In recent weeks, I have read a great deal about tariffs and how they will affect the economy, so I have been inspired to write about tariffs and how they may help or hurt the economy.
Tariffs are taxes on imported goods, and there are several types. Some tariffs are based on the value of the goods, while others are a fixed amount per item. There are also tariffs to protect local businesses, tariffs to punish other countries for unfair trade, and tariffs to stop certain goods from being imported altogether. Additionally, some tariffs aim to counter unfair advantages given to foreign businesses, or to prevent them from selling goods at artificially low prices. Overall, tariffs are used to control the flow of goods into a country and to raise revenue for the government.
American Solar Panel Industry was suffering at the hands of the far more efficient and cheaper Chinese Panels. Their business was more efficient because they had cheaper labor costs & were heavily subsidized by their government. Mr. Trump implemented a tariff on foreign Solar Panels.
The Result
Increased cost for US Solar Installation
Mixed Impact on American Solar Manufacturing
Trade Tension with China
Mr. Trump's 2018 Tariffs were ad valorem, or the tariff was a percentage of the imported good's value. However, Specific Tariffs are fixed. In other words, 1,000 USD tax on every ton of steel imported. Lastly there are Flat Tariffs, which are a fixed percentage on the goods imported, regardless of their value or type.
The Smoot Hawley Tariffs were a tax on all imported goods at a flat rate of 59.1% on over 20,000 goods with the intention to protect American Agriculture. The Tariff was thought to help solve a deficit crunch the government was in. It resulted in Trade Wars, Global Trade contraction & Domestic Economic Harm.
In this next section, I will attempt to define what might occur in both arenas and how they may interact.
Mr. Trump has announced a tariff of 100% on all nations attempting to obfuscate the United States' Dollar and its global supremacy. This might be his most significant threat particularly because Brazil, Russia, India, China & South Africa represent 45% of the world's population and 35% of global GDP.
Mr. Trump has also proposed a 25% tariff on Canada & Mexico, some of our largest trading partners. Canada, being an anglophone nation, is highly aligned with the United States as an ally. Both the Canada & Mexico depend greatly on American Demand for their economies. Mexico has already offered to reduce migrant traffic to prevent immigration & Canada has offered some recent concessions to the US.
In total, these tariffs would affect the US in a slew of ways. China is our second largest trade partner and that would mean a 100% price increase for American Consumers of every day products. Similarly, Canada supplies a great deal of gasoline in the Mid West, and a 25% tariff would raise prices immediately.
We saw in the recent bout with inflation that American Businesses took no prisoners and while raising prices to protect their bottom lines, they also raised them to increase their net profits. Yes. This is the long way to say price gouging.
This is one of the biggest reasons the American public is not yet crediting Biden with a great economy. Most people still aren’t feeling it.
In 2023, PepsiCo’s chief financial officer said that even though inflation was dropping, its prices would not be. Pepsi hiked its prices by double digits and announced plans to keep them high in 2024.
If Pepsi were challenged by tougher competition, consumers would just buy something cheaper. But PepsiCo’s only major soda competitor is Coca-Cola, which – surprise, surprise – announced similar price hikes at about the same time as Pepsi and has also kept its prices high.
https://www.theguardian.com/commentisfree/2024/apr/11/companies-inflation-price-gouging
Yes. I know the above piece is an opinion article, but I wouldn't expect too many major news outlets to investigate their shareholders.
Regardless, if prices on a given good had to rise 100% to accommodate taxes they might increase them by 125% instead to anticipate future strain in their markets.
If the secret of making such glass were to become widely known, gold would soon be worth no more than mud. - Tiberius Julius Caesar Augustus
In the year 1942, Joseph Schumpeter composed a book by the name of Capitalism, Socialism, and Democracy. In it, there was born the concept of creative destruction.
An economy is often dominated by a set of practices, knowledge and laws that keep it together. Every once in a while a great technology approaches and revolutionizes human life, through a very painful process. Mr. Schumpeter was the first to apply what I would consider Mr. Darwin's Theories of evolution to economics in a profound way. In nature, the strong or the fast or the smart or some combination of those factors win out of the bloody slaughter that is life. In an economy, in a much more civilized fashion, so to do old technologies die out.
The mail was a dominant form of communication for people all over the world and was all there could be. Alexander Graham Bell tried his best, but nothing could compete with a post card in the mail for many years after the popularization of the telephone. That is until the internet came. Suddenly, people could email photos across many miles in minutes, then seconds. First the images were blurry, then clearer. During this process, mailing communication fell like a rock and the invention of smart phones further disrupted this field.
