TARIFFS AND DONALD TRUMP

 

Everybody talks about tariffs as the first thing. Tariffs are the last thing. Tariffs are part of the negotiation. The real trick is going to be increase American exports. Get rid of some of the tariff and non-tariff barriers to American exports. Wilbur Ross

We need to get rid of the 16th amendment, and return to the original system that funds government with a variety of tariffs and duties. Alan Keyes     

“The prohibiting duties we lay on all articles of foreign manufacture, which prudence requires us to establish at home with the patriotic determination of every good citizen to use no foreign article which can be made within ourselves, without regard to difference of price, secures us against a relapse into foreign dependency.” Thomas Jefferson (letter to Jean Say)

TARIFFS

Recently I have noticed a lot of misinformation being put forth in the American Press. Much of this information is nonsense.  Quickly review. A tariff is a tax on imports to a nation and it is passed on to the buyer of the product within the nation. Thus, a 20% tariff tax on all those means that the foreign car cost 20% more to the buyer within the nation.[i]

The history of tariffs in the United States started in colonial times and run to the present.

The first tariff was the tariff of 1789.  Its purpose was to generate revenue for the federal government to run its operations, as well as to pay interest on its public debt. One of its primary purposes was to act is a protective barrier around domestic manufacturing industries. This fact is often forgotten on most discussions of tariffs.   In 1789, the US had little manufacturing and they wanted to grow it. They put a protective tariff in place to protect the growth of new industries.

Thomas Jefferson disliked tariffs but he liked a protective tariff.

Tariffs have historically served a principal role in the nation’s foreign trade policy. They provided 95% of all income to the US government prior to the incorporation of the income tax in 1913.   They averaged about 20% on all foreign imports. Since the 1940s, tariffs were focused as reciprocal tariffs to other nations.

Tariffs were the main source of revenue for the federal government from 1789 to 1914.  They were debated have been since 1789.   Generally, Democrats wanted tariffs that would pay the cost of government and the Whigs or Republicans favored higher tariffs to protect and encourage American industry.   Since 1913, the tariffs have not been much of a matter of partisan debate.

Prior to the American Civil War, tariffs were generally low. They rose rapidly during the Civil War.  At the end of the war in 1865, about 65% of federal revenue was generated by excise taxes, which exceeded the 25.4% generated by tariffs.  A tax on whiskey is an excise tax.   In 1915 during World War I, tariffs generated 30.1% of revenues. Since 1935, tariff revenue has continued to be declining percentage of federal revenues.

 

Recently Trump Tariffs attack aluminum and steel. The press is shedding crocodile tears that workers will be put out of work and that foreign nations will retaliate.  It is true that some workers will be put out of work, but others will be put to work.  The net effect should be positive for the US.  In the last quarter –

• Big companies like General Motors and Boeing took hits in their earnings because of the fallout of steel and aluminum.
• E-commerce shipments for smaller companies are up – UPS is struggling to meet order shipments that have increased by 3%.
• The US is currently in the final stages of a recovery from the 2008 recession. It is not unusual for prices to go up in the final selloff.
• American companies business models were set before the Trump mention of tariffs. They have to counteract the existing European tariffs and Chinese intellectual property theft but recognize that they were part of business.  Trump is countering both of those and accordingly, small to medium businesses should see increases in sales and profits.
• Companies that do assembly in China but some parts there, or by parts there, such as jet engines HVACc are going to be hit by tariffs.
• Alternatively, vertical integration will take place in the US. That means that there will be final assembly and jobs in the US.
• Has already started taking over production of aerospace parts and aftermarket services within the US. Other manufacturers will follow suit.
• Higher cost means higher inflation. The cost will be pushed on to the final users. That is the way business works.

ALUMINUM

Tariffs are currently in place for aluminum. The president has said “Other countries trade barriers” for years harmed US manufacturing, while the US has defended the other country’s borders.

Other countries currently have tariffs against US products where the US does not have any parents are virtually none against imports to this country.

Since Trump instituted a tariff, the “crooked&” has inundated the American public with the “sky is falling” rhetoric from special interests that oppose this action.

Let us look at the facts after a few months of aluminum tariffs –

• The American economy is strong and growing at 4.1% or.
• Unemployment levels are at all-time lows for Blacks, Latinos, and 18-year lows for women.
• Capital investment is increasing at double-digit levels – which mean more profits and employment.
• It jobs increase when you are at full employment as we currently are, then wages will start going up when there are needs for new jobs.
• Manufacturing jobs and increased for each month since the tariffs took place.
• Fabricated metal.products added 7,000 jobs in June.
• Two new rolling mills are being built in Kentucky. Rolling mills in Arkansas, South Carolina, Virginia, Wisconsin, Georgia, and Ohio have announced expansion.
• Since the tariffs, a little of the producers have announced the creation of 2,300 direct production jobs.
• Alumina producers have announced new investment of over $3 billion since the aluminum 232 investigation was launched.
• Growth is just beginning. Because the new investment is not come online.
• Orders for aluminum products in all categories of increase since went into effect.

Before the president took his action, subsidize state – own producers in India, Russia, Middle East and China has four smelters across the US to close at a cost of 8,000 aluminum workers between 2003 2017. This threatened national security. The US needs to produce these types of products.

Pres. Trump used an aluminum plant in Marston, Missouri as an example.  When the plant closed, three generations of Americans lost jobs.  The foreign action of subsidies to manufacturing and nothing is the legal by WTO standards, but nothing has been done.  Trump cut the Gordian knot with tariffs and brought jobs back to the US.

 

 

 

 

 

 

[i] Jessee Gary and Bob Prusak, “Trump’s aluminum tariffs restore a crucial industry and protect America”, International Forecaster, July 28 2018, p.7.