asking for sympathy. Was just using an example to make a point. If that was not understood, the point is that modern trade patterns are enormously complex and erecting any type of barrier has many more unintended consequences then the intended ones.
Not sure what your point is? That free trade is bad? Or just international free trade? Gov't control over the economy is good? Please explain if there is a point in there.
Our economy is, in no sense, 'disemboweled'. You may have noticed that we have enjoyed record highs in the stock market and record lows in unemployment WITHOUT these tariffs. And that prosperity is now under threat from the tariffs and the potential they have for triggering a trade war and global recession.
"As a professor in Economics . . . that does not mean that
every trade is good."
Then you are not a professor in economics.
Because if you were, you would know that every trade is good - or else it doesn't happen.
Seriously. When was the last time you voluntarily traded something with someone else where you didn't feel you came out richer?
As many as it takes.
Why am I paying extra to other Americans? What is special about the 'American' category that can't be said about the 'Arizona' category, or the 'Yuma county' category, or the 'Yuma city' category? Why should I trade with other American preferentially simply because they are Americans but not apply that same thinking to any of the other polities I am part of?
"bought and paid for by big business", "fraudulent deals", "fair deal".
None of those terms actually mean anything in this context, you know that right?
Your argumentation tactic is exactly the same as Trump's (emotional appeals).... that doesn't really leave much to discuss.
I disagree. When almost every item manufactured or grown comes from outside the country, something is terribly wrong, regardless of the stock market or unemployment rate. Especially when a vast portion of all that comes from China, a sure enemy of the United States.
I must also note that Trump ran on renegotiating trade deals and imposing tariffs. If the stock market is threatened because Trump is doing what he said he would do, then tough. And the market never should have taken off either, fearing what the beast Trump would do.
Plus, we've already been in a trade war my entire freakin' life. We've just been pretending otherwise. It's time to notice, even if some of our competitors and enemies get upset, or prosper less, lacking the free access to our market that they've long enjoyed.
My point is that I have no sympathy for you, because of your belated recognition that foreign trade and the political machinations involved have the potential to make bad things happen to YOU. Oh, the huge manatee. All of a sudden those awful things that only happened to lazy UAW workers or other unworthies could happen to YOU precious YOU.
Oh noes. Hence, you have discovered the argument made again and again by myriad others. That is, that each manufacturing job tends to support several others, and each manufacturing job lost means the potential or likely loss of several other jobs. I'm sure you understand this argument, because you made it above.
But you don't seem to have noticed all the implications, because otherwise you would not be arguing in favor of free trade.
Shrug. Fortunately for YOU, the unemployment rate is pretty low right now. Thus, I'm sure you'll be able to find another job quickly, should you lose your present occupation, even if it doesn't pay enough for you to maintain your present lifestyle.
Good luck!
They mean a great deal. If nothing else, the belief that we've been getting screwed both by our so-called friends as well as our enemies helped make Donald trump president.
Lets see how the negotiations work. Canada needs us as much as we need them.
Also yes with any policy change someone gets hurt and someone gets helped. Ideally the change helps more than it hurts. As an example, if we got rid of the income tax we have and replaced it with a flat tax or national sales tax, I would not weep for all the poor accountants/CPA's and other tax professionals who lose their jobs. Sometimes you got to try things and see how they play out. A few months? - they were only just implemented today.
Those countries are killing themselves with those tariffs, and don't they know they have to use the money to buy and absorb American businesses, since they can't use dollars at home. How terrible for them. /sarc
"How many Americans should we put out of work so you can buy cheap goods?"
Don't bother asking Warren. Just like how he insists allowing unlimited immigration into the US can't be anything but good, and never admits there might be any kinds of drawback, he will never answer that question.
It doesn't matter how many Americans go out of work to Warren, because of the whole cheap goods thing.
You are confusing the difference between market-based trades and government-forced trades with the difference between trades based on strength and trades based on weakness.
Indeed, I wholeheartedly agree that voluntary trades in market-based transactions add value to both parties IN COMPARISON to trades that the government forces you to do at the point of a gun. This concept should be Economics 101, and it distresses me to see how many Millennials have difficulty understand it.
However, that is not the comparison under discussion here.
The comparison is between a trade made under desperation / weakness vs. a trade made out of strength. If I need to sell my vintage car in order to make a balloon payment on my house -- or else lose the house -- I am making a trade from a position of weakness. (No doubt it is true that I feel the loss of the car is better than the loss of the house, but that comparison is not the issue.) Far better for me to have some strength, like another source for temporary funding, so that I need not trade under weakness. A worker who needs food to feed his family is likely entering a trade from a position of weakness. if he can ban together with other workers, he may be able to strengthen his position. Or perhaps he could strengthen his position by stirring up public opinion against his employer who is "exploiting" workers who are trading with him from a position of weakness.
