Dear President Trump: Stop the Damn Trade Lies

-edited

Today, Trump told his biggest lie yet about trade. I am sick of this nonsense.

Tariffs Bring Wealth - A Blatant Lie

Tariffs Will Buy Agricultural Goods - WTF?

Trump's Proposal in Two Sentences

  1. For starters, tariffs are a tax on consumers.
  2. Thus, the bottom line of this idiocy is Trump proposes taxing US citizens to send free food to poor and starving countries.

US Lost $500 Billion - A Lie

  1. The US most assuredly has not lost $500 billion. US buyers received goods and services in return for dollars the Fed continues to debase.
  2. If China is indeed selling goods below cost, it is a subsidy, thus a gain to US buyers.

Aid for Farmers

The Wall Street Journal reports With Trade Deal in Jeopardy, Trump Pledges Aid to Farmers

With a U.S.-China trade deal in danger of collapse, the Trump administration said it will begin work on a new program to provide aid to farmers—sending a signal to Beijing that Washington is preparing for a prolonged conflict.

Farm sales and incomes have slumped during the continued trade tensions with China, and new tariffs imposed Friday raise the prospect of more hardship ahead.

As negotiators for the U.S. and China continued talks Friday, Mr. Trump said on Twitter that the U.S. could use tariff revenue to buy “agricultural products from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance.”

Prolonged Trade War

Here's the the subtitle of that WSJ article: Administration signals it is ready for a prolonged standoff as new tariffs on China take hold.

That's a bit ironic given the following Tweet from today.

Negotiations Going Well - Might Conclude This Week

Hey, We are Really Close

Beautiful Letter

Let's not forget yesterday's beautiful letter: Trump says he has received 'beautiful' letter from China's Xi.

Once again, we are close, really, really close. We are so close that Trump is ready for a prolonged standoff.

Don't worry, there will be money left over after we send free food to the world.

Message Not Heard

On April 29, Chuck Grassley, a Republican Senator from Iowa warns Trump over tariffs.

In reference to USMCA (Trump's NAFTA replacement) Senator Grassley warned "Trump’s Tariffs End or His Trade Deal Dies".

Grassley concern is the devastating impact Trump's tariffs have had on US agriculture.

Trump believes the tariffs will pay for themselves and then some.

Money Left Over

If there will be money left over, why bother with deal?

Economic Illiteracy

Dear president Trump. You are an economic illiterate. I suggest some light reading.

Reading List

  1. Economics for Real People by Gene Callahan
  2. Economics in One Lesson by Henry Hazlitt
  3. What Has Government Done With Our Money? by Murray N. Rothbard
  4. Case Against the Fed: Murray N. Rothbard
  5. Tomorrow’s Gold Marc Faber
  6. Capitalism For Kids: Growing Up To Be Your Own Boss by Carl Hess
  7. Debunking Modern Monetary Theory (MMT) & Understanding it First by Erik Zimerman
  8. An Introduction to Austrian Economics by Thomas C. Taylor

Items two, three, four, and eight are free downloads at mises.org. Item seven is a free website article.

Where should Trump Start?

This is easy. Trump should start with number 6: Capitalism for Kids.

That's the correct level for him to pick up some essential basics.

Mike "Mish" Shedlock

Comments (119)
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Menaquinone
Menaquinone

Iowa is under water. The Missouri and Mississippi river valleys are flooded. Stored crops were ruined. Farmers are hurting, but not because of trade. China must eventually purchase soybeans or the Chinese don't eat meat and they shrink back to five feet tall and ninety five pounds.

$blankman
$blankman

Neither the exporting country (e.g., China) nor the individual exporters pay the tariffs. The tariff-tax is paid by the importing business to the US Customs.

To the extent that the final product is price-inelastic, the cost will be pushed onto the consumer. (Whirlpool was able to do this by spreading the increase over both washers, which are subject to the tariffs and dryers, which are not – since they are often sold in tandem. Appliances tend to be price inelastic.) With more elastic goods, the brunt of the cost will be borne by business.

What portion of the tax that companies cannot shift to consumers will diminish margins. Such a company then has to decide how to respond to lower profits – and lower shareholder value. One Midwest manufacturer that sources parts from China has said that – while they could absorb the 10% tariff – the increase to 25% will compel them to move more production/assembly to Mexico as their least-cost alternative. But geographic shifts are not costless and do not happen overnight. Production cuts and layoffs are likely in the near term, depending on inventories.

