President Donald Trump’s critics, who are legion, are all over these Tariffs like buzzards on a road rabbit.
They fall into two categories: Academics (Economists and Foreign Policy Experts), who are basically like a bunch of guys who can tell you 50 ways to make love but don’t know any gals, and D.C. Swamp Creatures, both Democrats and Republicans, who ALWAYS have ulterior motives.
Democrats oppose the Trump Tariffs for the same reason they oppose President Trump’s first breath in the morning. Republicans oppose them because somehow, somewhere, these tariffs are going to cause them or their backers to lose money.
Economists make a living by making the simple complicated. You have to pay them to explain why gasoline costs more today than it did last week, although they can’t begin to explain how you are supposed to pay for it.
A Lesson in Supply and Demand
In 1890, an Englishman first articulated the Law of Supply and Demand. Now generally understood to be the cornerstone of The Free Market, the Law of Supply and Demand says simply this. All other things being equal, the price of any item in the marketplace will fluctuate until the supply of the item equals the demand for it, at which point the price will stabilize and the market for that item will be said to be in equilibrium.
This simple premise does explain a lot, however. When Supply goes up relative to Demand, the price goes down. When Demand goes up relative to supply, the price goes up.
If Suppliers overprice their goods, Demand goes down, and they sell fewer of them and make less money. If Suppliers misjudge Demand and create an oversupply of goods, Price goes down and they make less money.
The Demand side consists of people who buy stuff – and here’s a kicker – a transaction for the goods in question will ONLY take place when the buyer’s desire for the goods equals or exceeds his resistance to paying the price at which they are offered.
This also goes a long way toward explaining how Competition works – or is supposed to work – in a Free Market. I am speaking here of competition between Suppliers, whose individual success depends entirely on making as many transactions as possible at an advantageous price.
When, theoretically, you have many Suppliers of identical goods, the only way for one to outsell his competitors is to get his goods in front of more buyers or undercut the competition on price, or both.
But what we actually have is many Suppliers of similar goods. So, you must add a tactic – convincing buyers that your goods are better than the competition’s – hence Advertising Agencies! What does this have to do with FREE Markets? Well, it’s the “all other things being equal” part.
Nothing is free when Governments get involved, particularly markets. Governments tinker with markets all the time, and for no good reason. Governments tinker with markets by manipulating Supply (for example, by imposing regulations and increasing production costs), by manipulating demand (for example, by imposing penalties or unusual taxes on buyers), or by manipulating price (for example, by “price supports” or “price controls”). Or, ALL of the above.
When Governments do this inside their own countries, their reasons are ALWAYS political, and the consequences eventually and inevitably redound to the detriment of their People.
An Honest Motive
Now, President Trump says his motive in imposing these tariffs (which is nothing more than a tax on certain imported goods) is to “reduce or eliminate our Trade Deficit with most of our international trading partners.”
Wuh, what’s a Trade Deficit, and why does it matter? Every country that produces anything worth having engages in trade with other countries. Why? Because trade is one of the few ways to increase a country’s wealth.
Every country – Capitalist, Communist and Socialist countries alike – engages in trade solely to increase its own wealth, the main difference between them being who controls the wealth once they have some.
Country A has a Trade Deficit with Country B when the value of goods produced in Country A and sold in Country B is less than the value of goods produced in Country B and purchased in Country A.
This is frequently referred to as “imports exceeding exports for Country B.” So, what’s wrong with this? Well, another way to look at it is that this equation represents a transfer of wealth from Country A to Country B.
Uh-oh! That seems like kind of a big problem, doesn’t it? There could be natural explanations for a Trade Deficit. For example, Demand for Country A’s products in Country B could be low because Country A’s products are crap, and Country A’s Demand for Country B’s similar products is high because they are not. But this is not the reason for OUR Trade Deficits.
Our Trade Deficits are the result of Trade Barriers against American goods set up by the Governments of other countries, many of which are supposed to be our friends and our allies.
Governments set up Trade Barriers for several reasons. They usually do it to protect their own Suppliers, and thus their own economies, against international competition. But they say they are doing it protect their people from inferior or dangerous foreign products. Or they do it simply to steal the wealth of their trading partners, which they will never say.
There are three types of Trade Barriers:
- Tariff Barriers – tax on imported goods passed along to consumers that increases the price of imported goods above the price of domestically produced similar goods, thereby reducing Demand for the imports.
- Non-Tariff Barriers – regulations of everything from exacting and arcane production, shipping, measurement and labeling standards created and tailored to exclude foreign goods to requiring costly proof of compliance by importers.
- Embargo – which simply forbids certain imports altogether.
China “Steals” The Steel Industry
And then you have China. China, of course, has established Trade Barriers to American goods, but they went one better. China effectively stole our entire steel industry, not to mention our technology, trade secrets and intellectual properties, which China simply stole outright.
How did they manage to steal an entire industry, you may ask? China is a Communist Country, which means that the State owns the means of production, and that is every means of production.
This means that the Chinese steel industry does not have to worry about the cost of production when setting the price. They can just keep lowering their prices until they run their U.S. competitors out of business, and then they can set the price wherever they want, which is what you call a monopoly. This is also what you would call Economic warfare.
Basically, Europe has been freeloading off America since World War II. Like Japan, we got European countries back on their feet after the War, just so they could eventually start taking us for granted and screwing us silly.
Take Germany for example. Germany, our ally and one of President Trump’s many critics, dog it on their contributions to NATO, which exists to protect members from Russia, and cash in on U.S. troops stationed in Germany to protect the Germans from Russia. Then they turn around and make a deal to buy almost all their energy from Russia instead of from us – their ally – through a pipeline that allows Russia to isolate two of our other allies and members of NATO, Poland and Ukraine.
How many American cars do you think we sell in Japan and Europe? Not many. Canada, our good neighbor to the north, and Mexico, our not so good neighbor to the south, got the gift of NAFTA, and what did we get?
If you really want to know exactly how bad these Trade Barriers are, read the 2018 National Trade Estimate Report on Foreign Trade Barriers. It’s a quick 500 pages. It goes country by country. Just Google it.
President Trump is, if nothing else, all about “winning.” The Trump Tariffs are a MEANS TO AN END. Get it? A MEANS TO AN END. They are an “Opening Gambit.” The “End” is a level playing field and a truly FREE Market.