Homo Tarifficus

President Trump has tweeted his nickname for himself. “Tariff Man.”

I think it needs a little more punch, maybe “Diddle Tariff Man?” Diddle, after all, means “deprive of by deceit.”

Please.  The billions in tariffs are paid by Americans!  The “raid” on our wealth is the Trump Administration’s import taxes; raising consumer prices and destroying jobs.

Apologies to Elton John:

Tariff man, burning out his fuse up here alone
I don’t think it’s gonna be a long, long time
Till markets bring me round again to find
I’m not the man they think I am at home

Trade War Casualties

In addition to US tariffs raising the cost of the steel and aluminum Harley uses to make motorcycles for Americans, TrumpTrade is driving US manufacturing jobs to Europe. Doesn’t say how many jobs will be lost, but 40,000 motorcycles a year are no longer going to be made here. Meanwhile, Harley has to eat $30 to $45 million in 2018.

Tit-for-tat going as expected. It’s all the fault of those dumb Europeans, of course.

Harley-Davidson To Move Some Production Outside US Over EU Tariffs

This is new

But it still shows President Trump’s confusion on trade and tariffs. From whitehouse.gov:
Press Conference by President Trump After G7 Summit

Emphasis mine.

Q Mr. President, you said that this was a positive meeting, but from the outside, it seemed quite contentious. Did you get any indication from your interlocutors that they were going to make any concessions to you? And I believe that you raised the idea of a tariff-free G7. Is that —

THE PRESIDENT: I did. Oh, I did. That’s the way it should be. No tariffs, no barriers. That’s the way it should be.

Q How did it go down?

THE PRESIDENT: And no subsidies. I even said no tariffs. In other words, let’s say Canada — where we have tremendous tariffs — the United States pays tremendous tariffs on dairy. As an example, 270 percent. Nobody knows that. We pay nothing. We don’t want to pay anything. Why should we pay?

We have to — ultimately, that’s what you want. You want a tariff-free [sic], you want no barriers, and you want no subsidies, because you have some cases where countries are subsidizing industries, and that’s not fair. So you go tariff-free, you go barrier-free, you go subsidy-free. That’s the way you learned at the Wharton School of Finance. I mean, that would be the ultimate thing. Now, whether or not that works — but I did suggest it, and people were — I guess, they got to go back to the drawing and check it out, right?

So, they did teach him that tariffs are a bad thing in his Econ 101 course. One would think this attitude would have made NAFTA easy to re-negotiate.

Since this is the first time I can recall any mention of it in the President’s otherwise protectionist, multitudinous rants; maybe he’s just now remembered it. Better late than never, but his recall is incomplete and confused.

Canada does, indeed, levy a 270 percent tariff on milk imported from the US. However, it is not the US that pays that tariff, it is Canadian consumers. Just like it’s American consumers and businesses who pay US tariffs on softwood lumber, steel, aluminum, washing machines, cars, etc., etc..

As to no subsidies: If Canada wants to subsidize US purchases of steel, aluminum, softwood lumber, or cars: I say let them. Those are subsidies given to US consumers by Canadian taxpayers. It’s stupid for Canada to do it, but it isn’t our problem.

President Trump is confused about who pays tariffs, and he appears to view trade as a zero sum game. If one side wins the other side must lose. Nothing could be further from the truth. By definition, in any freely conducted trade all the traders win.

If he could just remember that lesson from Wharton, he’d be a much better CEO. Maybe he missed class that day.

Mercantilist revivalism

Used to be when you said “conservative” people had a clear idea of what you meant philosophically. Adam Smith, W. F. Buckley, Goldwater, Reagan, or Cruz might come to mind. Maybe it would invoke the tea party, free trade, Constitutional originalism, free markets, and opposition to deficit spending. Now, it’s all a mess thanks to a long run of “conservatives” like John McCain, George Bush, and Donald Trump

There’s “conservative,” “neo-conservative,” “cuckservative,” “Trump conservative,” “Alt-right,” etc.. TOC has worried in the past about this philosophical dilution – defining freedom down. The current round of internecine attacks, including selective rejection of long standing principles, have been more damaging than anything the Progressives have accomplished.

Cronyism and protectionism are seen as fine if the correct people do it. Now protectionism is “conservative,” along with corporate bailouts.

We all need to reread Friedrich Hayek’s Why I am Not a Conservative: “The tug of war between conservatives and progressives can only affect the speed, not the direction, of contemporary developments.” Hayek was a classical liberal, a qualifier required since the collectivists stole the original word. Now we’re witnessing the further muddling of what has been meant in the United States by “conservative,” i.e., “classical liberal.”

The latest example; “Conservatives” who defend Trump’s populist trade shenanigans as ‘bargaining positions’ are expediently abandoning moral leadership.

Why Trump’s Higher Tariffs Now are Unlikely to Result in Lower Tariffs Later

I think it is absurd to assume that Trump’s real intention is to get us to a new equilibrium with lower tariffs all around the world. He does not understand the value of free trade and his closest adviser on this issue is an ardent protectionist. Trump’s negotiation experience is all in zero-sum games where he is trying to extract the most of a fixed pie for himself, not in trying to craft win-win solutions across multiple parties.

But here is the real reason this won’t work: The current relatively-free trade regime that exists today was built almost totally on America’s moral leadership on the issue…

[M]many of the most powerful political actors in our trading partners actually represent large corporations (some state owned and some just highly-aligned with the state) and powerful labor unions who would be perfectly happy to pursue additional crony protectionism of their industry even at the expense of the majority of their country’s consumers and businesses. All these forces for protectionism have always been kept at bay in large part by America’s leadership on the issue.