There is no escaping the fact that tariffs are taxes paid by businesses and consumers in the importing country – here, the U.S. A full-blown tariff war just ratchets up costs all around. Mish is exactly right – as was Adam Smith in 1776.

abend237-04
abend237-04

The scary thing to me is that both sides are making rookie mistakes. For the Chinese, not keeping the SOEs and other Chinese economic interests obviously to be impacted by a trade deal in tow was a blunder. Sending them all a copy of what had been preliminarily agreed only in the 11th hour for their approval resulted in predictably massive markups, the same kind you'll get every time you do a deal behind your contracts lawyer's back and then hand it to him for approval on your way out the door to ink the deal. For us, diarrhea of the mouth is epidemic. It's as if the village idiot is sitting at the negotiating table and stepping out every few minutes to shout the latest comments to passersby. SOEs, State Owned Enterprises, are the closest thing China has to a social safety net. They are not going to dump millions of Chinese on the street just to tick off a negotiating point. Think of us cutting Social Security at the behest of China. Surely by now, both parties have grasped the two key issues: Persistent, large trade imbalance is a growing problem, and it can't be fixed tomorrow.

Blacklisted
Blacklisted

How do the preceeding 5 Presidents that got us into this financial black hole rate in comparison?

JanNL
JanNL

Dear Mish. The China situation concerns politics, not economics. Trump thinks some economic damage is worth it. You may disagree.

Webej
Webej

Mish, you don't get it. Trump is not displaying his economic ignorance, but is playing 7D chess with the Chinese and the voters. Soon enough the rest of the world will catch on. Instead of prodding their own industry and agriculture, they will import everything, charge the importers huge tariffs, and use it to give away stuff to other lands. Everyone will be much better off than before.

Casual_Observer
Casual_Observer

Clearly PPT intervened today

Matt3
Matt3

I like the tariffs. The economy is doing well. Business is great again and economists are once again detached from the real world. Maybe this is the new normal.

thimk
thimk

It is hard to believe no one is calling out Trump on this "who pays the tariffs" statement . A.) US manufacturing companies are relocated out of china to other non US country s to avoid tariff. ( not much coming back to the states). B.) this is a punitive political move to impair china. One that we consumers will bear. C.) it will be interesting to see what the government does with the revenue boost to the general fund .

Realist
Realist

Hi thimk. Trump supporters will believe whatever Trump says. It doesn’t matter what the truth is. He tells them that the tariffs are paid by China (false), that they are paying down the national debt (false), and that it will bring manufacturing jobs back (false), and on and on. I’m just glad that Trump is America’s problem.

ksdude
ksdude

So we pay more, and have to pay farmers to grow crap for poor people in other countries while cutting the poor off subsidies at home? Go to hell!

DFWRealEstate
DFWRealEstate

No one is going to win a trade war. Not Americans, and not the Chinese. Anyone foolish enough to think this trade war will not affect U.S. consumers, is either ignorant or not paying attention. U.S. farmers are already mortgaging themselves up to their eyeballs trying to stay afloat.

Casual_Observer
Casual_Observer

If this goes like George Costanza negotiations then the US will come out worse.

Casual_Observer
Casual_Observer

This one too

Casual_Observer
Casual_Observer

This one too...

numike
numike

Big gov't desperately needs the cash,DC burnin through cash like a hot knife through butter,raise tariffs or raise taxes.....your choice!

Eighthman
Eighthman

It's not really about trade or tariffs. They are trying to force China into submission and it won't work because Trump is demanding things that violate their sovereignty.

CzarChasm-Reigns
CzarChasm-Reigns

It's not just the "damn trade lies" that should stop. It is an impressive list, if one is so inclined to categorize... jobs, immigration, foreign policy, etc.

thimk
thimk

well it looks like its a done deal. I think i might do some shopping tomorrow. Oh will dollar stores be renamed "buck fifty stores" ? /s

JavaMe
JavaMe

The "good" news is tariffs may finally produce the elusive consumer inflation that central bankers have dreamed about for the past decade. Time to buy I-bonds?

