I agree with most of what you say. Inarguable really. The problem is dumping. More precisely the dumping of products produced by SOEs - State Owned Enterprises. The communists will take the financial hit in order to keep their workers employed and avoid civil unrest. Are tariffs not necessary under those circumstances? I recall there was a similar issue with the European subsidies for AirBus vs the unsubsidized products of Boeing. Laissez Faire wouldn't seem to work in those circumstances. Or what am I missing?
If another country, through its government’s coercion of its taxpayers, wishes to make us a large gift of bargain stuff, it is silly as well as ungracious to refuse.
The excuse that we might be in some trouble worth more than the gift when they stop is transparently false. The United Auto Workers aren’t afraid that Asian cars are suddenly going to become expensive. They’re afraid that they’re going to stay inexpensive, and maybe get still more inexpensive.
Dumping is a tremendous non-problem. I’ll defer to two colleagues for some good explanations:
From David Henderson (https://www.econlib.org/archives/2016/11/are_anti-dumpin.html ) [A]nti-dumping duties are a bad idea. As Fred Smith once put it in a pithy line that trade economist Jagdish Bhagwati (who taught Krugman at MIT) quoted in his book Protectionism, “If our antidumping laws applied to U.S. companies, every after-Christmas sale in the country would be banned.”
From Don Boudreaux (https://cafehayek.com/2024/06/america-first-encourage-beijing-to-keep-on-dumping.html) “I have my own rhetorical question: How, exactly, does Beijing enrich China and impoverish America by forcibly directing Chinese labor and resources to produce large amounts of outputs for sale to Americans at bargain prices? Common sense and sound economics say that this policy of Beijing makes the Chinese poorer and Americans richer, for this policy results in a net transfer of valuable resources from China to America. … To the extent that we Americans have reason to worry that China poses a military threat, we should stop complaining about Beijing’s policy of “dumping” goods in America and proceed to actively encourage Beijing to double-, triple-, or quadruple-down on such ‘dumping.’ The more such dumping occurs and the longer it lasts, the richer we become at China’s expense.”
The US sells pharmaceuticals to other countries for less than they charge here. Are we therefore “dumping” and guilty of doing something bad? There are legitimate reasons why countries sell things at different prices in different markets, and anti-dumping laws are unable to discern the differences.
Add to it that however noble and specific the intent of anti-dumping laws, they are invariably applied in illegitimate situations, they rarely work as intended, they focus our companies on anti-dumping gamesmanship in lieu of efficiency-seeking on our end. Plus, they are great sources of graft.
Whatever imperfections may result from laissez-faire in such situations, they pale in comparison to the problems churned up by protectionism.
Taxes are a mixture, like baking a cake. Different ingredients mixed together. To much of one or to little of another and it doesn't taste right or bake well. Saying this tax is the best way to raise money or that tax is better is going to give you bad batter and a bad tasting cake that no one will want to digest. Let them eat cake indeed.
There is no perfect solution to the tax question. Maybe Muni Bonds come the closest but even then if you buy gasoline or have a vehicle or your state has a sales tax. Even the Mafia has to pay some taxes. Look at what happened to Al when he didn't. never mind the murders.
Somewhat off topic. Ok a lot off topic.
Problem is the elephant in the room isn't taxes.
It's spending. Don't spend so much, don't need that much or many taxes. Shall we all begin holding our collective breaths now?
I've pointed out elsewhere (sorry you are getting this second hand) it's what I call the Little\Big problem or the Big\Little problem. Depending on your point of view.
Besides the "Deep State" there is also the "State of Inertia". Congress doesn't want to deal with Social Security because it is a BIG problem and people will complain and maybe not vote them back into office. Oh the horror, the horror.
But then there are other things, like pennies. It costs the US government around 2.7 cents (last time I looked( to make a penny. Which are made out of zinc and not copper, copper being too expensive. So it costs more money to make a penny than a penny is worth. Try running a business that way. Ditto it costs more to make a nickel than a nickel is worth. I believe that many years back the Treasury floated the idea of no longer making pennies. It never went anywhere because of "complaints". Don't know from where. Penny Collectors of America maybe. It is a "little" problem. My guess it costs millions each year and these millions mount up to tens of millions and then hundreds of millions and well you get the idea. Because it is a "little" problem unlike Social Security it can be ignored. Yes it does contribute to the deficit but only a little bit. I would hazard a guess there are a lot of those little problems out there that contribute to the deficit. Anyone know where all the COVID money went. BLM money? Medicare money? CA Supertrain to Nowhere (and not the town in the cartoon)? Raise your hands. Don't see any hands raised.
These problems are small relative to trillion dollar budgets. So no one thinks about them. Not enough to worry about and besides their might be "complaints" from donors, voters etc. All of this adds to the tax burden(s) that still have to be eventually paid by the tax payers. I.e. That's us. A less wasteful government (Back to the breath holding thing again ) would need less income so less of a tax burden. The in go is needed because of the out go. Less outgo requires less in go. Less tariffs needed less income tax needed, etc. Problem solved. Isn't there an old saw about minding the pennies and the pounds will take care of themselves.
Awaiting my Nobel.
There is also the problem of Bureaucrats thinking the Public exists serve them and make their life easier than the other way round. Going back to the Treasury the last $500 bill was in the 60's. What cost around $40+ dollars back then takes over $100 now. The Euro has 500 denominations. Swiss francs are 1000. They are worried about counter fitting and also reluctant to change the design and colors often like the Europeans do. And they want to track what you do because, well that's what they want to do.
As a lifelong (small-time) coin collector and as an economist, I’ve heard the get-rid-of-pennies argument all my life. A good rule-of-thumb is to ignore almost all economic analyses of the costs and benefits of minting. I’ve never seen an analysis that wasn’t entirely driven by arbitrary assumptions. It doesn’t matter that a penny costs two cents to make. If its presence in the marketplace somehow stimulates economy activity by more than 2 cents by facilitating certain transactions that would not otherwise occur, then by all means keep manufacturing them. I’m not saying that they do, in fact, stimulate commerce to that extent but that is at the heart of many arguments in favor of keeping them. For all the attention I’ve given to pennies for over 60 years, I still have no strong opinion as to whether we should retain them or phase them out. What you refer to as inertia can also be thought of as an example of Chesterton’s Fence. (Don’t phase out something until you understand why it’s there in the first place.) In THE HITCHHIKER’S GUIDE TO THE GALAXY, there’s a planet that decides that it’s a waste of money to pay people to sanitize public telephones (a peculiarly British vocation at the time). Later, the planet’s population dies out from a plague spread via unsanitary public telephones.)
That said, I agree that governments do many small unnecessary things by inertia, and they do add up to enormous amounts—and the costs are not solely on the books of the government. Times filled with antique regulations remain by inertia (and probably weren’t good ideas when initiated) and these impose huge costs on the economy.
I'm not sure pennies contribute anything. If you pay with a credit card they are meaningless because it's all on paper and you "pay" either by bank transfer or by check. If you pay in cash, which I frequently do, it's another story. Don't know how it is where you live but here there are prices for gas if you pay in cash and prices for gas using a CC. Save about 5-10 cents a gallon (it varies) by paying in cash. It's somewhat difficult to get exactly $xx.00 or $xx.x5 on the pump. So either too many pennies or two few. They add up after a while. Business that still do a lot of cash transactions like barber shops accumulate a lot of coins over time. Why to you think tip jars in fast food places have so many pennies in them besides $1.00 bills? People dump their change (if paying in cash) into them. If they pay by CC they usually just add a tip to the bill or put in $1.00. One theory is that stores "like" them because they can price things at $xx.99 which gives the illusions to customers they are paying the xx price rather than the xx+1 price which it really is. Do away with the penny and that "trick" goes away. Also the question is you are paying people to make them, transport them etc and what does the economy gain from that?
A better question is why aren't they making the 50 cent piece anymore? Much more useful. Different theories. Too large, vending machines didn't take them, ???
Since you are a coin collector do a Google search for J.L Lawson & Co. While not coins in the monetary sense, some of them may amuse you as an economist. I sometimes give certain ones away as gifts. I have no investment or personal interest in the company.
All reasonable hypotheses. I have no strong feelings. Figuring all the secondary and tertiary effects and so forth is the tough part. Your arguments are often made, and there are arguments to the contrary, as well. 50¢ pieces aren’t made because they fell out of use. Coin collectors actually would save worn-out halves because they were so rare and kind of amusing to find.
