Don Boudreaux lets it rip against the Trump administration with a letter to the Wall Street Journal about the EU’s trade surplus. Its not clear if the journalist who wrote the article understands free trade either.
Category: Free Trade
On What Products Does the U.S. Impose Tariffs?
“Where do we have tariffs?” President Trump asked on October 25, 2018.
Ryan Bourne:
One obvious answer is on imported clothing and footwear, where tariffs are both substantial and hit low-income consumers hard.
The United States raised $33.1 billion in tariff revenue in 2017, but $14 billion of that came from tariffs on apparel and footwear alone. These items account for 4.6 percent of the value of U.S. imports, but 42 percent of duties paid. That means while the average effective tariff rate for U.S. imports overall is just over 1.4 percent, rates for apparel and footwear are 13.7 percent and 11.3 percent, respectively.
Three Widely Believed Economic Fallacies
Steve Horowitz:
The Fallacy of the Zero-Sum Game
The first of these fallacies is the belief that market activities, especially exchange, are zero-sum games. Zero-sum games are those in which the total gained from playing the game is zero. So, for example, if each of five people playing poker buys into the game for $100, there is only $500 to be won.
. . .
We see this misperception of markets in a variety of forms. At the most general level, the belief that the rich get rich by impoverishing others is a species of zero-sum thinking.
The Fallacy That Order Requires Design
The second fallacy is the belief that economies require someone or some group to design and/or control them. Often this belief is linked to an argument from complexity: only a simple economy could be left to its own devices. Complex, advanced economies like those across most of the globe require human monitoring and regulation to function properly.
. . .
The flaw at the heart of this fallacy is that it ignores the idea of spontaneous or undesigned order.
The Fallacy that Consumption is the Key to Growth
The final fallacy is the belief that consumption is the source of economic growth. This belief is widely held by everyone from the citizenry at large up through economic journalists and politicians. We hear it every time the economy enters a recession and begins to recover. Pundits declare that consumers need to start buying things to generate a recovery, and reports about the latest data on consumer spending make the headlines.
. . .
In fact, consumption expenditures vary the least as economies go through booms and busts. The component with the greatest variation is private sector investment. If anything is needed during a recovery, it is more investment by the private sector, not more consumption.
. . .
The heart of the fallacy, however, is that consumption consumes things! When we consume goods and services, we destroy their value by using them up. Consuming food does not create anything valuable, it eliminates something valuable.
How Self Interest Builds Prosperity and Community
She’s happy and self-interested. The customer says “Thank you”, she, the producer, says “Thank you” and both are happy they got what they wanted.
Markets guided by prices daily lead each of us to share happily and abundantly with each other despite the reality that we are, to each other, mostly strangers. Familiarity, affection, and brotherly love are virtuous feelings but these feelings do not contribute as reliably to our material well being as does market exchange.
Here is a parable to make the point.
Prez Trump: I am Tariff Man
President Trump:
….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN
Tariffs are a tax paid by Americans on stuff they buy overseas, not the foreigners who are selling the stuff.
According to the President, the federal government is “taking in $billions”, but only because Americans are paying the tax. This is a total backfire on the Administration’s part.
As bad, there is no “raid”. The buying and selling is voluntary. Americans are deciding to buy from overseas. That is not a raid on the wealth of a nation.
Epic fail.
UPDATE: Dan Mitchell weighs in.
Trade Deficit Deficits
Don Boudreaux corrects John Shaw in the Wall Street Journal in Capital is not a Fixed Amount and also Debra Summers:
There is indeed such a guarantee (“that our trading partners won’t prioritize use of their trade profits to more effectively compete with the U.S. or for actions that otherwise jeopardize U.S. interests”). It exists chiefly because U.S. dollars have value only because they can be spent or invested in the U.S.
China Is Inching in the Right Direction
It is appropriate that Donald Trump and Xi Jinping are flying to Buenos Aires for their showdown summit at the close of a month that began with the centennial of the end of the First World War. America’s economic tussles with China are all too reminiscent of the rivalry at the beginning of the last century between Britain, the superpower, and the rising power, Germany.
Learn from history to avoid repeating the same mistakes. Peace and prosperity is a wonderful thing and there’s no reason the leaders of China and the U.S. cannot forge a mutually beneficial relationship.
Better, Faster, Cheaper
One very crude way to measure just how much improved technology has increased consumer well-being would be to consider the discount en masse. To purchase a refrigerator, a color TV, a record player, an air conditioner, a microwave, and a calculator roughly five decades ago, the average family would have had to spend $12,155 in today’s dollars. Buying similar (though vastly improved) products today would cost just $1,404. That’s a reduction in real prices of more than 88 percent. And of course, virtually every household now has at least one cellphone and/or computer—two categories of products that could not have been acquired for any amount of money in 1968.
Amazing progress.
The ‘discount en masse’ includes a refrigerator, television, air-conditioner, microwave, and consumer calculator. And, as Ronald wrote, that list does not include cellphones or computers.
Note the improvements in quality, choice, and concomitant decreases in prices. Products that are in competitive, global markets, and lightly regulated. We don’t even know if the industries are subsidized.
Again, amazing progress.
The laggards, not noted in this article, are those with heavy government regulation such as health insurance and other healthcare products and services. This disparity disproves the theory that increased demand causes only price increases, as witnessed in the healthcare products I mentioned. It is government involvement that is preventing the improvement.
President Trump, Oil Prices, and Tariffs
Because you correctly understand that a fall in the prices that we Americans pay for oil is akin to a tax cut – and because you correctly understand that such a tax cut is a boon to us Americans – why do you insist not only on raising the taxes that we pay for the likes of steel, aluminum, automobiles, and washing machines, but also on celebrating these tax hikes as sources of greater American prosperity? Is there something unique about oil – perhaps its odor, its viscosity, the way that it’s spelled – that makes a greater abundance of it beneficial whereas a greater abundance of the likes of steel, aluminum, automobiles, and washing machines is harmful?
The same principle goes for the prices of those goods whose prices have been increased as a result of the tariffs. And don’t tell me the tariffs are to create and protect jobs. More jobs are negatively affected in the industries that use and consume the products than the industries that produce the products.
Washington Examiner Blind to US Trade Distortions
The Washington Examiner, a conservative newspaper, agrees with President Trump on China’s “. . . destructive practices of forcing businesses to surrender their technology to the state and forcing them into joint ventures in exchange for market access.” and “. . . massive subsidizing of industries through colossal state-owned enterprises that put private competitors out of business.”
Then the WE proceeds to NAFTA and “Canada’s dairy cartel, but they operate on a similar protectionist principle. . . . Canada’s quasi-Soviet dairy policy is just one of the many thorny issues making agreement more complicated.”
How about the U.S.’s distorting trade policies? Agriculture receives billions in subsidies and regulatory protection. The same arguments WE makes about China and Canada can be made about the U.S.
Working for Liberty 