The Economics Of Stupidity

So what’s up this tariff stuff? Are tariffs bad?  What are tariffs?


Don't worry. Uncle Dave-El will walk you through this.


Tariffs are financial penalties imposed by a governments on goods imported into a country. Tariffs are not inherently bad but the general consensus is they don’t really work. So why do them?

 

Tariffs can be enacted to punish the importing country. Let’s say, for example, we’re pissed at Russia, Russia makes a lot of money on exporting vodka. So we put a tariff on Russian vodka. Vodka becomes less profitable so Russia makes less money. They increase prices to account for the tariffs but higher priced vodka doesn’t sell as well as it used to so Russia makes less money. 

 

So why don’t tariffs work? Just because the United States slaps an extra cost on Russian vodka doesn’t mean the rest of the world does to. Russia just expands into other markets.

 

And dammit, Americans want their bottles of Absolut vodka so we pay the extra price to get it.

 

So Russia still makes money and the only persons hurt by tariffs on Russian vodka are Americans paying a higher price for it. 

 

Another reason to enact tariffs is to help native businesses be more competitive against importers.  If goods being imported are cheaper than the goods being made here, tariffs make those imported goods more expensive.

 

It’s a very simplistic formula that rarely works in the real world.

 

Let’s take the tariffs Li’l Donnie Trump wants to impose on imported steel and aluminum. And do you know who’s buying this imported steel and aluminum? Car manufacturers here in the United States. And not just Ford, GM & Chrysler but foreign owned car companies like Toyota, Nissan, Audi and more who build these cars in America. With American workers. And those cars are sold not just here but are also exported to Europe and elsewhere in the world. What happens if the United States slaps an extra cost on imported steel and aluminum? The cost of building a car in America goes up. Car prices go up. Fewer cars get sold. Maybe Toyota in Japan crunches the numbers and decides building cars in America is no longer cost effective. There goes those American jobs. There goes those exports to Europe.

 

So why pray tell does Li’l Donnie Trump want to impose tariffs on imported steel and aluminum? Because there are plants in the United States shut down and not making our own steel and aluminum. Trump thinks this is bad and wants to make  imported steel and aluminum cost more so these plants can go back to work.

 

It is a very simplistic view. Trump thinks domestic production of steel and aluminum is down because imported steel and aluminum is so much cheaper.  In fact, domestic production of steel and aluminum is down because it just isn’t very cost effective to make all the steel and aluminum we need here in America. Most steel and aluminum plants in the United States were built in the 1940s. These plants are old and inefficient at producing steel and aluminum at high levels of quantity and quality. And right now there is a glut of steel and aluminum in the world. It does NOT make sense for American steel and aluminum manufacturers to borrow, spend and invest billions of dollars in new factories to produce a product there is already more than enough of in the world. The upshot is that factories that build thigs that need steel and aluminum are not going to ramp up domestic production of steel and aluminum when the costs associated with that production are still greater than the costs associated with  tariffs on imported steel and aluminum. So your can of Progresso soup goes up by 10 cents or your new car now costs $200 more now. Cans and cars that may in fact no longer be built in the United States.

 

So who is hurt by Li’l Donnie Trump’s tariffs on imported steel and aluminum? American workers and consumers.

 

In addition to the sheer stupidity and shortsightedness of Li’l Donnie Trump’s tariffs, another cause for concern is how this decision got made.

 

Apparently, frustrated by the ongoing Russia investigation and the lack of sufficient supplication and genuflection to his fat ass, Trump came “unglued” and was itching for a fight. Against the advice of almost everyone, with zero research and analysis and absolutely no warning, Trump in a fit of pique decided to impose tariffs on imported steel and aluminum.  The well-being of American workers and consumers is jeopardized because Trump was cranky.


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Here are some people who object to Trump's tariff plan. See if you can spot the common denominator connecting these folks.

Scott Walker, the Republican governor of Wisconsin, says Trump’s tariffs would hurt multiple industries in his state, from motorcycles to beer to aluminum foil. “We’ve heard from Wisconsin employers, whether that’s Harley-Davidson, MillerCoors, Seneca Foods,” Walker told reporters Friday. “It could have a devastating impact. … You’re talking about potentially thousands of employees that could be laid off, and those products could be produced in places like Canada.”

Ron Johnson, Wisconsin’s Republican U.S. senator, says Trump’s tariffs would amount to “higher taxes” on people and companies in the state. “We’re a big manufacturing state. We use a lot of aluminum in beer canning, but also steel in manufacturing.” says Johnson. When President Bush tried steel tariffs 16 years ago, Johnson recalls, “We lost an awful lot of jobs.” (Bush, facing international and domestic political pressure, scaled back his tariffs before the 2002 midterms.)

Kim Reynolds, the Republican governor of Iowa, worries about the second stage of a trade war. “Our farmers are the first target,” she reminded her constituents at a press conference Monday. “They’re already talking about the impact on soybeans in China and how they will retaliate.” If NAFTA were to unravel, she warned, “The impact that would have on our state … would be devastating.”

Joni Ernst, the state’s junior Republican senator, agreed. “The easiest target for other countries is always agriculture,” Ernst told reporters. “It would come back on our growers, our farmers, our ranchers.”

Pennsylvania’s Republican senator, Pat Toomey, says Trump’s plan “will increase costs on American consumers, cost our country jobs, and invite retaliation from other countries.”



Charlie Dent, one of the state’s Republican congressmen, says the aluminum tariffs would hurt “companies in Pennsylvania, like the Hershey Company, that rely on aluminum as part of their packaging and manufacturing process.”



Ohio’s Republican Gov. John Kasich and Ohio's Republican Sen. Rob Portman caution that the tariffs could impose “higher prices” on consumers and “hurt the automakers and the other users of steel” in Ohio’s manufacturing industries.





Republican Sen. John McCain warned on Friday that the tariffs would “hurt American workers and consumers.”



Republican Sen. John Cornyn fretted that retaliation from countries slammed by the tariffs would “devastate our agricultural communities.”




Republican Sen. Lindsey Graham’s Sunday interview on Face the Nation: “BMW makes more cars in Greenville, South Carolina, than any plant in the entire BMW family,” Graham pointed out. “Thirty-two percent of the tires exported from the United States come from South Carolina. This tariff on steel is going to hurt them.”