JL Lawson is kind of amusing, but no, they’re not coins. Far more interesting are trade tokens, which were private quasi-money in the 19th and early 20th centuries. Google those. I own some. Perhaps the most amusing (which I don’t own) were trade tokens for brothels in the Wild West. Stores accepted them, and they regularly showed up in church collection plates. During the early 20th century there were tokens and scrip worth 1/10 of a cent, and they were used in trade. The list goes on.
True. The devil as they say is in the details. I look at it more as a symbol, example of the symbol of the Inertia State.
I like his Death\Taxes one and some of the Decider ones are amusing. One side says Death the other Taxes. So you can choose one or the other when flipping the coin. The two certainties in life. Sink\Swim, etc. A spin coin had a boney pointing finger. When I went out with friends there was the inevitable argument on paying for dinner or drinks. You could spin the coin and the finger would point at someone in the group. The words on the coin were "your time has come". That person paid. Fewer arguments and people found it amusing.
The last 50 cent pieces (JFK ones) were also the last coins with silver in them. As the price of silver became higher than either the coins worth or the collector value (at that time) you could still get them for 50 cents. Supposedly people would go to banks in small towns and try to "buy" all of them that they had and they would occasionally show up in change. As it became more known the supply dried up. I came across a few by happenstance. Still have them.
Yes, people started melting JFK halves once inflation ate away the face value and silver markets went bonkers. BTW, the later Kennedy halves (1971 and later) had no silver. Basically, though, it’s a coin for which there was never any significant commercial demand.
This was a recurring thing in American history. Around the Civil War, all the silver coins vanished and were presumed melted. Small commerce was disrupted. People used private tokens and barter or went without goods. After deflation, 10 or 15 years later the coins came rolling back in. Many had been hidden in Central America.
I don’t think anyone objects to an import tariff of (say) $6,000 per car provided there is also an excise of $6,000 per car on domestic production, and similarly on all other goods and services, so as not to disfavor cars.
(Actually the amount should be proportional to the car’s value, but I was simplifying.)
Fortunately, I have two (very old) cars and I'm not in the market for replacement, as they still run. But for the rest of you, good idea. Have to look at investing in Uber.
If they aren't paying any taxes I would like to know how they do it. Ditto the drivers. What's the old limerick? Don't tax me, don't tax thee, tax that fellow behind the tree. And then there is the Don't Tax me Bro online game.
Around 1990 I was a self employed carpenter in the $450k+ housing market (1990 dollars) in Western Washington. This market outlasted the middle class market and then it collapsed. The wealth tax you mentioned pretty much shut down luxury boat building in Western Washington. I then had to compete with laid off boat builders for carpentry work. My addition to your comments would be that before you can levy a tax on Chineese goods you have to have Chineese trade which itself has diffenent effects on different groups of Americans.
It is to be expected that whatever tax is laid, those who bear the brunt will complain. It is most just for the burden to fall on the whole people, divided equitably—whatever that means.
And the problem is that governments have neither the wisdom nor the skill to determine where the burdens fall. And, as economic conditions shift, the burdens shift. in many markets, some participant is highly price-insensitive in the short-run, but highly price-sensitive in the long-run. Government might impose a huge tax today, and taxpayers pay it, because in the short run, they have no choice. But over time, they have the capacity to leave. California does not appear to comprehend this simple principle.
More important still, statesmen have no interest in determining where the burdens fall. Actually knowing is a disadvantage; you can sell your good intentions better if you arrange not to know better.
Whether California statesmen comprehend that simple principle or not is not obvious to me; what is obvious to me is that they don’t believe their constituents understand it, or possibly care. They take their constituents for fools. They have good evidence: their own incumbency.
I know that aphorism. But by the same logic of this article, corporations pay a portion of the tax, and consumers pay another portion. And which portion is larger depends upon price-sensitivity of both sides of the market. If the product is insulin, the company can and will, indeed, pass almost all of the costs along to the tremendously price-insensitive consumers of insulin. If the product is something with loads of substitutes, then the corporation will be on the hook to pay (or it will go out of business).
Yeah, I think it was applied to gasoline taxes when I saw it, which are not wildly dissimilar from a tax on insulin in my neighborhood. Which is interesting now that I think of it: the California legislature knows darn well that ExxonMobil isn't going to pay their exorbitant gasoline tax. It's aimed at me, to make me ride the bus. Yet they seem surprised that an artificial hike in minimum wage gets passed to restaurant customers.
When I talked about incidence in class, I recounted how, before he descended into senile dementia, my father gave me a power of attorney over his financial affairs. I would write checks on his checking account to pay for his 24-hour care, taxes, etc. When the students agreed that although I wrote and signed the checks, he paid them, I then would mention that when he died, I was the residual legatee. Thus, every check I had written had reduced my inheritance.
The final outcome, yes. But the first step made the point that who writes and signs the check isn't necessarily who bears the cost. Th second part makes the point that in this case the person who wrote and signed the check bore the cost, but not because he wrote and the signed the check. If my father had appointed an attorney to handle his affairs, I would still have been the residual legatee, and my inheritance would have been diminished by every check the attorney wrote on my father's behalf.
Your argument against tariffs smacks of the same arguments made for offshoring our manufacturing wherein we will benefit amazingly from the lower foreign labor for cheaper goods available to the customer and the US labor can the be expending on design and ‘service’ activities. How’s that worked out for Youngstown, OH and Danville, VA? The meth dealers give it a big thumbs up as do Wall Street millionaires now billionaires. Your problem is not accounting for economic externalities. The economics for moving a single mfg plant from a small Midwest city to China or Mexico is great for the plant owners. Profits way up, and lower product price point. But no accounting is made for the effective destruction of the mfg plant ‘ecosystem’ is the same community: every lost worker salary, stores without customers, schools without students, mfg suppliers without sales. Your arguments on taxes are accurate. Equating taxations effects to tariffs is incorrect until a ‘TCO’ analysis of offshoring mfg and labor is made to include all economic externalities. There’s also a valid argument to made about not forcing US labor to be priced competitive to Ghana and Mumbai. And that’s not even touching on concepts such as every offshored industry creates global class competition where none previously existed and the inevitable loss of priceless US IP.
1) The Rust Belt faced lower labor and land and capital costs in the South, where much industry flowed. Do you think Pennsylvania, Ohio, and Michigan should have imposed tariffs on goods from Tennessee and Alabama and North Carolina?
2) Rochester, NY was badly damaged by the advent of digital photograph and Kodak's resulting decline. Do you believe that New York State should have imposed a very high tariff on digital cameras to protect the jobs in Rochester?
3) Over the past 30 years, thanks to international trade, the world has seen more people emerge from abject poverty than in any other similar period in human history--in places like Ghana and Mumbai. Hundreds of millions of people with a real chance for the first time ever. If you had had the power, would you have said, "Hey, Africans and Indians, I'm sorry, but you need to continue starving and dying of bilharzia and malaria so Youngstown will be a bit better off?"
4) As international trade burgeoned, Americans experienced unprecedented increases in per capita income and household purchasing power. Would you have preferred that they remain at 1945 income so that Danville could remain a powerhouse?
5) People often use the word "externality" to mean "second-hand effects." But to qualify as a n externality, there has to be a missing market--items that aren't priced into the costs. Exactly which markets were missing in Youngstown and Danville?
6) In the mid-20th century, the Rust Belt, in fact, had sizable protections from trade impacts. As a result, their steel mills became lazy and declined to innovate. Ultimately, that sloth resulted in complete collapse of the industry, and the Rust Belt was left unprepared for their demise. In North Carolina, the state decided that, rather than oppose the outflow of textile and furniture plants, they would, instead focus on transition. They built a great community college system, began retraining workers, and prepared infrastructure for replacement industries. By the time textiles and furniture went away, the state was ready for software and pharmaceuticals to roll in to a workforce that was prepared for the change. Would you be happier if North Carolinians were still earning minimum wage to make cloth and chairs?
Thank you for your kind and extensive reply. From a foundational perspective, I believe based on all historic and empirical data, competition and free markets are essential for individual liberty and human advancement. In that I believe we are in agreement. The problem is no large company actually wants completion, and no country except the US has free markets anywhere in their policies. So the US supporting ‘free’ markets is a suckers game. So if anybody wants to sell their goods or services in the US, fine. But only on the same basis as the US can trade in their country. Like Trump said, by what logic can a foreign manufacturer sell their product in the US with a 0% tariff, yet a US manufacturer competing with the same goods faces a 25% tariff exporting to the country in question. A market is free or it’s something else. And, outside the US, it’s always something else. China wants to buy US farms and food processors? Ok. As long as they sell US interests Chinese land and food producers on a 1:1 basis with their US purchases and like terms and conditions.
