The Biden Administration announced earlier this week that on November 15, Scamtrak Joe and Chinese President Xi Jingping will meet in the San Francisco "area," which might prompt American and Chinese citizens to ponder numerous important, oft-hidden, points about economics and freedom. And foremost among those thoughts might be the dark realization that a meeting of TWO human beings can affect the liberty and pocketbooks of billions of people who, in a moral world, ought to be free of such tyrannical influence.
Preceded by strange, antagonistic signals from the Bidenistas and even former House Speaker Nancy Pelosi about the “official” US positions on Taiwan, Hong Kong, the expansion of the North ATLANTIC Treaty Organization (NATO) into the PACIFIC, and even odd tales of “spy balloons,” the most fundamental and perennial issue facing Biden, Xi, and virtually every US and Chinese head-of-state for decades has been – and still is – the matter of the trade barriers known as tariffs.
Just the term “trade barrier” ought to tell anyone resistant to “normalcy bias” that there’s a problem. Trade is voluntary. It’s agreed to by all parties involved. By definition, it is an exchange, and, also by definition, “barriers” to trade infringe on freedom. They represent threats by some people against other people who want to be left alone.
As a result, anyone who would like to treat his or her neighbor fairly and in peace should oppose barriers to trade – be they barriers imposed by a schoolyard bully on kids trading baseball cards, or be they barriers imposed by government bullies over other things, including products and services.
Sadly, many American politicians attempt to entice the populace into embracing this immoral trade-barrier idea by telling the people that tariffs will “help” the native or national economy.
But, of course, even on that practical level, the opposite is true.
Biden has, in essence, continued a series of destructive Trump tariffs/import-taxes that “The Donald” wrapped in the cloak of “America First” in early 2018, and, under that sad, improper, banner, US consumers have paid a lot more in import taxes to the US government, preventing them from saving and reinvesting, and preventing new opportunities for new US jobs to start.
After 16 years of good “leaving alone,” the Trump Administration in 2017 resurrected Section 201 of the 1974 “Trade Act” to “investigate” the “too low” prices of foreign-made dishwashers, washing machines, and solar cells. Then, after expression of their artificial “concern,” and promotion of said “concern” to special constituencies in Ohio, South Carolina, and Tennessee, where the bulk of US-made dishwashers and washing machines are manufactured, Trump took action. American consumers who wanted the freedom to buy less expensive washing machines and solar cells so that they could have money left over and invest or spend that on other items? They were not part of the calculus. They never are, when politicians cater to special interests. Thus, the US in January of 2018 the US imposed a massive tariff of between 30 and 50 percent on the above mentioned products – a trade barrier that added to consumer burdens and soon was recognized as economic poison.
The White House added to the problem in March of that year by imposing a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum from every nation except Mexico and Canada, and, as a result, cumulative federal import taxes on Chinese goods soon rose to cost US consumers $50 billion each year, eventually bleeding $123 billion out of consumer pockets by the time Biden took over.
Of course, it was not as if Mr. Trump and Mr. Biden were not warned. When Trump first pushed the added costs onto us, Senator Ben Sasse (R-NE) observed:
“We're on the verge of a painful and stupid trade war, and that's bad… This isn't just bad for farmers and ranchers in Nebraska who need to buy a new tractor, it's also bad for the moms and dads who will lose their manufacturing jobs because fewer people can buy a more expensive product.”
Years of federal vampirism followed, and, much to the chagrin of many economists, consumers, and US manufacturers who rely on Chinese goods to make their own products and who have to pass along a certain percent of their government-imposed expenses to us, the Biden Administration did not remove the tariffs.
The policy has been a disaster.
“The Congressional Budget Office has calculated the Trump tariffs cost the average U.S. household more than $1,200 a year. Since Biden has continued the tariffs, at some point, they will be called the ‘Biden tariffs,’ and the cost to U.S. households will be similar.’”
