"A Very Dumb Idea"
by Bill Bonner
Youghal, Ireland - “Why Trump Unleashed Tariff Chaos” is still a popular headline at Bloomberg. Search for ‘Trump tariffs’ on Google and you will get “about 357,000” results.
The Wall Street Journal can be counted on to be fairly reliable on economic issues. It recognizes that the government is generally incompetent and malevolent - at home. But when it goes abroad, somehow it becomes an angel…doing good by forcing the foreigners to bend to its will. On ‘Trump Tariffs’ the WSJ might have gone either way. As an economic policy, tariffs are clearly foolish. But as a foreign policy tool, they can be used to bludgeon friends and adversaries alike.
As it turned out, the WSJ has come up with a remarkably sensible view. Phil Gramm and Donald Boudreaux write: "Trump’s Tariffs Are as Bad as Bidenomics." "Both models of state-directed capitalism misallocate resources and make the nation poorer. Not since Herbert Hoover signed the Smoot-Hawley Tariff has a president chosen to disregard a larger body of informed opinion than President Trump did when he instituted his protectionist trade policy. Based on a series of verifiably false grievances - wages haven’t grown in 50 years, manufacturing has been hollowed out by imports, countries with trade surpluses are “ripping us off” - Mr. Trump used constitutionally questionable powers to abrogate Congressionally approved trade agreements and undermine the world’s trading system.
Here at Bonner Private Research we just look for patterns - historical, political, economic. Many people think you just have to keep your focus on the incoming ‘data.’ Even the Fed claims to be ‘data-driven.’ But the data is mostly noise and nonsense…without melody or rhythm. It’s like the background hum on an airplane…everything from A flat to E sharp is there. You hear what you want.
(Our aged mother thought once she heard English hymns on Air France. She was so sure of it, she asked a stewardess where they got the soundtrack. The young lady humored her…thinking she must be crazy. After all, France is a secular state!)
Eventually, the incoming ‘data’ will tell you something. But only when it is too late. And now if Trump’s tariffs are implemented, we will wait for the data to tell us what we knew all along - tariffs are a very dumb idea.
The Journal explains that tariffs never have worked…and that each job created by tariffs since 1950 has cost Americans more than $800,000. What’s more, there are plenty of jobs in manufacturing available today - but there are no workers willing to take them. The WSJ: "Forty-three percent of U.S. manufacturers in the recent National Federation of Independent Businesses questionnaire said that they couldn’t find employees to fill existing jobs."
Bare is the cupboard supplied only by its owner. Instead, we eat vegetables grown by Californians and drive cars built by the Japanese while wearing shoes made by North African immigrants in Italy. People who specialize can make things better and cheaper than people who don’t. If we worked at it long enough, we could probably make a pair of shoes. But you wouldn’t want to wear them!
The fact pattern is consistent…and the logic is airtight. Adam Smith explained how trade makes us better off. When it comes to growing pineapples, people in Hawaii have a big ‘comparative advantage’ over people in Greenland. Adam Smith: "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it off them."
Is that not true? WSJ: “The administration has presented no evidence showing how the U.S. or any other nation has benefited economically from broad-based protectionist policies.” Still…the Trump Team seems to hear tunes that everyone else knows aren’t there.
An 80-year-old may have the moon in his eyes and Dean Martin’s ‘That’s Amore’ ringing in his ears. He may hope to relive his youth…to learn to ride a two-wheeler…to laugh like a hyena watching reruns of The Three Stooges…and be thrilled at the discovery of sex. But that is not the usual pattern. Nor, in the history of tariffs, is there any cause for geriatric optimism. It is economic death that awaits us, not a second childhood. Trade makes us all richer. Any interference with the exchange of goods and services necessarily makes us poorer.
One of the most recent failures was just recalled to us by Counter Offensive. After liberation from the Soviet Union, foreign autos became available in the Ukraine…"To support domestic producers, Ukraine introduced a 25 percent tariff on imported cars in 1991. ZAZ [the local car manufacturer] itself lobbied for the idea of import duties.
However, this import policy did not prove to be a long-term solution… Domestic manufacturers struggled to deliver the necessary quality and technological standards to compete with foreign brands. Even after introducing protective tariffs, the Ukrainian automotive industry could not regain its position in the market. As Ukraine began to increase imports of safer and more efficient foreign cars, people began to find the Ukrainian Tavria and Slavuta expensive and outdated."
And in the US, industrial production increased during the first two years of the last Trump administration. Then, in the third year, Trump’s tariffs began to bite. Industrial output fell by 2%.
The WSJ with the last word: "The continuation of current trade policies will likely produce a worldwide recession, and even if Mr. Trump’s policies succeed in bringing back manufacturing jobs, the U.S. economy will be less efficient, economic growth will be stunted, and most Americans will be worse off." Amen."
Dean Martin, "That's Amore"