In response to your points:
1. Of course not. My concerns are about unrestricted industrial relocation outside US borders.
2. Same as above reply
3. Of course not. But US interests trading in their countries must match the terms and conditions they receive in ours. This can even leave aside the issues of unequal labor costs.
4. Per capita income and household purchasing power is a statistical sleight of hand. Wages for middle and low income earners has been flat since the 70’s. So yeah, 3 Wall Street hedge fund billionaires and 3 tech billionaires increase per capita income a lot, but the avg worker is still screwed. Yes, I can buy tons of cheap Chinese knockoffs and consumer goods at Walmart. Same at Home Depot. But is our country better off? I’m NOT saying stop foreign imports at all. But the playing field needs to be level. Same with foreign workers coming into the US. They can come here as long as US citizens can go there on like terms and conditions. I challenge you to point out any country on the planet EXCEPT the US with an H1-b visa program.
5. My understanding of an externality is a cost created by an economic activity that is ‘externalized’ so that someone other than the producer must pay it. Like chemical plant that destroys a river, but pays nothing for cleaning up the river, or, even better, compensates all the folks using the river that can no longer do so. If you want to label that a ‘second-hand’ effect, ok. The bottom line is they are real costs. And they can be devastating to the point the causative activity needs to be repriced. Notice I’m NOT saying regulated. You wanna build a 1,000 townhomes? Great. Include in your development activity, amortized over 30 years, necessary schools, police, fire, sewer, roads, and water to support those townhomes as well. That’s the true cost of that activity. No taxes or regulation required.
6. Sadly, you are correct about the behavior of the steel companies in the rust belt. Pure protectionism without a focus on competition is loved by large businesses since they can continue running poor products and put more money in their pockets while running their plants and workers into the ground. Perhaps you could do a Substack on the financialization of the US economy . Yes, NC did some good things, and yes, there is some Pharma and software where there wasn’t before. Same in VA where we both live. But take a drive to Danville, VA and Hickory, NC. Check out Main Street downtown in each city. Now repeat that 1,000’s of times in small and medium towns across the US. Tell me you see vibrant software and Pharma transitions instead of devastation. Your example of transition has some merit. But, like Hillary’s ‘learn to code’ insults, a low wage manual skill worker isn’t going to ‘learn to code’. Where they have a good job with benefits, family, and self respect, they are handed nothing but a community college course in skills in which they are neither interested or capable. The result? Long term unemployment, poverty, and community devastation. And so what a new Pharma plant opens 200 mi away from their homes, relatives, history, and community? They won’t be considered for employment at the new industry anyway. Check out the job openings at Smith Klein Glaxo in Cary, NC and see how many entry level jobs are open to a mid40’s white guy with a job history of 20 yrs maintaining a paint shop in a furniture plant. Even if he takes 2 pharmacy tech courses at Hickory community college. I’ll wait.
Again, Thank you for your kind and thoughtful reply. I appreciate the opportunity to reply and greatly enjoy the interchange. You are a very impressive individual and it was a fortunate day for me when I discovered your Substack. Please keep up your provocations!
—In general, companies don’t want competition, and no market has ever been completely free. And no serious scholar of political economy ever said otherwise. But in a glaring, 250-year-old example of “Don’t let the perfect be the enemy of the good,” politicians have taken this as free license to say, “Since perfect free markets don’t exist, let’s just go ahead and shower them with government takeovers, regulations, taxes, tariffs, etc.” The relevant question is not whether unfettered competition and perfectly free markets exist, the question is whether the alternatives work better. In the case of tariffs, the answer is almost always a big, resounding “no.” They tend to be destructive, graft-ridden, bureaucrat-laden, imprecise instruments that may or may not benefit their alleged beneficiaries and do great collateral damage to the larger population in the country imposing the tariffs.
—If you want to restrict manufacturing relocation outside of the borders, then by definition, you want to restrict inflows of investment income within our borders. You want to deny Americans the right to gain the maximum value out of their resources. You cannot separate the two.
—And, while I have sympathy for Youngstown and Danville, I also have sympathy for the hundreds of millions of people in other countries who have been lifted out of poverty, disease, and starvation in the past 30 years as a direct result of global trade and investment flows. I have a moral objection to the notion that starvation should continue abroad and Americans in general should see their incomes diminished so that Youngstown might flourish.
—If one believes it is moral and wise for America to punish China and other Americans to shore up Youngstown, then I don’t know why its immoral and/or unwise for Ohio to punish Tennessee and South Carolina and other Ohioans to shore up Youngstown. I do not consider foreigners to be lesser beings than Americans.
—There is no reason why we must insist that our trade liberalization should be dependent upon other countries’ trade policies. It’s an idea that sounds nice but in fact is nothing more than, “If China does stupid, destructive things to their own economy, then we must respond by doing stupid, destructive things to our economy.“ The idea of a “level playing field” is indeed important if you are playing soccer, but it is an analytically impoverished notion when dealing with trade and commerce. The fact that we have an H1-b visa program and Europe doesn’t goes a long way toward explaining why American incomes are so much higher than European incomes—by just about any measure you want to use. Immigrants contribute mightily to American dynamism—which positive spillover effects all over the U.S. economy.
— No doubt, there are temporary, frictional downturns for some as change occurs. Most Americans used to farm and were mostly poor. With technological changes (including trade and foreign investment), only a tiny percentage of Americans farm, and we are mostly wealthy. Even the poor in the US have full bellies, TVs, air conditioning, high-quality healthcare, etc. But along the way, there were, indeed displaced farmers who suffered hardship during the transition periods. Rural Youngstowns, so to speak. The alternative was to remain poor and, eventually, to suffer MASSIVE disruptions when the costs of protectionism finally become too great to sustain.
—Externalities are real and matter. But Youngstown’s decline did not result from externalities. (I have a comment on that distribution elsewhere on this page.)
—My arguments have absolutely no relation to the arrogant and ill-informed “learn to code” nonsense. I do not downplay the real human costs of economic transition. I simply argue that attempts to forestall such transformation are generally doomed and profoundly counterproductive.
—Even if one rejects much of my logic above, tariffs are still a lousy, rotten, no-good, tool for accomplishing what their advocates imagine they will accomplish. When I suggest that blooding via leeches and venesection is not a useful method for treating cancer, I am not denying the existence of cancer. I am merely stating that venesection, like tariffs, are a crappy way to deal with the problem at hand.
That is neither a missing market nor an externality. If you outbid me for a contract to buy a house, my feelings are hurt, but there is no externality. The market for that house existed, and I was simply the loser in a complete market with a full set of prices. If, on the other hand, you move in next to me and play ear-shattering music at 3am or open a hog-rendering facility in your backyard (with attendant squeals and stench), then my unhappiness reflects an externality. There is no market for decibel-lowering or stench-reduction. That said, Ronald Coase, Vernon Smith, and others have shown that people are more capable that a simplistic analysis suggests to create informal markets to fill in for the missing markets. Gossip, shunning, side payments, and threats of retaliation often act as substitutes for missing markets—often quite effectively. But in the case of Youngstown and Danville, they were outbid—not the victims of a missing market.
You are simply defining your hurt feelings in this case as “not an externality.” I know Marxists you will never convince. I don’t think it’s obvious how to define “externality.” But I do think it’s obvious that bad feelings, especially envy, should not be compensable by process of law, which I think is equivalent. Is it not?
Perhaps the right way to frame the question is this: What is it that those who know what they’re talking about know (have evidence for) that makes that the unique correct way to define “externality”?
Also, remember that the “you” in “your hurt feelings” is not the actual you, Graboyes, but the hypothetical you in the hypothetical above posed, which perhaps unfortunately used first and second person instead of Alice and Bob or some such placeholders.
Excellent — thank you. When the most satisfying urge is to punish the “libs/right/rich/anyone-whom-I-don’t-like,” usually it comes back to bite. Unfortunately punishment is too often the lowest, most juicy fruit on the tree.