There are dozens of ways to strengthen one's position in resolving terms of trade, and tariffs is one tool that a country can use to use the strength that a country actually has.
By the way, Coyote and others way overplay how significant these tariffs are. Obama imposed bigger ones, and Trump's proposals are low by historical standards.
Hadn't visited this blog for quite some time.
I'll make it longer now.
"I disagree. When almost every item manufactured or grown comes from outside the country, something is terribly wrong, regardless of the stock market or unemployment rate."
If you believe 'almost every item manufactured or grown comes from outside the country', just what exactly do you think is the source of our present wealth?
If you don't understand the difference between "American" and "Arizonan" then you surely won't be able to grasp the difference between "American" and "Chinese."
Shrug. Perhaps google will help you.
Why can't it be both?
I'm not sure why you are hung up on ME. I guess it makes it easier to miss the point.
When an "American job" is lost due to increased free trade there is increased efficiency (someone else somewhere making the same thing more efficiently) and so a net benefit to the overall economy.
When any job is lost due to protectionism, higher taxes or tariffs it is a missed opportunity for more trade and a net harm to the overall economy.
For people making the case that the point of the current tariffs are to "win better deals" that will in the long run make for freer trade.... well agree to disagree, and I hope they are right.
Your point (i guess) seems to be that trade protectionism is generally good, and this is trade protectionism so "yeah trump"?
"Obviously anything bad that happens can't be our fault, so obviously it is caused by... those guys over there. Lets screw those guys over there who have been screwing us". Not just Donald, a lot of leaders got to be in charge because of that line of "logic". Doesn't make it right.
Trump's playing 3D chess while the Europeans are playing checkers:
Trump’s tariffs tied to defense spending irks German officials
COLOGNE, Germany — German officials are scrambling to make sense of the latest twist in the brewing war over U.S. steel and aluminum tariffs, which could see Washington dole out exemptions based on allies’ defense-spending levels.
The idea of coupling the two issues first came up last week, when U.S. Treasury Secretary Steve Mnuchin told CNBC that President Donald Trump would factor military contributions to NATO into the application of a 25 percent tax on imported steel and 10 percent on aluminum.
European officials have largely rejected the move as a serious threat to transatlantic relations.
European Budget and Human Resources Commissioner Günther Oettinger argued in a Sunday interview with Germany’s ARD television station that the talks to resolve the dispute should exclude defense spending.
“This should be only about trade. Defense, NATO or other topics should not get mixed up,” he said.
You might be able to get cheap aluminum in Canada but the taxes and the wages will bankrupt you.
"When an "American job" is lost due to increased free trade there is increased efficiency (someone else somewhere making the same thing more efficiently) and so a net benefit to the overall economy."
Please help me understand this. Because you're concluding that there is a "net" benefit without describing the negative effects that are also experienced when an "American" job is lost due to increased free trade.
What I'm thinking of is maybe an analogy to one of the arguments that I've seen against raising the minimum wage. Specifically, the argument notes that while still-employed workers may experience an improvement in their financial status, there will be those who are no longer employable at that higher wage and who thus lose all their income. It seems to me that it can be either a net loss or a net gain, depending on the relative level of gain to one set vs. loss to the other.
So, while there may be some benefit to the overall economy of a job going overseas, where is your evaluation of the costs to the economy of those who are unemployed as a result of that? Don't you need to work through all that to arrive at a "net" anything?
What am I missing?
Every time in my life I was forced to hire an attorney I was unhappy with the cost. I purchased health insurance that was a complete rip off. I sold one of my businesses for less than I wanted. Why are eye doctors so expensive? Cost of monthly rx.
Seriously, how can you think every trade is good, what naive fantasy land do you live in?
Can you please update China on that, from March of this year; "China is currently engaged in the largest naval buildup in recent memory, building large numbers of modern ships complete with modern missiles and sensors."
Are you sure that is why they moved? We have had sugar prices fixed for decades.
"SANTA ANA PUEBLO, N.M.—Candy bar prices jumped another 10 cents this year to an all-time high $1.49, and sugar makes up just 1 percent of the cost, according to information released by the American Sugar Alliance (ASA) today at the 32nd International Sweetener Symposium."
Wrigley is bringing its production of LifeSavers mints in-house, expanding a gum site in Chattanooga, Tennessee.
The gum giant expects the relocation to be complete by the end of the year, creating 40 jobs in Chattanooga in the process.
The move is part of a strategic shift towards manufacturing more of its core products in-house, which it can then reinvest in growing the LifeSavers business, a Wrigley spokesperson told just-food.
Wrigley plans to optimise the use of its existing facility space by adding a third level to part of the facility.
The company is moving production in-house from a Canadian company under contract with the confectionery producer.
A Wrigleys spokesperson declined to comment on how many jobs will be lost from the Canadian site in the move.