No. 26-38
we_will_be_Ok
we_will_be_Ok

For many US corporations, corporate profit is the difference between what the corporation pays a Chinese manufacturer (+freight, marketing, design, some small tax, etc) and what it can sell for in the US. This profit is then distributed as dividend and/or stock buyback --> US stock market goes up, 401K savings go up. This 'system'/supply chain has come together over several decades now. Loss of the Chinese manufacturing base will cause loss of profit and loss of 401K at least in a short to mid term, and a massive dislocation and reorganization of the supply chain in the middle to long term. Those companies that are good at outsourcing may turn out to be very bad at manufacturing in the US.

The hit to the US consumer will be through higher prices on consumer goods (a $5 t-shirt for $200) and lower payout from 401K (never to be able to retire even for those 'lucky' to have 401K).

Also, there is no guarantee that corporations will start manufacturing in the US or what they manufacture will be technologically innovative or any better in quality than the Chinese made stuff. Corporations' purpose is to generate money income. Education has been degraded. Just because US had in the past a great manufacturing base does not mean that manufacturing will return. Other outcomes are possible -- US becomes an agricultural/raw resource backwater or instead of industrial innovation, it pursues a 'service' economy in which 90% of the population cock, wash, deliver and clean after the top 10%. So, elimination of the Chinese manufacturing base has go hand in hand with an industrial policy to ensure stability and investment for innovative manufacturing to take hold.

rob2360
rob2360

You're only seeing one side of tariffs - the economists "ceterus paribus". Tariffs will benefit a lot of US workers because it will incentivize business to make product within the US and in doing so they will avoid these tariffs. Yes it will be more expensive but the average worker will benefit by the demand based wage increase more than they will lose by the increase product cost. The US losers will be the retired - arguably the wealthy non-workers who will have to pay more for product without a wage based increase. However one of the Lefts more effective arguments against Capitalism is the increasing wealth split within society. Whilst on the face of it tariffs seem anti Adam Smith "Wealth of Nations" do recall that trade was supposed to based on each country specialization leading to increased relative efficiency. Practically what we have now is not this at all - just other countries don't have the embedded hurdles like environmental, minimum wage, or workers rights of any form, green taxes etc etc. We've loaded Western economies with costs that other countries don't have - that is the specialization only and its a faux result. If those countries wont allow their standards to rise as they should then tariffs are effective way of levelling the playfield.

CorporateSlave
CorporateSlave

Call me crazy, but I'm beginning to think that modern economics and conventional wisdom on trade and immigration is either false or has been inconsequential. The NAFTA trade agreement decimated the mid west, which is how Trump got elected in the first place. These workers have not and likely will not be "retrained" as the common economic theory goes. Modern economists continue to push this idea that manufacturing is gone and that we should essentially gut our blue collar middle class, it is "inevitable". This is a dream a of corporate raiders who see massive profits from off shoring and outsourcing, the truth being that wages have hardly budged since the 1970s. All wealth we have is in spite of economic policy, and is mostly due to technological advances.

Trumps tariff policy is done because the Chinnese are trying to wait out his term, seeing whether he will get reelection. The chinnese are praying for an open borders democrat, who will be weak on trade and immigration. The result being the USA creeping further towards a third world welfare state, where current low income Americans compete with low wage immigrants and the increasing equilibrium between our wealth distribution and all of the third world wealth distributions.

Blacklisted
Blacklisted

Total Ag exports to China are $24B/yr, or 0.12% of our economy. The impact on US consumers is negligible. I suppose the Trump haters think we should continue letting China steal our technology, and that Hitlary or the dozens of establishment candidates (D's and R's) would be changing the trajectory they put us on.

Kenautical
Kenautical

US consumer is not paying for these tariffs. We are only shifting supply chains.

The govt jdoesn't just wake up and decide to come up with a list of Chinese imports to slap with a tariff, without the input of industries to be affected. It's essential for them to minimize the adverse effects of these tariffs on the economy.

Check the last sentence of the article in the link below to see the full list of $200 Billion Chinese imports under 25% tariff.

There's a lot of seafood, agricultural produce, textile products, chemicals, Wood and Leather products, metals and selected consumer electronics that could be sourced elsewhere.

If USTR together with corporations agreed that Chinese imports could be sourced from other countries, it was to be slapped with a 25% tariff. That's why there's still another list of $325Billion of Chinese imports that won't be tariffed for now.

Check last sentence in this article.