I don't often disagree with you, but I think you're missing an important point WRT tariffs with China, which is that "some sellers stop selling altogether and some buyers stop buying" is (at least part of) the explicit point here, and not an unintended consequence at all.
Less trade with a geopolitical adversary that's openly working to cause harm to us is, in the minds of a lot of people at least, a positive good to be affirmatively pursued, and I can't say I disagree with them. Yes, our economy might take a bit of a hit, but that's hardly significant next to the national security implications.
We do have legislation against trading with an enemy—but only in time of war. Are you arguing that we should be at war with China, or that the law should be (re)broadened to time of peace?
When China is sending enough fentanyl into our country to kill every person in America with plenty of margin of error left over, when China knowingly, deliberately exported a deadly virus into the rest of the world by keeping international flights out of Wuhan running after they had already locked down internal travel, when they're manipulating TikTok algorithms to poison and weaken the minds of Americans while the Chinese version pushes patriotic content to their own citizens, I don't argue that we "should be at war with China." I argue that China is already de facto waging war against us, and it's a mistake that we haven't formally acknowledged it simply because they haven't formally declared it.
Read Sun Tzu. Read The Thirty-Six Stratagems. This is what warfare looks like from a Chinese cultural perspective. It involves a lot more than just the military, and it's already happening.
The Chinese are birthing their next generation Intelligence operatives in the US as American citizens courtesy of the lefts perversion of the 14th amendment and chain immigration. Their offensive planning horizons are generations. Ours last only until change of command.
Spot on. Pretending war isn’t coming is very different from Preventing war from coming. Or responding to actual assaults. Ask the 100,000 dead from Chinese fentanyl last year what they think.
But the question is, will tariffs prevent the “war” that you imagine. There’s no evidence that they have ever been an effective strategy in such areas. And, in fact, ample evidence suggests that they accelerate and worsen the problems. The Smoot-Hawley tariffs in the early 20th century were applied for the exact reasons suggested in many comments on this board. And the result was to globalize the Great Depression, financial failures, etc.
Stop implying. If you’re saying that China is at war with us, then say we should be at war with China. If you aren’t, don’t. I don’t want to put words in your mouth: it’s unsanitary.
Let me make it easier. (My tone reads as hostile and isn’t intended to.) You make a good case that China is already at war with us. Not full hot nuclear-exchange war—because they don’t want to suffer that—but war nevertheless. Maybe we should be at war (at a similar level) in return. Very possibly. And maybe trading with the enemy laws should apply. If that’s your belief, which it appears to be, make the case. You’re among friends.
I think Bob has a point but the answer may not be tariffs but by law disallowing products produced with slave labour and/or punishing western companies that produce in China and transfer technology or allow their technology to be stolen. My son worked in China for 1.5 years and the system worked this way: If you wanted to sell in China you had to produce in China and only control less than 50% of the manufacturing plant. The majority owned by a Chinese entity who copy the technology and manufacture the “same” products in another factory owned by that entity. After a few years the secondary entity would then export back to the original country a competing product at a lower price. The conundrum is to forgo immediate profits and not export the technology or prevent the stolen technology from competing with the home market. Tariffs may not be the best way but the reality has to be met. Of course we could reduce the government caused friction and encourage production here. As an example I have a friend who managed a small manufacturing plant in NJ and the corporation had plants all over the world. He said the labour cost in the US was not much more than in other countries when efficiency was factored in. What caused the plant to close was onerous Govermental regulations that ballooned those costs and caused the local plant to be noncompetitive with other plants in the company.
Interesting. Tariffs are blunt instruments, and you’re talking about really narrow, precision actions. If I remember correctly, when NAFTA was signed, people were terrified by cheap Mexican labor. Hourly wages were only 1/5 of the US levels. But, productivity of Mexican workers was only 1/5 of US levels—not because they were bad workers, but because they lacked the automation, tools of their US counterparts.
I’m quite aware of those arguments. They sound nice, but in practice, they are crap. That’s why I wrote, “Taxes and tariffs are perfectly fine tools for raising government revenues or for assuring that less of some product is produced. But it’s a fool’s game to try using taxes and tariffs to mete out precision punishments on specific individuals or groups—unless you don’t care how much you hurt yourself.” If the argument is, “We want to screw over China, and we’re willing to impoverish ourselves to fulfill that goal,” then fine. But the argument made is that China (and not Americans) will pay for the tariff, then the argument is either dishonest or nonsense. If you’re worried about, say, Chinese drones with spyware, then the answer might be a ban on importation, not a tariff. With tariffs, we’ll still buy strategic goods from China (because our demand is relatively inelastic)—but we’ll simply pay through the nose for them.
I disagree with the “inelastic demand” contention. Our demand for pharmaceutical goods is inelastic. But just because the alternative is expensive are we better off that 95% of our drugs are produced outside the US? We saw how well that worked with the Wu Flu.
We surrounded by a world and intelligentsia that wants the US to fail at a minimum, and many powerful entities that want the US actually destroyed. Look at the arguments for unlimited international trade ushering in eternal world peace and prosperity prior to both WW1 and WW2 as well as the wonders of China into the WTO. We can and should trade internationally. But does it make any sense at all that critical parts of our nation’s economy and national defense rely on foreign supplies? If Hitler had started WW2 with his planned 400 U-boats instead of 57, Europe and Asia would be speaking German and Japanese because of supply chain disruption. Pretending China, Russia, Iran and PDRK won’t attack the US works only until they do. Fortress America, which was how WW2 was won, no longer exists. We cannot fight a 2 front global conflict right now, and based on the hollowing out of US based manufacturing it’s highly doubtful we can fight a single front global conflict (even without DEI insanity) We spent 20 years fighting goat herders with small arms in Afghanistan. Please explain how the many economic benefits of offshoring a substantial portion of our manufacturing allows us to respond when China ‘nationalizes’ Taiwan, home of 95% of the world semiconductor fabs?
I think that (trading with the enemy excepted) I ought to have a constitutional right to buy from a foreign supplier paying no greater tariff than I would have to pay in an equivalent excise to a domestic supplier.
I've heard that that was his intent in doing so. But I've also heard that declassified Soviet files have since made it fairly clear that the USSR was already collapsing under its own weight, and would have fallen apart anyway with or without the China deal.
No. I’m still glad Nixon went to China. They are also economically dependent upon us, so they have an enormous amount to lose should they try to screw us over militarily or otherwise. They have enormous investments here, and we tank, so does their wealth.
Problem is people tend to think "well that solves that problem". without adding "for now". Countries like Russia and China have historical imperatives that transcend economic or political systems. Russia has ALWAYS wanted buffer states around it. China has ALWAYS thought of itself as the Middle Kingdom. These imprints don't go away with a change in the ism. If you look at the way the USSR was run it wasn't much different than under the Tsars. The titles were no longer inherited (though Stalin Jr. thought he should replace his dad). China being less belligerent was good. Thinking that it was going to be a democracy was wishful thinking. One of the fallacies in western thinking is the belief\hope\wish that if you get rid of a dictator the next one will be better. Usually not. See Libya. Or that Democracy will bloom. Probably not. I blame the success of the Marshall Plan. The US thinks very short term. The others think short term in who's running the show and in power, but long term in what the goals are. It's built into their DNA by now.
It took WW I followed WWII to alter Germany. And even then it wanted to dominate the EU. A conquest by other means. Two A-Bombs and the incineration of its cities to change Japan's dreams of empire. Though again they thought about it via other means. More peaceful anyway.
It’s mind boggling how IGNORANT the average American is when it comes to basic economics.
However, it’s both INEXCUSABLE and DESTRUCTIVE when those in the highest reaches of government possess that same ignorance.
It’s further proof of the failure of our education system, particularly in the areas of Civics and Economics.
Hazlitt should be REQUIRED reading in high school.
Not sure Hazlitt would the trick. There is that nettlesome difference between leading the horse to water and getting him to drink.
I agree with most of what you say. Inarguable really. The problem is dumping. More precisely the dumping of products produced by SOEs - State Owned Enterprises. The communists will take the financial hit in order to keep their workers employed and avoid civil unrest. Are tariffs not necessary under those circumstances? I recall there was a similar issue with the European subsidies for AirBus vs the unsubsidized products of Boeing. Laissez Faire wouldn't seem to work in those circumstances. Or what am I missing?
If another country, through its government’s coercion of its taxpayers, wishes to make us a large gift of bargain stuff, it is silly as well as ungracious to refuse.