The Internet has deposed many other powerful businesses. Cable Television has fallen to a second rate service as videos propagate the internet with many different creators - paid for by watching ads rather than a bill. If people wanted to watch more developed & regular television they can catch up with streaming shows which have thousands of hours of on-demand material for a much lower fee. Even to this day, sporting events have begun to shift to streaming services and cable network is struggling to catch any oxygen, smothered by its competition.
I say this to say, in a free market incumbent players are going to lose, as losing is guaranteed in a capitalist system. The US Economy, according to SEC Chairman Gary Gensler, has the best capital markets in the world and this is accomplished by increasing competition to encourage winners - which requires losers.
It was between Mr. Schumpeter's book and Adam Smith's The Wealth of Nations which I originally began to see the genius of globalism. In Mr. Friedman's great pencil analogy he holds up a number 2 pencil and describes how all of its parts likely originate from many different places and capital pulls these resources together by organizing the time and labor of men & women so that pencil could be in his hand.
It was the magic of the price system. The impersonal operation of prices that brought them together and got them to cooperate to make this pencil so that you could have it for a trifling sum.
Milton Friedman
Mr. Smith, Mr. Schumpeter, & Mr. Friedman may have had varying views on a lot of things concerning economic systems, but all of them agreed that the free market is the best mechanism for protecting the interest & general welfare of consumers. In fact, Mr. Friedman would credit it for achieving some form of world peace because nations would always have to engage in some form of coordination among businessmen.
I come to you as a champion of free markets and all of the chicanery, gimmickry and degeneracy that comes from it simply because it has proven to be the best system for created distributed wealth. It has been government, always has been government that has invaded the free market and ruined it.
In the late 1800's the United States was looking to compete on a global stage in the market of steel. Under the prodding of Mr. John Pierpont Morgan & Mr. Andrew Carnegie the United States began to impose tariffs on other nations who looked to ship steel into US Markets. I would be remised to forget the many American workers who were underpaid and the unions that were busted by these tycoons. But if you don't know it now, I will say this: NO NATION in the world's history has become a great power except without free and/or cheap labor. The laborers deserve a lot of credit here for the massive turn around that came thereafter.
American Companies took advantage of the competitive markets the tariffs created and invested further into their systems to build out extremely competitive systems. As the industry grew & was better able to compete on a global scale, the tariffs on foreign steel were reduced and American steel began to lead around the globe.
These tariffs were very necessary as they built out an industry all over the US as coal mining, petroleum production and other coordinated industries had to grow to support American Steel. The Tycoons, better known as the Robber Barons, invested aggressively in American business. The living standards of Americans grew because of it and these tycoons absorbed the tale of the self-made man. They each were beloved by Americans because they contributed so much to the economic future of the nation.
Mr. Trump's proposal of tariffs put me in a tough place until I began to ask myself, "Who are we protecting?" If tariffs are enacted and increase the price of business in the United States, would the price of business decline as production increases? Would the profits from this artificial market be invested in the American Public, or would these profits be found in record breaking buybacks & bonuses?
Mr. Carnegie and Mr. Morgan lived very flamboyant lives, even as Mr. Musk & Mr. Bezos do today. Consumption is American Dream & few Americans shame it, simply because they are thought to be investing in America. The tariffs protect the American business structure, but how does that protect the American?
As I said earlier, Mr. Friedman championed business because it forced cooperation between nation states, but that was before the advent of the multinational corporation.
Under Mr. Ronald Reagan, Mr. Friedman, & Mr. Volcker, shareholder capitalism was born. Corporations became independent entities with rights of their own with a single objective: number go up. They don't care how they make the number go up as long as it does. In the 1990's, under Mr. Clinton the North American Free Trade Agreement allowed American businesses to move to Mexico for the cheaper labor. There were many laws from the 1980s into the 1990s that encouraged business to move abroad.
These corporations are able to pick and choose which nation they might pay taxes on a given asset and which portion of their workforce will be from where. There is a certain level of pride that Americans hold in Ford, an American Automaker, because of the great history it has here alongside the great investment it has made in Michigan. The multinational corporations now exist beyond a nation state, lacking any allegiance or sympathy to the American People.
The executive has an obligation to protect citizens from all enemies both foreign and domestic - corporations have become parasitic to the American People.
"I'm not superstitious, but I am a little 'stitious. And I think it's bad luck to be a boss and not be loved by your employees."
Michael Scott, The Office
Mr. Scott is a thing of the past. Bosses see their employees as liabilities and outlays to accomplish their longer goal of profit. Since Mr. Nixon's removal of the gold standard companies have to earn dollars faster than the dollar will devalue, which has materialized in the productivity and pay gap. As you see below, workers produce more and take home less. When you introduce inflation into this equation, worker wages have remained stagnant over the last few decade.
