Trade war.

Everyone in the media (both left and right leaning) are all het up about a possible “trade war.” I am not positing that I know whether or not a trade war will follow President Trump’s tariffs on steel and aluminum. I am just giving you some facts to think about as this unfolds.

[Source: Why Is the GOP Terrified of Tariffs? By Pat Buchanan]

Some interesting facts about our history [most is directly from the Buchanan article]:

  • From Lincoln to Theodore Roosevelt, and from Warren Harding through Calvin Coolidge, the Republican Party erected the most awesome manufacturing machine the world had ever seen.
  • Republicans encouraged high tariffs through those seven decades and were rewarded by becoming America’s Party.
  • Thirteen Republican presidents served from 1860 to 1930, and only two Democrats. And Grover Cleveland and Woodrow Wilson were elected only because the Republicans had split.

Senator Jeff Flake warns (that this emanated from the mouth of this “flake” should give any Republican pause to rethink their position), “Trade wars are not won, only lost.” That, of course, is nonsense.

  • The U.S. relied on tariffs to convert from an agricultural economy in 1800 to the mightiest manufacturing power on earth by 1900.
  • Bismarck’s Germany, born in 1871, followed the U.S. example, and swept past free trade
  • Britain, an economic powerhouse, used tariffs before World War I.
  • Japan rose to post-war preeminence through trade, BUT Tokyo kept U.S. products out, while dumping cars, radios, TVs and motorcycles here to kill the industries of the nation that was defending them. Both Nixon and Reagan had to devalue the dollar to counter the predatory trade policies of Japan.

Some additional facts on how we are faring under “free trade” policies started under President George H. W. Bush:

  • Since Bush I, we have run $12 trillion in trade deficits.
  • In the first decade in this century, we lost 55,000 factories and 6,000,000 manufacturing jobs.
  • Could China’s rise possibly have anything to do with the $4 trillion in trade surpluses Beijing has run up at the expense of our country?
  • In 2017 alone, the U.S. ran a trade deficit in goods of almost $800 billion. (Change that to a trade surplus and out GDP goes up $1.6 trillion – approximately an 8% jump.)

Mr. Buchanan has some suggestions I have not heard discussed. Instead of thinking of this as a tariff, think of it as shifting taxes off goods produced in the USA and imposing taxes on goods imported into the USA. EU nations essentially do this to us. By imposing a value-added tax (VAT) on imports from the U.S., while rebating the VAT on exports to the USA, they are essentially imposing tariffs. These VATs range from 17 – 27% (exception being Switzerland). Those are hefty “tariffs.”

[Directly from the Buchanan article] As we import nearly $2.5 trillion in goods, a tariff on imported goods, rising gradually to 20 percent, would initially produce $500 billion in revenue. All that tariff revenue could be used to eliminate and replace all taxes on production inside the USA.

Consider. Assume a Lexus cost $50,000 in the U.S., and a 20 percent tariff were imposed, raising the price to $60,000. What would the Japanese producers of Lexus do?

  • They could accept the loss in sales…
  • They could cut their prices to hold their U.S. market share.
  • They could shift production to the United States, building their cars here and keeping their market share. (The idea is not to keep foreign goods out, but to induce foreign companies to move production here.)

I believe the quotation, “There is a kind of peace that only can be found on the other side of war.” I am not implying that I know whether or not a trade war will happen or what the outcome might be. I am saying that if a trade war does occur, we have a strategic asset no one else can match – we control access to the largest richest market on the planet.

And thanks to HKG for sending this to me.

Roy Filly


About Roy Filly

Please read my first blog in which I describe myself and my goals.
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