The excuse that we might be in some trouble worth more than the gift when they stop is transparently false. The United Auto Workers aren’t afraid that Asian cars are suddenly going to become expensive. They’re afraid that they’re going to stay inexpensive, and maybe get still more inexpensive.
Dumping is a tremendous non-problem. I’ll defer to two colleagues for some good explanations:
From David Henderson (https://www.econlib.org/archives/2016/11/are_anti-dumpin.html ) [A]nti-dumping duties are a bad idea. As Fred Smith once put it in a pithy line that trade economist Jagdish Bhagwati (who taught Krugman at MIT) quoted in his book Protectionism, “If our antidumping laws applied to U.S. companies, every after-Christmas sale in the country would be banned.”
From Don Boudreaux (https://cafehayek.com/2024/06/america-first-encourage-beijing-to-keep-on-dumping.html) “I have my own rhetorical question: How, exactly, does Beijing enrich China and impoverish America by forcibly directing Chinese labor and resources to produce large amounts of outputs for sale to Americans at bargain prices? Common sense and sound economics say that this policy of Beijing makes the Chinese poorer and Americans richer, for this policy results in a net transfer of valuable resources from China to America. … To the extent that we Americans have reason to worry that China poses a military threat, we should stop complaining about Beijing’s policy of “dumping” goods in America and proceed to actively encourage Beijing to double-, triple-, or quadruple-down on such ‘dumping.’ The more such dumping occurs and the longer it lasts, the richer we become at China’s expense.”
Don has a longer article on the specifics: https://www.cato.org/commentary/dumping-doesnt-mean-what-you-think-it-means
The US sells pharmaceuticals to other countries for less than they charge here. Are we therefore “dumping” and guilty of doing something bad? There are legitimate reasons why countries sell things at different prices in different markets, and anti-dumping laws are unable to discern the differences.
Add to it that however noble and specific the intent of anti-dumping laws, they are invariably applied in illegitimate situations, they rarely work as intended, they focus our companies on anti-dumping gamesmanship in lieu of efficiency-seeking on our end. Plus, they are great sources of graft.
Whatever imperfections may result from laissez-faire in such situations, they pale in comparison to the problems churned up by protectionism.
Taxes are a mixture, like baking a cake. Different ingredients mixed together. To much of one or to little of another and it doesn't taste right or bake well. Saying this tax is the best way to raise money or that tax is better is going to give you bad batter and a bad tasting cake that no one will want to digest. Let them eat cake indeed.
There is no perfect solution to the tax question. Maybe Muni Bonds come the closest but even then if you buy gasoline or have a vehicle or your state has a sales tax. Even the Mafia has to pay some taxes. Look at what happened to Al when he didn't. never mind the murders.
Somewhat off topic. Ok a lot off topic.
Problem is the elephant in the room isn't taxes.
It's spending. Don't spend so much, don't need that much or many taxes. Shall we all begin holding our collective breaths now?
I've pointed out elsewhere (sorry you are getting this second hand) it's what I call the Little\Big problem or the Big\Little problem. Depending on your point of view.
Besides the "Deep State" there is also the "State of Inertia". Congress doesn't want to deal with Social Security because it is a BIG problem and people will complain and maybe not vote them back into office. Oh the horror, the horror.
But then there are other things, like pennies. It costs the US government around 2.7 cents (last time I looked( to make a penny. Which are made out of zinc and not copper, copper being too expensive. So it costs more money to make a penny than a penny is worth. Try running a business that way. Ditto it costs more to make a nickel than a nickel is worth. I believe that many years back the Treasury floated the idea of no longer making pennies. It never went anywhere because of "complaints". Don't know from where. Penny Collectors of America maybe. It is a "little" problem. My guess it costs millions each year and these millions mount up to tens of millions and then hundreds of millions and well you get the idea. Because it is a "little" problem unlike Social Security it can be ignored. Yes it does contribute to the deficit but only a little bit. I would hazard a guess there are a lot of those little problems out there that contribute to the deficit. Anyone know where all the COVID money went. BLM money? Medicare money? CA Supertrain to Nowhere (and not the town in the cartoon)? Raise your hands. Don't see any hands raised.
These problems are small relative to trillion dollar budgets. So no one thinks about them. Not enough to worry about and besides their might be "complaints" from donors, voters etc. All of this adds to the tax burden(s) that still have to be eventually paid by the tax payers. I.e. That's us. A less wasteful government (Back to the breath holding thing again ) would need less income so less of a tax burden. The in go is needed because of the out go. Less outgo requires less in go. Less tariffs needed less income tax needed, etc. Problem solved. Isn't there an old saw about minding the pennies and the pounds will take care of themselves.
Awaiting my Nobel.
There is also the problem of Bureaucrats thinking the Public exists serve them and make their life easier than the other way round. Going back to the Treasury the last $500 bill was in the 60's. What cost around $40+ dollars back then takes over $100 now. The Euro has 500 denominations. Swiss francs are 1000. They are worried about counter fitting and also reluctant to change the design and colors often like the Europeans do. And they want to track what you do because, well that's what they want to do.
As a lifelong (small-time) coin collector and as an economist, I’ve heard the get-rid-of-pennies argument all my life. A good rule-of-thumb is to ignore almost all economic analyses of the costs and benefits of minting. I’ve never seen an analysis that wasn’t entirely driven by arbitrary assumptions. It doesn’t matter that a penny costs two cents to make. If its presence in the marketplace somehow stimulates economy activity by more than 2 cents by facilitating certain transactions that would not otherwise occur, then by all means keep manufacturing them. I’m not saying that they do, in fact, stimulate commerce to that extent but that is at the heart of many arguments in favor of keeping them. For all the attention I’ve given to pennies for over 60 years, I still have no strong opinion as to whether we should retain them or phase them out. What you refer to as inertia can also be thought of as an example of Chesterton’s Fence. (Don’t phase out something until you understand why it’s there in the first place.) In THE HITCHHIKER’S GUIDE TO THE GALAXY, there’s a planet that decides that it’s a waste of money to pay people to sanitize public telephones (a peculiarly British vocation at the time). Later, the planet’s population dies out from a plague spread via unsanitary public telephones.)
That said, I agree that governments do many small unnecessary things by inertia, and they do add up to enormous amounts—and the costs are not solely on the books of the government. Times filled with antique regulations remain by inertia (and probably weren’t good ideas when initiated) and these impose huge costs on the economy.
I'm not sure pennies contribute anything. If you pay with a credit card they are meaningless because it's all on paper and you "pay" either by bank transfer or by check. If you pay in cash, which I frequently do, it's another story. Don't know how it is where you live but here there are prices for gas if you pay in cash and prices for gas using a CC. Save about 5-10 cents a gallon (it varies) by paying in cash. It's somewhat difficult to get exactly $xx.00 or $xx.x5 on the pump. So either too many pennies or two few. They add up after a while. Business that still do a lot of cash transactions like barber shops accumulate a lot of coins over time. Why to you think tip jars in fast food places have so many pennies in them besides $1.00 bills? People dump their change (if paying in cash) into them. If they pay by CC they usually just add a tip to the bill or put in $1.00. One theory is that stores "like" them because they can price things at $xx.99 which gives the illusions to customers they are paying the xx price rather than the xx+1 price which it really is. Do away with the penny and that "trick" goes away. Also the question is you are paying people to make them, transport them etc and what does the economy gain from that?
A better question is why aren't they making the 50 cent piece anymore? Much more useful. Different theories. Too large, vending machines didn't take them, ???
Since you are a coin collector do a Google search for J.L Lawson & Co. While not coins in the monetary sense, some of them may amuse you as an economist. I sometimes give certain ones away as gifts. I have no investment or personal interest in the company.
Here’s an interview I did on the subject of coins. Originally, the article had photos. Maybe I’ll repost sometime with the pictures. https://www.mercatus.org/macro-musings/robert-graboyes-monetary-history-small-coins
All reasonable hypotheses. I have no strong feelings. Figuring all the secondary and tertiary effects and so forth is the tough part. Your arguments are often made, and there are arguments to the contrary, as well. 50¢ pieces aren’t made because they fell out of use. Coin collectors actually would save worn-out halves because they were so rare and kind of amusing to find.
JL Lawson is kind of amusing, but no, they’re not coins. Far more interesting are trade tokens, which were private quasi-money in the 19th and early 20th centuries. Google those. I own some. Perhaps the most amusing (which I don’t own) were trade tokens for brothels in the Wild West. Stores accepted them, and they regularly showed up in church collection plates. During the early 20th century there were tokens and scrip worth 1/10 of a cent, and they were used in trade. The list goes on.