No need to plan 12 years ahead; "Automation could destroy as many as 73 million U.S. jobs by 2030"
I agree with you almost completely. When these "free trade" advocates talk about "free trade" I ask, where is such an economy?
Do they think the U.S. practices free trade? The answer to that is obviously we do not.
What I find interesting with the Trump trade negotiations is that anti-Trump people, and even Trump supporters, act as if no other nation has tariffs. The Chinese have an existing 25% tariff on automobles and also put other trade restrictions on automobile imports.
What I favor much more htan "free trade" is the free markets. Trade distorting tactics practiced by the Chinese, Europeans, Japanese, and even the United States distorts the free market and free trade. If the Chinese manipulates their currency and subsidizes the production of steel in their country this means that steel that under free market conditions is being produced in China when it should be produced somewhere else. So, in this situation changing the "terms of trade", using your solid terminology, might be a better ECONOMIC choice than doing nothing.
There seems to be a belief that the United States does not make anything anymore. Nothing could be further from the truth. From UNCTAD statistics:
Manufacturing output in 2015:
• Chinese manufacturing output was the highest in the world, $2.0 trillion.
• USA manufacturing output totalled $1.9 trillion, the second highest in the world.
The reason that jobs have been lost in manufacturing is because of productivity improvements and is similar to the reduction in jobs in farming. This is an order of magnitude greater than the loss of jobs due to trade.
And crucial businesses like steel production are not viable in the US and the knowledge and skill has gone overseas.
Surely China and Japan, who indulge in such protectionism, are not on this list.
Nate, here is an attempt to explain Agammamon's reasoning as well as an explanation why his reasoning is missing the issue. Agammamon's argues that you had a choice to hire the attorney or not. Even if you are unhappy with the cost, you determined you were better off with the trade than without the trade. You think health insurance is a rip off, but you buy it because you determine that you are better off paying the price than living with out it.
However, Agammamon is missing the issue at hand. The issue is whether we can improve the terms of trade. The government says I must buy health insurance or go to jail. So I am entering into the trade from a position of weakness. I would like to strengthen my position by having that mandate removed -- I want the ability to walk away from the table. The government stipulates what must be in my health insurance plan; and that weakens my position. I want the freedom to form a group of like-minded individuals (who abstain from alcohol, do not smoke, exercise frequently, and believe in sex confined to marriage) and have an insurance program for this group. But the government says that such a arrangement is illegal, so my position is weakened. (Incidentally, those who have the characteristics described in the previous sentence have medical costs averaging less than one-third the costs in mainstream America.) Also, the government makes it illegal for a doctor to offer pre-paid retainer plans to patients, again weakening the position of consumers by eliminating competition. In summary, we want to strengthen our position when terms of trade are established so that we can have better trades.
I'm only talking about comparative advantage, in the long run we are better off when things are produced where and by the people that can most efficiently produce them.
You are right, that doesn't account for short term pain caused by relocations and re-purposing. But if you let the short term pain trump the long term benefits of free trade.... well, in the best case your growth will suffer mightily.
I've been thinking about your comment.
Comparative advantage is a great theory, but it only really works in the real world, though, if one considers only pure production factors. My soil and climate may be good for growing strawberries and I have lots of cheap labor to pick them quickly when they ripen. Yours may be better for hops and you have breweries close by to reduce shipping costs to give you that advantage. I have a more efficient process for refining heavy crude than you, but you have a better pipeline system to move it and better port facilities for shipping it overseas. Super. I'll grow strawberries and sell them to you, and you can brew and sell me beer. Maybe I'll license you my revolutionary refining process for a fee and a cut of your overseas sales of product (final deal points TBD). :-)
But. Do you know how handicapping works in horse races? In a handicap race, some horses' records may indicate that they are faster [more efficient] than others. In other types of races all horses may be required to carry, say, 125 pounds tho' a jockey may weigh in much lighter. But the handicapper wants to eliminate any comparative advantage so that ideally all the horses reach the finish line at the same time. So what does he do to take away the advantages that some have over others?
To accommodate those differences, to eliminate the comparative advantage of one over another, the handicapper will require the better horse [or the lighter jockey] to carry extra weight in their saddle pouches, to slow them down, TO GIVE THEM A DISADVANTAGE when racing against slower horses or those carrying heavier jockeys.
It's the same with economic comparative advantage: if a more efficiently producing company (or whole industry) is handicapped by carrying extra weight of government-imposed laws and regulatory compliance (that others do not), that may obliterate its existing production efficiencies that would have otherwise resulted in comparative advantage over its competitors.
It is not necessarily that U.S. producers are less efficient than others, it may likely be that they are carrying weight in their production cost saddle pouches that renders them less competitive, and as a result, none may be operating/producing at the most efficient level possible. Comparatively speaking.