US Trade Deficits: A Tariff Equalizer

While the EU is blistering as they attempt to retaliate against Trump’s steel and aluminum tariffs, they are now attempting to target peanut butter and orange juice.   But the trade war isn’t simply the US vs the EU, it is also the EU against the UK!   However, the commodities their economic experts target is rather odd; Brazil accounts for 50% of all global orange juice. US production is in a downward spiral, has been for years, exasperated recently by Florida crops destroyed by Hurricane Irma and – exports are “flat”.   Which means the tariff on orange juice is worth $0.00.  

US peanut butter export partners include Canada, Mexico, Europe and Japan. The European consumers are concentrated in The Netherlands, the UK, Germany and Spain.   Unlike other European countries, The Netherlands top export partners include the UK and the US with Germany being the number one destination.   In 2016, Spain’s highest trade surplus partner was the UK at $8.2 billion, an increase of 3,014%.

The EU has already initiated a trade war with the UK using BREXIT as blackmail.   However, in their tit-for-tat plundering, it would appear they haven’t considered the consequences to countries in the EU other than Germany and France. Given they are the fundamental leaders of the EU decision making schematic, they don’t appear to be making wise choices.

Currently, the UK’s largest trading partner is the EU, with the US coming in a close second. If the EU cuts off the UK and imposes tariffs, the US is calmly waiting in the shadows ready to pick up any slack.   While the EU already slaps a 10% tariff on the import of US automobiles, by contrast, German automobiles are charged an import duty of just 2.5%. The hypocrisy of the German government and by default the EU Commission is beyond comprehension.

It would seem that the EU and Germany are playing a game of chicken without realizing their engine is out of gas.

In 2016, 54% of UK imports came from within EU countries.   If the EU hardlines trade, the UK will slowly shift partners. Currently the largest trade partners include: Germany, Spain and The Netherlands (the same countries that like all the US peanut butter…weird).

While the EU has been considered an ‘emerging superpower’ over the last decade, its share of the global economy has been steadily declining. Add to the fray the growing welfare as a result of refugee and immigration policies, the demand that the EU fund their own military, and Economic policy decisions now seem to be playing a game of chicken without a car…

And the media is at the wheel.

The EU Commission has grown into a Fat Walrus with a budget closing in on $160 billion Euro’s and most assuredly rising. Taxing, penalizing, overseeing, demanding, and fining seem to be their role.   Air pollution is a problem in the EU and despite targets being established in 2005 and 2010, 23 of 28 countries don’t meet the goals.   It’s a joke.

Sanctions on member states not meeting ‘refugee quotas’ was another EU brainchild that has backfired.

And yet, we continue to forget the sage fairy tale that recounts the race between the tortoise and the hare.   While the EU Commission has stated that a) this has been in the air for some time, and b) they will retaliate, and c) they will take this to the WTO, retaliation is not a defense recognized by most courts…  

The US trade deficit in goods is $811 billion, with the largest categories being commercial aircraft, automobiles, and food. The largest deficits were earned with China, Japan, Mexico and Germany.  Germany imports autos, aircraft and pharmaceuticals, while it exports autos, industrial machinery and medicine.   China charges a 25% tariff on US imports of automobiles.

For the Democrats and the GOP to gasp at the horror of equalizing tariffs, they would seem to have ulterior motives that don’t include the prosperity of the US.   Most recently, Trump announced that his goal was to create just that – a direct constant equalizing of all tariffs – thereby eliminating ‘inequality’ – the same catch-all phrase employed by Democrats about – everything Democrat…

But after all the hrumphing and blubbering and demanding, it looks as though the EU, Japan and Australia are begging for their own exemptions.   Bottom line? Trump is looking to close the trade deficits – China, Japan and Germany – it is now your call.

2 thoughts on “US Trade Deficits: A Tariff Equalizer

  1. It’s easy to misunderstand the economics of tariffs. The problem is comparable to that of an optical illusion.

    The honest socialists and welfare statists misunderstand the effects of their policies because the “opportunity costs” are not as easy to understand as are the short-term benefits. Welfare statists never consider opportunity costs and pretend they don’t exist. It’s the elephant in the room that they ignore even if you pain the picture for them. Or they pretend the elephant is an ant.

    Every $million that is paid out to a welfare recipients, for example, represents a direct cost of $100 to taxpayers and actually, to all users of the fiat dollar. If those dollars were left in the hands of the economy, even the top 50% of earners, they could have been used partially for consumption, true, but they also could have been used in the original hands to invest in productive infrastructures. Another hidden cost involves the salaries and “Cadillac-level”benefits paid to the government workers that administer these programs.

    The tariffs imposed on imported goods is in truth at tax on consumers. Companies that make steel and their workers are benefitted by a tax that adds a cost to foreign made goods that is inevitably passed on. Patriotic Americans are supposed to applaud with glee this policy, because it “protects” American industry and jobs.

    But each tariff on each category of import is a hidden cost to consumers. If they buy from the foreign source and pay the higher price, the higher price will usually hide the TAX on the CONSUMER that the tariff is, in its essence. If the buyer buys from the domestic producer, they are paying a premium to that producer, an indirect subsidy from government.

    In other words, the tariff hurts the end consumer. It is a tax on the end consumer.

    It the foreign government imposes a tariff on imported US-made goods, they are doing the same thing, they are only hurting their own consumers.

    Free market economists of the Austrian school understand that if any foreign country imposes a tariff, they are only hurting their own consumers.

    A very strong case history of this is Brazil. During the 1980s, PC’s were all the rage in the entire world, most especially developed and rich countries. Brazil had a strong economy (compared to Latin America) and they had a budding computer manufacturing sector. To help their computer industry grow, they imposed astronomical tariffs on imports of computers.

    The result was stagnation in the Brazilian computer industry, and a few years later, the other commercial sectors of the Brazilian economy were so frustrated at falling behind that they lobbied the government into lifting those tariffs.

    Look at this way as well. Companies that produce more cheaply, be it for cheaper labor or other reason like subsidies, they are actually subsidizing American consumption. They are freeing up American dollars for boosting other economic sectors, just as lower capital taxes do, and lower taxes in general.

    And when other countries buy US treasury bonds, they are also subsidizing consumption.

    So even beside the fact “trade wars” do no good for any of its participants, lower tariffs benefit the poor and lift the economy.

    There is one more excuse used for tariff “protections” of industries such as steel and coal. Neocons are invoking national security. That comes into play in times as wars on massive scale. In World War Two Germany at one point lost the ability to import oil and gasoline to fuel its trucks and tanks.

    But that might even be a better argument against tariffs that for them. As Federic Bastiat pointed out, if trade does not cost borders, then armies will. The more trade between countries, the less they can risk going to war between themselves.

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    • I understand what you are saying economically – and from the standpoint of alliance. I think Trump is using these as an example and a form of blackmail so to speak. The US trade deficit is definitely an issue, and China is the largest denominator. The EU is out of control trying to hoist itself up on a pedestal of pride and arrogance that past President’s have played into while Germany once again attempts to dominate. If Merkel ever wakes up from her Rothschild tranquilizer she might actually stop playing games and realize who are the good guys and who are the bad guys. Squeezing China, the tortoise, before it is too late is important as they have clearly gained expansively in trade, in military, and in disputes…

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