True. The devil as they say is in the details. I look at it more as a symbol, example of the symbol of the Inertia State.
I like his Death\Taxes one and some of the Decider ones are amusing. One side says Death the other Taxes. So you can choose one or the other when flipping the coin. The two certainties in life. Sink\Swim, etc. A spin coin had a boney pointing finger. When I went out with friends there was the inevitable argument on paying for dinner or drinks. You could spin the coin and the finger would point at someone in the group. The words on the coin were "your time has come". That person paid. Fewer arguments and people found it amusing.
The last 50 cent pieces (JFK ones) were also the last coins with silver in them. As the price of silver became higher than either the coins worth or the collector value (at that time) you could still get them for 50 cents. Supposedly people would go to banks in small towns and try to "buy" all of them that they had and they would occasionally show up in change. As it became more known the supply dried up. I came across a few by happenstance. Still have them.
Yes, people started melting JFK halves once inflation ate away the face value and silver markets went bonkers. BTW, the later Kennedy halves (1971 and later) had no silver. Basically, though, it’s a coin for which there was never any significant commercial demand.
This was a recurring thing in American history. Around the Civil War, all the silver coins vanished and were presumed melted. Small commerce was disrupted. People used private tokens and barter or went without goods. After deflation, 10 or 15 years later the coins came rolling back in. Many had been hidden in Central America.
I don’t think anyone objects to an import tariff of (say) $6,000 per car provided there is also an excise of $6,000 per car on domestic production, and similarly on all other goods and services, so as not to disfavor cars.
(Actually the amount should be proportional to the car’s value, but I was simplifying.)
Fortunately, I have two (very old) cars and I'm not in the market for replacement, as they still run. But for the rest of you, good idea. Have to look at investing in Uber.
Of course, services (like Uber) should be taxed neither less nor more than goods (like cars).
If they aren't paying any taxes I would like to know how they do it. Ditto the drivers. What's the old limerick? Don't tax me, don't tax thee, tax that fellow behind the tree. And then there is the Don't Tax me Bro online game.
Around 1990 I was a self employed carpenter in the $450k+ housing market (1990 dollars) in Western Washington. This market outlasted the middle class market and then it collapsed. The wealth tax you mentioned pretty much shut down luxury boat building in Western Washington. I then had to compete with laid off boat builders for carpentry work. My addition to your comments would be that before you can levy a tax on Chineese goods you have to have Chineese trade which itself has diffenent effects on different groups of Americans.
It is to be expected that whatever tax is laid, those who bear the brunt will complain. It is most just for the burden to fall on the whole people, divided equitably—whatever that means.
And the problem is that governments have neither the wisdom nor the skill to determine where the burdens fall. And, as economic conditions shift, the burdens shift. in many markets, some participant is highly price-insensitive in the short-run, but highly price-sensitive in the long-run. Government might impose a huge tax today, and taxpayers pay it, because in the short run, they have no choice. But over time, they have the capacity to leave. California does not appear to comprehend this simple principle.
More important still, statesmen have no interest in determining where the burdens fall. Actually knowing is a disadvantage; you can sell your good intentions better if you arrange not to know better.
Whether California statesmen comprehend that simple principle or not is not obvious to me; what is obvious to me is that they don’t believe their constituents understand it, or possibly care. They take their constituents for fools. They have good evidence: their own incumbency.
I read somewhere the aphorism "Corporations don't pay taxes. They collect taxes."
Which is why we should abolish the individual income tax and let corporations collect the tax for us
It's the Roman way, as I recall
I know that aphorism. But by the same logic of this article, corporations pay a portion of the tax, and consumers pay another portion. And which portion is larger depends upon price-sensitivity of both sides of the market. If the product is insulin, the company can and will, indeed, pass almost all of the costs along to the tremendously price-insensitive consumers of insulin. If the product is something with loads of substitutes, then the corporation will be on the hook to pay (or it will go out of business).
Yeah, I think it was applied to gasoline taxes when I saw it, which are not wildly dissimilar from a tax on insulin in my neighborhood. Which is interesting now that I think of it: the California legislature knows darn well that ExxonMobil isn't going to pay their exorbitant gasoline tax. It's aimed at me, to make me ride the bus. Yet they seem surprised that an artificial hike in minimum wage gets passed to restaurant customers.
When I talked about incidence in class, I recounted how, before he descended into senile dementia, my father gave me a power of attorney over his financial affairs. I would write checks on his checking account to pay for his 24-hour care, taxes, etc. When the students agreed that although I wrote and signed the checks, he paid them, I then would mention that when he died, I was the residual legatee. Thus, every check I had written had reduced my inheritance.
Wouldn't that be the same outcome if he had written them himself? Still diminish your inheritance.
The final outcome, yes. But the first step made the point that who writes and signs the check isn't necessarily who bears the cost. Th second part makes the point that in this case the person who wrote and signed the check bore the cost, but not because he wrote and the signed the check. If my father had appointed an attorney to handle his affairs, I would still have been the residual legatee, and my inheritance would have been diminished by every check the attorney wrote on my father's behalf.
And an additional fee for writing the check
Fun example! And a good illustration of some of the complexities of these questions.
Your argument against tariffs smacks of the same arguments made for offshoring our manufacturing wherein we will benefit amazingly from the lower foreign labor for cheaper goods available to the customer and the US labor can the be expending on design and ‘service’ activities. How’s that worked out for Youngstown, OH and Danville, VA? The meth dealers give it a big thumbs up as do Wall Street millionaires now billionaires. Your problem is not accounting for economic externalities. The economics for moving a single mfg plant from a small Midwest city to China or Mexico is great for the plant owners. Profits way up, and lower product price point. But no accounting is made for the effective destruction of the mfg plant ‘ecosystem’ is the same community: every lost worker salary, stores without customers, schools without students, mfg suppliers without sales. Your arguments on taxes are accurate. Equating taxations effects to tariffs is incorrect until a ‘TCO’ analysis of offshoring mfg and labor is made to include all economic externalities. There’s also a valid argument to made about not forcing US labor to be priced competitive to Ghana and Mumbai. And that’s not even touching on concepts such as every offshored industry creates global class competition where none previously existed and the inevitable loss of priceless US IP.
1) The Rust Belt faced lower labor and land and capital costs in the South, where much industry flowed. Do you think Pennsylvania, Ohio, and Michigan should have imposed tariffs on goods from Tennessee and Alabama and North Carolina?
2) Rochester, NY was badly damaged by the advent of digital photograph and Kodak's resulting decline. Do you believe that New York State should have imposed a very high tariff on digital cameras to protect the jobs in Rochester?
3) Over the past 30 years, thanks to international trade, the world has seen more people emerge from abject poverty than in any other similar period in human history--in places like Ghana and Mumbai. Hundreds of millions of people with a real chance for the first time ever. If you had had the power, would you have said, "Hey, Africans and Indians, I'm sorry, but you need to continue starving and dying of bilharzia and malaria so Youngstown will be a bit better off?"
4) As international trade burgeoned, Americans experienced unprecedented increases in per capita income and household purchasing power. Would you have preferred that they remain at 1945 income so that Danville could remain a powerhouse?
5) People often use the word "externality" to mean "second-hand effects." But to qualify as a n externality, there has to be a missing market--items that aren't priced into the costs. Exactly which markets were missing in Youngstown and Danville?
6) In the mid-20th century, the Rust Belt, in fact, had sizable protections from trade impacts. As a result, their steel mills became lazy and declined to innovate. Ultimately, that sloth resulted in complete collapse of the industry, and the Rust Belt was left unprepared for their demise. In North Carolina, the state decided that, rather than oppose the outflow of textile and furniture plants, they would, instead focus on transition. They built a great community college system, began retraining workers, and prepared infrastructure for replacement industries. By the time textiles and furniture went away, the state was ready for software and pharmaceuticals to roll in to a workforce that was prepared for the change. Would you be happier if North Carolinians were still earning minimum wage to make cloth and chairs?