In the same past few decades Corporate Profits have only gone in one direction. If tariffs were to be implemented into the US Economy, as it stands, I wouldn't need a crystal ball to believe that the American Workers wouldn't see wage increases that are comparable to the corporate profits that would be earned with limited foreign competitors.
If my recent studies in economics have taught me anything, its that a system that reinforces the incumbent and prevents new entrants shall die, and it'll die of its own sword. The Gilded Age was one of Monopolist, but what made these monopolist unique compared to the ones we have today?
Monopolies & oligopolies use regulatory moves to reduce their costs and improve their operations in a given state.
AT&T monopolized American phone lines with the 1913 Kingsbury Commitment where they were acknowledged as a natural monopoly in the US but the Department of Justice. It began consolidating its control over the industry in the following decades using the Federal Communications Commissions to keep its monopoly strong. In the year 1984, the AT&T monopoly was broken up by the federal government.
The AT&T monopoly was broken up in the 1980s as a result of an antitrust lawsuit filed by the US Department of Justice in 1974. The lawsuit alleged that AT&T had engaged in anticompetitive practices, including refusing to allow other companies to connect to its network and charging high prices for its services.
In 1982, AT&T agreed to settle the lawsuit by divesting its regional operating companies, which were responsible for providing local telephone service. This led to the creation of seven regional Bell operating companies, which were later acquired by other companies.
The breakup of AT&T's monopoly led to increased competition in the telecommunications industry, which ultimately benefited consumers by leading to lower prices and improved services.
Llama 3.1 405B via Venice.AI
The companies AT&T, Verizon & T-Mobile began competing for American dollars and the competition rapidly improved telecommunications over the last 40 years. Adam Smith & Mr. Friedman would agree that competition, which begets Mr. Schumpeter's creative destruction, is a very good thing for the market.
Monopolies, when they have such a close relationship with the government have little to no incentive to innovate. No incentive to invest simply because the entity has no worry of losing market share. So what do our monopolies do with their excess? They finance loans to purchase their shares and artificially and temporarily inflate the price of their equity. This adds to the company's debt, but as long as the equity continues to go up, the leverage will never be called.
With so many markets in the US dominated by so few players, it is imperative to have proper challenge, even if it is from overseas. Competition in the marketplace is good for the consumer because businesses will optimize themselves to offer the best product at the lowest price, whereas when markets lack enough players products might be able to offer poor products successfully simply because there isn't enough choice.
The United States of America has lived on a social contract which is often referred to as the American Dream.
The American Dream is built on the ideals of upward mobility, financial security, and freedom, where anyone can improve their socio-economic status through education, hard work, and determination. It's about owning a home, having a steady income, saving for the future, and being able to provide for one's family. It's also about having the opportunity to pursue happiness and personal fulfillment, whether that's through career advancement, personal achievements, or simply living a comfortable and secure life. Ultimately, the American Dream represents the promise of a better life, where anyone can achieve their goals and ambitions, regardless of their background or circumstances.
The American Dream is gradually disappearing. The American People have been delivering on their end of the social contract as worker productivity has increased consistently, however the very entities that will likely benefit from a slew of tariffs have not. They've suppressed wages of their employees and ran off with the profits. Government has offered a blank check to universities through student loans and inflated the cost of education beyond the affordability of these stagnant wages. The cost of owning a home has risen as housing has become apart of the greater financial game rather than a place to raise children.
The dream was hanging on by a mere thread, but that thread had dissipated as the recent inflation has reduced people's ability to afford bare necessities. Truflation reports aggregate inflation since 2020 at 26.18% while wages have been stagnant over the same period, and if you scroll up you will see that corporate profits skyrocketed over the same period.
Now that dream has come to us on life support and in its final moments, Mr. Trump will ascend Capitol Hill and gently place a pillow over it face & the monopolist (likely Mr. Musk himself) will smother it. Even targeted tariffs, if supporting an industry with insufficient competition at home, will only create more monopolies.
Mr. Trump's entire purpose is to project America strength abroad and the key to this is not to raise tariffs and increase costs on American Consumers, nor is it to engage in a trade war. The key isn't to create monopolies nor is it to support existing markets with too little competition. The key to reigniting the American Dream is to invest in the American Nuclear Family by easing the costs of housing by preventing businesses and foreign investors to buy them. The key is to reduce the costs of post secondary education and relieve Americans of their education related debt. The key is to make life easier for Americans through economic means.
I'll say it once more, as a champion of free markets, I am biased against tariffs, but if they must be enacted they ought to protect nascent industry, not giants who ought to be able to compete on the international market. A flat tariff will provide an opportunity for the price gougers to gouge the American People further.
GM from a Free Market Maxi! https://paragraph.xyz/@fiatfudder.eth/whats-tariffs-got-to-do-with-it