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Trump's $54 Billion Tax Hike on Autos: EU Threatens $300 Billion Retaliation

The EU is poised to retaliate against Trump. The Financial Times editorial board endorses the idea.

The figure roughly corresponds to the amount of EU imports of autos and parts. The document, which the FT did not post or link to, warned of “likely” countermeasures to “a significant volume of trade”, as much as $294 billion accounting for 19% of US goods exports in 2017. The measures could apply “across sectors of the US economy.”

Lovely.

Accompanying the article is a silly FT Editorial video saying the world should "push back" with retaliations.

Here is the most laughable statement: "It is especially key for the EU to not let issues like immigration divide it on its commitment to free trade".

Excuse me for asking, but what commitment to free trade is that?

  1. The EU's agricultural tariffs are among the worst in the world.
  2. The EU wants to break up US technology giants like Google and Microsoft.
  3. Despite pusing for clean energy, the EU has massive tariffs on solar panels from China.
  4. Pushing back shows a complete lack of understanding regarding the benefits of free trade.
  5. One look at the Brexit negotiations should be enough to convince anyone the EU wants nothing to do with free trade.

Tax on Consumers

A good way to view tariffs is "a tax on consumers".

An automotive trade group said on Tuesday it would tell the Trump administration that a U.S. threat to impose a tariff of up to 25 percent on imported passenger vehicles under national security grounds would cost American consumers $45 billion annually, or $5,800 per vehicle.

The Alliance of Automobile Manufacturers, a group representing General Motors, Toyota, Volkswagen, and other major automakers, will file written comments with the U.S. Commerce Department later this week, spokeswoman Gloria Bergquist said.

"Nationwide, this tariff would hit American consumers with a tax of nearly $45 billion, based on 2017 auto sales. This would largely cancel out the benefits of the tax cuts," Bergquist said, previewing the comments. Consumers would also face higher costs of imported auto parts when buying vehicles from both U.S. and foreign automakers, she said.

Auto Jobs

That report was on March 8, when tariffs were at $50 billion. We are now talking $300-5000 billion.

Impact of Tariffs

The Tax Foundation has an interesting article on the Impact of Trade and Tariffs on the United States.

Academic studies have quantified the costs of tariffs and shown that tariffs often fail to achieve their objectives. A comprehensive study of tariffs in place in 1990 found that the annual consumer costs per American job “saved” range from $100,000 to over $1 million, with an average of $170,000. More recently, a study analyzing the 2002 steel tariffs imposed by the George W. Bush administration found that the first year the tariffs were in effect, more American workers lost their jobs due to higher steel prices (200,000) than the total number employed by the steel industry itself at the time (187,500).

These results aren’t unique to the 2002 steel tariffs. A Congressional Budget Office report from 1986 reviewed the effects of protectionist policies covering textiles and apparel, steel, footwear, and automobiles. The policies did effectively increase costs, which resulted in slightly higher profits for the firms. However, the report finds, “In none of the cases studied was protection sufficient to revitalize the affected industry.”

Tariffs may "save" jobs in one industry but at a greater cost in jobs elsewhere. On average, tariffs cots jobs at huge expense.

Newspapers

Every newspaper and ad print company in the the country was impacted by tariffs on Canadian paper. The Tampa Bay Times alone is laying off 50 people as a direct consequence of the tariffs. The tariffs add $3 million to that newspaper's costs.

Multiply similar numbers across the entire country. I do not have a total. But I do have a total on the number of people employed by NORPAC, a company that makes 50% of the uncoated groundwood paper produced in the U.S.

NORPAC employs 400. Since NORPAC makes 50% of such paper, it's a fair guess the total number of people employed in the industry is 800. Not all of those jobs would go away, after all NORPAC was in business before the tariffs were imposed.

Winning

At a cost of untold millions of dollars ($3 million at the Tampa Bay Times alone), Trump "saved" 400 or so paper producing jobs, at a cost of tens of millions of dollars and a loss of hundreds, if not thousands of newspaper and ad printing jobs.

This we call "winning".

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Once again, Trump proves how clueless he is. The Financial Times, with its "push back" call supporting $300 billion in retaliations is also foolish. Citing the EU's commitment to free trade is a joke.

