Wednesday, May 15, 2019

Follow the money, and all becomes clear

I mentioned last week that the brouhaha over President Trump increasing tariffs on Chinese goods was exactly that - a brouhaha, not a real issue.  However, we're still seeing alarmist articles in the mainstream media almost every day suggesting they'll precipitate a recession, throw the USA into economic doom and gloom, and so on.

MarketWatch puts things in perspective.

Most of what the public is being told about these tariffs is either misleading or a downright lie.

. . .

President Trump just hiked tariffs from 10% to 25% on about $200 billion in Chinese imports. In other words, he just raised taxes by … $30 billion a year.

Oh, no!

The total amount we all paid in taxes last year — federal, state and local — was $5.51 trillion. This tax increase that has everyone’s panties in a twist is a rounding error ... Even if Trump slapped 25% taxes on all Chinese imports, it would come to a tax hike of $135 billion a year. U.S. gross domestic product (GDP) last year: $20.5 trillion.

So even this supposedly scary “escalation” of this “tariff war” would, er, raise our total tax bill from 26.9% of GDP all the way to 27.5% of GDP.

. . .

Right now we export less to China than we do to Japan, South Korea and Singapore put together. That’s the point. So the effect of China’s new tariffs on the U.S. are yet another rounding error. Even if China banned all imports from the U.S., that would amount to only 0.6% of our gross domestic product. And we’d sell the stuff somewhere else.

Don’t buy the hysteria. President Trump is simply trying to pressure our biggest competitor to buy more American goods. That should be a good thing, even if you don’t like him.

There's more at the link.

So, why is there so much fuss about the tariffs?  There's a very simple reason - the US Chamber of Commerce and its bought-and-paid-for shills in the mainstream media and in Congress.

So what is the USCC? It is a business lobbying group that represents 80% of the Fortune 100 companies and is by far the largest interest group in Washington. According [to] the Wall Street Journal, the Chamber spent $125 million in lobbying in 2014 and $95 million last year. This dwarfs the spending of any other interest group.

. . .

Adhering to its corporate masters’ call for a continuous supply of cheap labor, the Chamber lobbies for more immigration and resists tight border controls. Trade is much the same. Past trade pacts have allowed Wall Street to grow obscenely rich in the outsourcing of American jobs to third-world countries for sake of the bottom line of the multinationals. In the process, over a million ordinary Americans were left holding the bag.

All this is still playing out today. The president is striving to adjust the unfair trading arrangements that the political class, in cahoots with the big money interests on Wall Street, have saddled the U.S. with.  But Trump and his trade team of Robert Lighthizer, Wilbur Ross, Steven Mnuchin, and Larry Kudlow are fighting not just China, but what is effectively a Fifth Column here at home. It's composed of the likes of the Chamber of Commerce and a sizable portion of the political establishment, which is used to dipping its beak in special-interest money.

As to this latter point, just look at the breaking news of the dealings of Joe Biden's son, Hunter, with the Chinese government.

. . .

What this means is that what is good for Main Street will not be good for Wall Street and Big Biz, at least not in the short run. What benefits the American worker -- fair trade policy and tight immigration control -- will initially hurt Big Biz and Wall Street. And the hurt will continue until the financial economy is scaled back to its proper size and is no longer allowed to the tail that wags the American economic dog. Until then, MAGA is at war with Big Biz and the bought-and-paid-for political establishment. And this explains much of the resistance to Trump's tariffs and trade position.

Again, more at the link.

There's an old and time-honored saying that "Where there's smoke, there's fire".  Trouble is, when people see the smoke, point, and scream "Fire!", they may not be pointing at the real fire.  That's the problem with the mainstream media today, and with most politicians.  They're paid - one way or another, through "re-election contributions" or advertising revenue or corporate tie-ins - to promote a particular point of view, rather than analyze the facts and let them speak for themselves.

That's why there's a big fuss about President Trump's tariffs on Chinese goods.  Those making the fuss are trying to protect their entrenched positions.  They're trying to hold on to all the money they've made out of the old way of doing things.  I sincerely hope they fail miserably.

If you'd like to read a particularly well-written, thoughtful analysis of what President Trump is trying to do with his tariff policies towards China, you'll find one hereHighly recommended reading.



Unknown said...

Technically, I am an economic purist who totally understands that
tariffs can be bad for the economy, but this is not 1930 and we
are not talking about Smoot Hawley here. President Trump
understood this when almost nobody else did. I also find it
ironic that the economically illiterate media are all sounding
like they learned at the feet of Adam Smith, FA Hayek, Milton
Freedman, and Ludwig von Mises when they yawned every time a
Democrat imposed tariffs.

Most people are unaware that the DJIA was showing signs of recovery
after the 1929 market crash. There may have been a direct connection
between Smoot Hawley and deeper crash in 1930, but the Dow fell from
just under 300 in 1930 to under 50 by 1932. Smoot Hawley merely
prolonged and deepened what otherwise would have been a minor

I remember reading a newspaper in 1972 that the DJIA finally broke
1,000. It was about the same time a drag racer broke the 6-second
barrier. To put this in perspective the imposition of a tariff on
a few tens of billions in Chinese goods is going to have very little
effect in a 20 trillion dollar economy. Trump is a master dealer
who uses the carrot-stick technique in negotiations. For the most
part, the threat of tariffs is a bargaining tactic. When this all
blows over, the markets are going to set even bigger records!

McChuck said...

The financial raping of America is why so many of the younger generation are socialists. They've seen what international capitalism has done to the country, and don't want to have anything to do with that sort of thing.

It's the subtle but important difference between a free market Main Street and a financialist Wall Street. One is patriotic and makes things for money, the other is globalist and destroys lives for money.

Dad29 said...

In the late 1960's, my girlfriend's daddy was a friend of several executives of Allis-Chalmers. One afternoon I happened to drop by when one of those A-C big kahunas was there. We got into a discussion about the VietNam War, and he made it clear that it was really all about opening SE Asian markets for Allis-Chalmers goods. At the time, A-C was a Fortune 50 entity with 24,000 employees worldwide.

He might have been myopic, but I seriously doubt that he was the Lone Industrial Ranger holding that weltanschauung about "why this war"? He sat on a few other Boards. We can conclude that many wars are fought for the financial advantage of a small number of companies. Why not the same conclusion about tariffs?

Richard Sharpe said...

I am hearing from Chinese TV that Hong Kong is hurting greatly and are asking Beijing to cave in. And note that a lot of product from Southern China goes through HK.

Another six months and China may be willing to give the US a better deal.