Anderson even observed that some well-known “left-leaning” publications were sounding the alarm:
“’On trade, Biden has voluntarily extended key Trump protectionist policies, including tariffs on metal imports and an effort to undermine the World Trade Organization’s appellate process,’ writes Zack Beauchamp for Vox. ‘He even added to some of them, signing an executive order tightening “Buy American” rules for the federal government and proposing tax incentives for ordinary citizens to purchase American-made electric cars.’”
And, two weeks later, Anderson cited just-released research from Mary Amiti, an economist at the Federal Reserve Bank of New York, and Sang Hoon Kong and David Weinstein, economists at Columbia University, that offered a picture of the economic acid those tariffs have become, and offered another general, long-term lesson about the idea of tariffs, citing among many quotes, this, from Weinstein:
“The tariffs protect the least efficient firms and reduced their incentives to innovate while hurting the most successful U.S. firms, reducing their ability to innovate.”
Now, as Biden and Xi prepare to meet, American consumers can wonder whether any of the tariff pressure on their wallets will be reduced, and they can remember key points when it comes to tariffs.
First, politicians usually impose tariffs to give artificial benefits to politically favored special interests, at the expense of competitors and consumers. In economics classes, we apply the term “Rent-Seeking” to that behavior. It’s always the situation when those politically-connected forces get policy favors at the expense of captive consumers.
Second, this kind of favoritism does not help consumers in the aggregate. As James Bovard observed in his groundbreaking book, “The Fair Trade Fraud,” protectionist tariffs generally harm the aggregated consumer pocketbook eight times as much as they “help” the special interest being protected against foreign competition. That’s a lot of money, and it could be used to help new, vibrant, businesses grow, rather then seeing the government get taxes and stodgy, uncompetitive, politically-favored industries get business they normally would not receive.
Third, tariffs often are preceded by rhetoric about so-called “trade deficits.” But economists know that, inherent in the term “trade” is what belies the popular misconception of the so-called “deficit.”
Because, when people trade, there is no “deficit.”
They exchange, voluntarily, giving up what they have for something they want more. They benefit, relative to their earlier state – that’s why they engage in the exchange.
Not only is there never a “deficit” in a normative trade, on the international front, when those individual trades are aggregated, there never is a “deficit.”
As Herbert Stein noted on page 511 in the Fortune Encyclopedia of Economics (David R. Henderson, PhD, Editor), the term “trade deficit” also is a misnomer on an international level. The term we use to look more completely at international exchange is “balance of payments,” and, as the term implies, the payments always maintain balance.
Essentially, reporters who claim there was an “X level trade deficit” for a period of time focus solely on goods and services, known as the “Current Account.” This “imbalance” usually occurs when one national currency is strong compared to others, thus seeing native consumers (including manufacturers who need foreign products to make THEIR products) taking advantage of that buying power and, of course, buying lots of foreign stuff. It’s one of the reasons Americans take advantage of foreign vacations when the Dollar is relatively strong compared to that foreign currency – they can get more for their money.
The “Current Account” is what we typically are told is in “deficit” because those foreign nations aren’t “buying” as much American-made stuff and services.
But there’s the other half to the Balance of Trade – the half that pop media and politicians usually overlook.
That is the “Capital Account.”
The Capital Account is the term applied to financial instruments, i.e., liquidity.
US dollars spent on foreign goods don’t morph into foreign currency. They remain US dollars, and if the US economy is going strong, if productivity is high, that “strong” US dollar has a lot of productive leverage on which to move. As a result, those dollars that US consumers spend on foreign goods are used by the foreign recipients to invest in US ventures, here. They are offered back to US businesses and start-ups as investment capital. In fact, as Stein notes:
“Because the current account and the capital account add up to the total account, which is necessarily balanced, a deficit in the current account is always accompanied by an equal surplus in the capital account, and vice-versa.”
Most national-level politicians know this, but they insist on playing “populist hero” even as they harm the populace with their government-imposed tariffs.
Such tariffs are immoral and backwards. They tend to inspire reciprocal tariffs from foreign nations, and they should be relegated to the proverbial dustbin of history.
The question remains: as Biden and Xi prepare to meet, will they change their disastrous policies and let us be relatively freer people, thus helping the US and Chinese economies in the process?