Mike "Mish" Shedlock

Sure. Tell that to the guy who lost his $30/hour job with a pension and healthcare and is now making $10/hour with no benefits. "Changing market conditions" is always a choice made by a finite set of individuals. It is not the hand of God.

Cause enough pain to others, they will eventually come and find you.

It makes the country as a whole wealthier. That's what efficiency means. It may, in the short term, naively make some people; people who were previously making an unsustainable living from doing something that can now be done with less waste and less effort; less wealthy.

Carriage makers after the invention of the automobile being the most commonly cited example. But overall wealth went up, since efficiency went up and the supply of labor remained unaffected. Leaving more total wealth to distribute.

Wealth which can either be distributed without interference into the lives and decisions of free people, by default, to those who create it. Or, otherwise, be stolen from them. By government. For the benefit of those who make no contribution, but have superior political connections.

The former, over time, encouraging wealth creation. The latter, officially sanctioned theft and ever more elaborate excuses for such; which is what goes by the moniker progressivism.

In fields a smidgen more rigorous than the practice of Mindless Mumbo-Jumbo, it is a truism that you cannot know much, if anything, about things you cannot even define.....

There are so many aspects to today’s highly regulated international trade that no-one can predict the eventual outcomes. (And forget the chimera of “Free Trade” – the only place it exists is between states like Texas and Louisiana; almost everywhere else, there is Managed Trade. And then there are also very significant non-tariff barriers).

Why would tariffs on imports necessarily “cost” the US consumer? The exporter often does not have a viable alternative market – consequently, exporters will likely have to absorb a lot of the tariffs. In effect, tariffs may end up taxing foreign companies, and reducing the US government's need to borrow or print – a benefit to the US consumer.

And what if the tariffs induce some foreign manufacturers to answer President Trump’s call to “Build it in America” – creating jobs and additional tax revenues? The challenge for the dysfunctional US Political Class is to roll back their excessive regulation and bureaucracy which discourage manufacturers from setting up shop in the US.

"There are so many aspects to" the various interconnections between the subatomic particles making up some dude, that there is no way to predict the eventual outcomes of them falling from a tall building in a synchronized fashion...... So, if Dear Leader say so, on TeeVee nonetheless, we should all jump from Trump Tower. Or we're unpatriotic.......

Tariffs cost the US consumer, because it adds cost to the provision of goods for US consumers. That's it. Not lalalalalaButbutbut. Increased costs shifts the supply curve inwards. Resulting in less supply. Period.

Even if, in some faraway Imaginaryville, some dude who currently happens to sell a certain good only sells it to Americans: If costs go up, he'll supply less. Less as in less effort. Meaning less focus on what American consumers want. Less development. Less concern about losing the US market vis-a-vis modifying his behavior to appeal to non-US consumers instead. Besides, if the current "sole supplier" makes enough money to afford absorbing a tariff; others are busy undercutting him. Weird fairytales about Trump magically being able to stick his grubby hands into value chains, and grab a chunk from them, without any negative effect on both parties, are no more possible than perpetual motion machines. Which also don't work, no matter if they are build with enough Rube Goldbergesque complexity to have many aspects to them.

If mindless tariffs by Alaska on Florida vacations causes some beach resort formerly located in the latter to relocate to Barrow; Alaskans don't somehow benefit. They just freeze to death. Or are stuck spending an absolute fortune attempting to recreate the sun on the North Pole.That's not beneficial for neither Floridians nor Alaskans.

What's beneficial, is every good and service being made and provided where it can be provided most efficiently. Meaning, with the least waste. No amount of weird progressive obfuscation of what is extremely simple, basic economics, will ever change that.

PS:
Which doesn't strictly mean tariffs per se are a bad thing. Just that arbitrary ones are. If they were instead applied evenhandedly, and as efficiently as possible, for no other purpose than raising the minimal revenue required for a government, they would be a plenty more efficient means of financing government than the spy-and-rat-out-for-the-benefit-of-connected-nothings regimes implied by taxes on general activity, like all income, sales and VAT taxes.

But, again: Efficiency! Efficiency! Efficiency! The most wealth for the least effort. For any given labor pool, greater overall efficiency improves wealth. Always. Without fail. And the only way to maximize efficiency, is to minimize hindrances on anyone who has a hunch he can provide something more efficiently that what is currently being done, from attempting to prove his hunch. Regardless of his age, sex, race, creed, or city of residence.

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