Thank you for your kind and extensive reply. From a foundational perspective, I believe based on all historic and empirical data, competition and free markets are essential for individual liberty and human advancement. In that I believe we are in agreement. The problem is no large company actually wants completion, and no country except the US has free markets anywhere in their policies. So the US supporting ‘free’ markets is a suckers game. So if anybody wants to sell their goods or services in the US, fine. But only on the same basis as the US can trade in their country. Like Trump said, by what logic can a foreign manufacturer sell their product in the US with a 0% tariff, yet a US manufacturer competing with the same goods faces a 25% tariff exporting to the country in question. A market is free or it’s something else. And, outside the US, it’s always something else. China wants to buy US farms and food processors? Ok. As long as they sell US interests Chinese land and food producers on a 1:1 basis with their US purchases and like terms and conditions.
In response to your points:
1. Of course not. My concerns are about unrestricted industrial relocation outside US borders.
2. Same as above reply
3. Of course not. But US interests trading in their countries must match the terms and conditions they receive in ours. This can even leave aside the issues of unequal labor costs.
4. Per capita income and household purchasing power is a statistical sleight of hand. Wages for middle and low income earners has been flat since the 70’s. So yeah, 3 Wall Street hedge fund billionaires and 3 tech billionaires increase per capita income a lot, but the avg worker is still screwed. Yes, I can buy tons of cheap Chinese knockoffs and consumer goods at Walmart. Same at Home Depot. But is our country better off? I’m NOT saying stop foreign imports at all. But the playing field needs to be level. Same with foreign workers coming into the US. They can come here as long as US citizens can go there on like terms and conditions. I challenge you to point out any country on the planet EXCEPT the US with an H1-b visa program.
5. My understanding of an externality is a cost created by an economic activity that is ‘externalized’ so that someone other than the producer must pay it. Like chemical plant that destroys a river, but pays nothing for cleaning up the river, or, even better, compensates all the folks using the river that can no longer do so. If you want to label that a ‘second-hand’ effect, ok. The bottom line is they are real costs. And they can be devastating to the point the causative activity needs to be repriced. Notice I’m NOT saying regulated. You wanna build a 1,000 townhomes? Great. Include in your development activity, amortized over 30 years, necessary schools, police, fire, sewer, roads, and water to support those townhomes as well. That’s the true cost of that activity. No taxes or regulation required.
6. Sadly, you are correct about the behavior of the steel companies in the rust belt. Pure protectionism without a focus on competition is loved by large businesses since they can continue running poor products and put more money in their pockets while running their plants and workers into the ground. Perhaps you could do a Substack on the financialization of the US economy . Yes, NC did some good things, and yes, there is some Pharma and software where there wasn’t before. Same in VA where we both live. But take a drive to Danville, VA and Hickory, NC. Check out Main Street downtown in each city. Now repeat that 1,000’s of times in small and medium towns across the US. Tell me you see vibrant software and Pharma transitions instead of devastation. Your example of transition has some merit. But, like Hillary’s ‘learn to code’ insults, a low wage manual skill worker isn’t going to ‘learn to code’. Where they have a good job with benefits, family, and self respect, they are handed nothing but a community college course in skills in which they are neither interested or capable. The result? Long term unemployment, poverty, and community devastation. And so what a new Pharma plant opens 200 mi away from their homes, relatives, history, and community? They won’t be considered for employment at the new industry anyway. Check out the job openings at Smith Klein Glaxo in Cary, NC and see how many entry level jobs are open to a mid40’s white guy with a job history of 20 yrs maintaining a paint shop in a furniture plant. Even if he takes 2 pharmacy tech courses at Hickory community college. I’ll wait.
Again, Thank you for your kind and thoughtful reply. I appreciate the opportunity to reply and greatly enjoy the interchange. You are a very impressive individual and it was a fortunate day for me when I discovered your Substack. Please keep up your provocations!
—In general, companies don’t want competition, and no market has ever been completely free. And no serious scholar of political economy ever said otherwise. But in a glaring, 250-year-old example of “Don’t let the perfect be the enemy of the good,” politicians have taken this as free license to say, “Since perfect free markets don’t exist, let’s just go ahead and shower them with government takeovers, regulations, taxes, tariffs, etc.” The relevant question is not whether unfettered competition and perfectly free markets exist, the question is whether the alternatives work better. In the case of tariffs, the answer is almost always a big, resounding “no.” They tend to be destructive, graft-ridden, bureaucrat-laden, imprecise instruments that may or may not benefit their alleged beneficiaries and do great collateral damage to the larger population in the country imposing the tariffs.
—If you want to restrict manufacturing relocation outside of the borders, then by definition, you want to restrict inflows of investment income within our borders. You want to deny Americans the right to gain the maximum value out of their resources. You cannot separate the two.
—And, while I have sympathy for Youngstown and Danville, I also have sympathy for the hundreds of millions of people in other countries who have been lifted out of poverty, disease, and starvation in the past 30 years as a direct result of global trade and investment flows. I have a moral objection to the notion that starvation should continue abroad and Americans in general should see their incomes diminished so that Youngstown might flourish.
—If one believes it is moral and wise for America to punish China and other Americans to shore up Youngstown, then I don’t know why its immoral and/or unwise for Ohio to punish Tennessee and South Carolina and other Ohioans to shore up Youngstown. I do not consider foreigners to be lesser beings than Americans.
—There is no reason why we must insist that our trade liberalization should be dependent upon other countries’ trade policies. It’s an idea that sounds nice but in fact is nothing more than, “If China does stupid, destructive things to their own economy, then we must respond by doing stupid, destructive things to our economy.“ The idea of a “level playing field” is indeed important if you are playing soccer, but it is an analytically impoverished notion when dealing with trade and commerce. The fact that we have an H1-b visa program and Europe doesn’t goes a long way toward explaining why American incomes are so much higher than European incomes—by just about any measure you want to use. Immigrants contribute mightily to American dynamism—which positive spillover effects all over the U.S. economy.
— No doubt, there are temporary, frictional downturns for some as change occurs. Most Americans used to farm and were mostly poor. With technological changes (including trade and foreign investment), only a tiny percentage of Americans farm, and we are mostly wealthy. Even the poor in the US have full bellies, TVs, air conditioning, high-quality healthcare, etc. But along the way, there were, indeed displaced farmers who suffered hardship during the transition periods. Rural Youngstowns, so to speak. The alternative was to remain poor and, eventually, to suffer MASSIVE disruptions when the costs of protectionism finally become too great to sustain.
—Externalities are real and matter. But Youngstown’s decline did not result from externalities. (I have a comment on that distribution elsewhere on this page.)
—My arguments have absolutely no relation to the arrogant and ill-informed “learn to code” nonsense. I do not downplay the real human costs of economic transition. I simply argue that attempts to forestall such transformation are generally doomed and profoundly counterproductive.
—Even if one rejects much of my logic above, tariffs are still a lousy, rotten, no-good, tool for accomplishing what their advocates imagine they will accomplish. When I suggest that blooding via leeches and venesection is not a useful method for treating cancer, I am not denying the existence of cancer. I am merely stating that venesection, like tariffs, are a crappy way to deal with the problem at hand.
Correction 1st paragraph: no large company wants COMPETITION, not completion. Feckin spellcheck.
The feelings and votes of Youngstowners and Danvillagers were alienated without compenation.
I’m not saying there should have been compensation; on the contrary. But you did ask what market is missing.
That is neither a missing market nor an externality. If you outbid me for a contract to buy a house, my feelings are hurt, but there is no externality. The market for that house existed, and I was simply the loser in a complete market with a full set of prices. If, on the other hand, you move in next to me and play ear-shattering music at 3am or open a hog-rendering facility in your backyard (with attendant squeals and stench), then my unhappiness reflects an externality. There is no market for decibel-lowering or stench-reduction. That said, Ronald Coase, Vernon Smith, and others have shown that people are more capable that a simplistic analysis suggests to create informal markets to fill in for the missing markets. Gossip, shunning, side payments, and threats of retaliation often act as substitutes for missing markets—often quite effectively. But in the case of Youngstown and Danville, they were outbid—not the victims of a missing market.
You are simply defining your hurt feelings in this case as “not an externality.” I know Marxists you will never convince. I don’t think it’s obvious how to define “externality.” But I do think it’s obvious that bad feelings, especially envy, should not be compensable by process of law, which I think is equivalent. Is it not?
No, hurt feelings are in no way involved. I am defining an externality that way because I actually know what I'm talking about.
Perhaps the right way to frame the question is this: What is it that those who know what they’re talking about know (have evidence for) that makes that the unique correct way to define “externality”?