Not any more.

A thought on President Trump’s apparent renewed Trade War

Any price increase due to import taxes, aka protectionist tariffs, exactly equals the reduction in the disposable income of consumers in the country imposing the tariff.

While this benefits the general government coffers, it loots every citizen’s pocket – even those who never buy the good in question: The consumer is forced to either buy less of that good or less of some other good.

Milk Duds Up a Tree

American dairy farmers are complaining about steep cuts in the price of Canadian ultra-filtered milk (mostly used in cheese production). UFM isn’t defined as milk under NAFTA, so while Canada keeps the cost of drinking milk very high, they’ve slashed the cost of ultra-filtered milk. Lowering this price umbrella to world market levels has hurt American dairymen.

If Canada can drastically reduce the cost of an industrial milk product it could also cut the cost of drinking milk for Canadians. I wouldn’t hold my breath, though, because it’s Canadian government that keeps that cost high. In effect, Canada subsidizes UFM by heavily overpricing drinking milk, which it protects with high tariffs.

Canada is a country that doesn’t even have internal free trade. The Canadian Constitution Act of 1867 prohibits internal trade barriers, but Provinces have nonetheless spent nearly 150 years erecting trade barriers against each other and preserving picayune local regulatory prerogatives.

Nowhere is this better illustrated than in provincial “supply management boards” dealing with milk, cheese, eggs and poultry. Canadian milk is subject to the precision wisdom of centralized planners – a maze of quotas, price floors, subsidies and entry barriers intended to protect incumbent Canadian dairy farmers from competition at the expense of consumers.

It should come as no surprise, then, that Canada’s barriers to international trade in those markets are even worse. This has attracted the attention of our President, who – visiting the dairy state of Wisconsin – complained about it in almost the same breath as he emphasized his “Buy American-Hire American” policy.

We’ll skip over the question of why Canadians aren’t allowed to have a “Buy Canadian – Hire Canadian” policy for the moment, because many Canadians agree with President Trump about Canadian milk policy; or at least resent the high prices they have to pay for milk.

It’s not as if the American treatment of milk is free of mercantilist shenanigans, but when President Trump says Canada’s milk policy is unfair, he has a point, even though he’s not thinking about how unfair it is to Canadians:

Canada’s dairy quota system has been Canada’s shame since it was introduced in 1970. The quota system makes milk prohibitively expensive for poor families, it denies Canadian consumers the right to purchase diverse cheeses from around the world and it destroyed Canada’s once-great cheese industry, whose many small producers capitalized on milk surpluses to make world-famous cheddars — Ontario alone once supplied England with half of its cheddar cheese imports…

Canada remains one of the West’s great bastions of protectionism, barring foreign ownership of banking and other major sectors and unable to achieve even internal free trade among our provinces, despite 150 years of trying. The provinces themselves don’t accept the provisions of NAFTA, cannot be bound by them and haven’t honoured them.

And he is certainly not bemoaning the restrictions on Canadian diary farmers:

The fact that each individual Canadian dairy producer is told exactly how much milk he may produce, and exactly to whom he may sell it (Hint: There’s only one legal customer and it happens to be a provincial marketing board) is evidence of just how transparently anti-free trade we are in this realm. And a recent agreement struck by Canadian dairy farmers and producers which effectively slapped a new import tariff on ultra-filtered milk (a product used to make cheese and yogurt, among other things), has drawn the ire of Australians, Mexicans, New Zealanders and members of the European Union.

Meanwhile, Canadian consumers pay the price. The Montreal Economic Institute estimates that the country’s supply management system costs each of us [Canadians] $258 a year. Which is not especially surprising, when you think about it. We have official, explicit collusion and price-fixing going, after all. It’s how we’ve chosen to conduct business.

Or, the barriers to entry in the Canadian market:

That governments have been so unwilling to set aside a policy that is responsible for Canadian families paying two and three times the world price for basic food items, all to benefit a dwindling number of wealthy and aging, farmers (young farmers face a formidable barrier to entry, in the form of the cost of quota: more than $25,000 per cow) is one of the great dilemmas of public policy. If we have to enlist Trump to save us from ourselves, so be it.

So, just as our tariffs on Brazilian sugar, Chinese steel and Canadian softwood lumber hurt American consumers and eliminate jobs with manufacturers using those products, milk quotas and tariffs hurt Canadian consumers and Canadian cheese and yogurt making employment.

Not to be outdone by Canada, President Trump has decided to impose higher costs on American consumers by placing an additional 20% tariff on Canadian softwood lumber. The average new house built in the United States will increase in price by around $1,000 and eliminate many thousands of American jobs in the construction, furniture and paper industries.

This is the fifth time since 1982 that softwood lumber has precipitated a dispute with Canada.

Art of the Steal

Worth a read: The Art of the (Trade) Deal, according to the Trump administration

A nice exploration of the practical effects of TrumpTrade. The concluding paragraph:

In sum, the art of the trade deal according to the Trump administration teaches us that Americans win when the dollars in our pockets buy less in global markets; when we pay higher prices for the goods and services we use every day; when U.S. producers face higher costs of production than their foreign competitors; and when the taxes we pay buy less infrastructure and national defense.

The author neglected to add to the summary, “…when there are fewer American jobs; and when regulatory capture, financed by political contributions, becomes a standard method of excluding small competitors from markets.”