Also, remember that the “you” in “your hurt feelings” is not the actual you, Graboyes, but the hypothetical you in the hypothetical above posed, which perhaps unfortunately used first and second person instead of Alice and Bob or some such placeholders.
Excellent — thank you. When the most satisfying urge is to punish the “libs/right/rich/anyone-whom-I-don’t-like,” usually it comes back to bite. Unfortunately punishment is too often the lowest, most juicy fruit on the tree.
Best tasting and least filling.
Or least nutritious for the soul.
That, too.
I don't often disagree with you, but I think you're missing an important point WRT tariffs with China, which is that "some sellers stop selling altogether and some buyers stop buying" is (at least part of) the explicit point here, and not an unintended consequence at all.
Less trade with a geopolitical adversary that's openly working to cause harm to us is, in the minds of a lot of people at least, a positive good to be affirmatively pursued, and I can't say I disagree with them. Yes, our economy might take a bit of a hit, but that's hardly significant next to the national security implications.
We do have legislation against trading with an enemy—but only in time of war. Are you arguing that we should be at war with China, or that the law should be (re)broadened to time of peace?
When China is sending enough fentanyl into our country to kill every person in America with plenty of margin of error left over, when China knowingly, deliberately exported a deadly virus into the rest of the world by keeping international flights out of Wuhan running after they had already locked down internal travel, when they're manipulating TikTok algorithms to poison and weaken the minds of Americans while the Chinese version pushes patriotic content to their own citizens, I don't argue that we "should be at war with China." I argue that China is already de facto waging war against us, and it's a mistake that we haven't formally acknowledged it simply because they haven't formally declared it.
Read Sun Tzu. Read The Thirty-Six Stratagems. This is what warfare looks like from a Chinese cultural perspective. It involves a lot more than just the military, and it's already happening.
The Chinese are birthing their next generation Intelligence operatives in the US as American citizens courtesy of the lefts perversion of the 14th amendment and chain immigration. Their offensive planning horizons are generations. Ours last only until change of command.
Spot on. Pretending war isn’t coming is very different from Preventing war from coming. Or responding to actual assaults. Ask the 100,000 dead from Chinese fentanyl last year what they think.
But the question is, will tariffs prevent the “war” that you imagine. There’s no evidence that they have ever been an effective strategy in such areas. And, in fact, ample evidence suggests that they accelerate and worsen the problems. The Smoot-Hawley tariffs in the early 20th century were applied for the exact reasons suggested in many comments on this board. And the result was to globalize the Great Depression, financial failures, etc.
Stop implying. If you’re saying that China is at war with us, then say we should be at war with China. If you aren’t, don’t. I don’t want to put words in your mouth: it’s unsanitary.
Let me make it easier. (My tone reads as hostile and isn’t intended to.) You make a good case that China is already at war with us. Not full hot nuclear-exchange war—because they don’t want to suffer that—but war nevertheless. Maybe we should be at war (at a similar level) in return. Very possibly. And maybe trading with the enemy laws should apply. If that’s your belief, which it appears to be, make the case. You’re among friends.
I think Bob has a point but the answer may not be tariffs but by law disallowing products produced with slave labour and/or punishing western companies that produce in China and transfer technology or allow their technology to be stolen. My son worked in China for 1.5 years and the system worked this way: If you wanted to sell in China you had to produce in China and only control less than 50% of the manufacturing plant. The majority owned by a Chinese entity who copy the technology and manufacture the “same” products in another factory owned by that entity. After a few years the secondary entity would then export back to the original country a competing product at a lower price. The conundrum is to forgo immediate profits and not export the technology or prevent the stolen technology from competing with the home market. Tariffs may not be the best way but the reality has to be met. Of course we could reduce the government caused friction and encourage production here. As an example I have a friend who managed a small manufacturing plant in NJ and the corporation had plants all over the world. He said the labour cost in the US was not much more than in other countries when efficiency was factored in. What caused the plant to close was onerous Govermental regulations that ballooned those costs and caused the local plant to be noncompetitive with other plants in the company.
Interesting. Tariffs are blunt instruments, and you’re talking about really narrow, precision actions. If I remember correctly, when NAFTA was signed, people were terrified by cheap Mexican labor. Hourly wages were only 1/5 of the US levels. But, productivity of Mexican workers was only 1/5 of US levels—not because they were bad workers, but because they lacked the automation, tools of their US counterparts.
Why don’t you start with your own reply directly to Bob Graboyes for your own position? It seems interesting.
I’m quite aware of those arguments. They sound nice, but in practice, they are crap. That’s why I wrote, “Taxes and tariffs are perfectly fine tools for raising government revenues or for assuring that less of some product is produced. But it’s a fool’s game to try using taxes and tariffs to mete out precision punishments on specific individuals or groups—unless you don’t care how much you hurt yourself.” If the argument is, “We want to screw over China, and we’re willing to impoverish ourselves to fulfill that goal,” then fine. But the argument made is that China (and not Americans) will pay for the tariff, then the argument is either dishonest or nonsense. If you’re worried about, say, Chinese drones with spyware, then the answer might be a ban on importation, not a tariff. With tariffs, we’ll still buy strategic goods from China (because our demand is relatively inelastic)—but we’ll simply pay through the nose for them.
I disagree with the “inelastic demand” contention. Our demand for pharmaceutical goods is inelastic. But just because the alternative is expensive are we better off that 95% of our drugs are produced outside the US? We saw how well that worked with the Wu Flu.
We surrounded by a world and intelligentsia that wants the US to fail at a minimum, and many powerful entities that want the US actually destroyed. Look at the arguments for unlimited international trade ushering in eternal world peace and prosperity prior to both WW1 and WW2 as well as the wonders of China into the WTO. We can and should trade internationally. But does it make any sense at all that critical parts of our nation’s economy and national defense rely on foreign supplies? If Hitler had started WW2 with his planned 400 U-boats instead of 57, Europe and Asia would be speaking German and Japanese because of supply chain disruption. Pretending China, Russia, Iran and PDRK won’t attack the US works only until they do. Fortress America, which was how WW2 was won, no longer exists. We cannot fight a 2 front global conflict right now, and based on the hollowing out of US based manufacturing it’s highly doubtful we can fight a single front global conflict (even without DEI insanity) We spent 20 years fighting goat herders with small arms in Afghanistan. Please explain how the many economic benefits of offshoring a substantial portion of our manufacturing allows us to respond when China ‘nationalizes’ Taiwan, home of 95% of the world semiconductor fabs?
I think that (trading with the enemy excepted) I ought to have a constitutional right to buy from a foreign supplier paying no greater tariff than I would have to pay in an equivalent excise to a domestic supplier.
Fair enough. Honestly, the biggest problem was growing economically dependent on them in the first place.
It's been said that "only Nixon could go to China." Now, looking back, don't we all wish he hadn't?
He facilitated the fall of the Soviet Union (in part) thereby. Certainly worth the side-effects.
I've heard that that was his intent in doing so. But I've also heard that declassified Soviet files have since made it fairly clear that the USSR was already collapsing under its own weight, and would have fallen apart anyway with or without the China deal.
No. I’m still glad Nixon went to China. They are also economically dependent upon us, so they have an enormous amount to lose should they try to screw us over militarily or otherwise. They have enormous investments here, and we tank, so does their wealth.
In theory, yes. In practice... who was France's biggest trading partner in the years leading up to World War II?
Problem is people tend to think "well that solves that problem". without adding "for now". Countries like Russia and China have historical imperatives that transcend economic or political systems. Russia has ALWAYS wanted buffer states around it. China has ALWAYS thought of itself as the Middle Kingdom. These imprints don't go away with a change in the ism. If you look at the way the USSR was run it wasn't much different than under the Tsars. The titles were no longer inherited (though Stalin Jr. thought he should replace his dad). China being less belligerent was good. Thinking that it was going to be a democracy was wishful thinking. One of the fallacies in western thinking is the belief\hope\wish that if you get rid of a dictator the next one will be better. Usually not. See Libya. Or that Democracy will bloom. Probably not. I blame the success of the Marshall Plan. The US thinks very short term. The others think short term in who's running the show and in power, but long term in what the goals are. It's built into their DNA by now.
It took WW I followed WWII to alter Germany. And even then it wanted to dominate the EU. A conquest by other means. Two A-Bombs and the incineration of its cities to change Japan's dreams of empire. Though again they thought about it via other means. More peaceful anyway.