Prices Will Go Up!

 

Since the call came down early this morning, I have encountered three leftists lamenting their loss to Trump. What most concerns them surprises me.

“Prices will go up,” one says. 

“Don’t those stupid people realize it is not China that pays the tariffs? It’s the consumer!” another says.

So they don’t fear some Trump Nazi dictatorship, or the supposed loss of abortion rights. Those were just a cover story for the rubes, I guess. Of course they were: those were absurd on their face.

It is tariffs.

But then, how can their concern really be that prices will go up? After all, prices held steady through Trump’s first term; they went up dramatically under Biden. Their guy.

It is not prices. It is tariffs.

And not just any tariffs either.

After all, not long ago, it was the left that was opposed to free trade. The Canadian Liberal Pary lost my support over just that issue. 

The only way I can see this making sense is that they fear tariffs will hurt China, and they are secretly rooting for China to defeat the evil capitalists to show that the Marxist system is best.

To be fair, not just China. They of course also want tariffs and trade barriers on Cuba dropped as well.

Trump does says he wants to impose more tariffs. It does seem common sense that this will raise prices. I have always been a free trader myself. But I am open to Trump’s arguments.

If it will raise prices, it will do other things as well. I was convinced by Trump’s argument for tariffs on steel: it is strategically important not to rely on some foreign source for essential materials. This makes you vulnerable to blockade in time of war. Or, as we have seen recently, times of epidemic.

It will further encourage more manufacturing, and more economic activity, at home. This is Trump’s current  argument. Things may cost more money, but more of the money stays in the USA, instead of being drained away to China or some other nation. When you look at it in those terms, of the economy as a whole, might tariffs actually conserve, i.e., save, money? Don’t you save money by keeping it in the household, making your own things, darning your own socks, growing your own garden, instead of spending it at the store?

And Trump has raised another issue. The extra money from tariffs goes to fund our government. Trump suggested this might even replace income tax.

The argument that tariffs are being paid by the consumer, not by China, is being made by the same people who keep selling or buying the idea that taxes on “big corporations,” or a raised minimum wage, is money taken from the corporation, and not the consumer. Same to same.

So the real question is whether it is better to pay your taxes as tariffs, or as income tax. The foreign goods actually remain the same price. 

Paying taxes on consumption rather than income  is more voluntary, and that seems a good thing. Taxing income naturally serves to suppress initiative or hard work, and takes money the individual might have better use for—such as investing it to improve their business, hence the economy. With a tax on consumption, you can reduce your tax burden by reducing your consumption of foreign goods. It encourages saving and investing rather than spending.

Granted, an economy needs consumers as well as producers. But on balance, surely someone who overproduces is more valuable to the economy and to the rest of us than someone who overconsumes. And if producers can be found abroad, as now, surely consumers can be too.

The idea is worth a look, and perhaps a trial.

The Growing Security Threat of Canada

Made in China?

What is the deal on the US tariffs on Canadian steel and aluminum? Since when is Canada a security concern for the Americans?

Wilbur Ross, US Commerce Secretary, recently explained to a US Senate hearing.

To begin with, let us concede the strategic importance of maintaining a healthy domestic steel and aluminum industry for the US. In case of war, if any country does not have a secure domestic supply of these materials, they will soon be unable to manufacture armaments. American strategy is always to count on a long war, and to win through America’s vast production capacity. A lack of raw materials, therefore, makes the US a sitting Norwegian duck.

Now, granted, relying on Canadian sources for aluminum and steel is still secure. Nobody other than the US is likely to be able to invade Canada, Canada is unlikely ever to be on the other side in a war, if they were they could be conquered by the US in a week or two, and the roads and rails from Canada to the US are secure.

The problem is, the US cannot be certain Canadian steel is Canadian steel. Canada is letting Chinese steel in at low prices. This can then be transshipped to the US as Canadian steel, bypassing any tariff against China. At the same time, of course, by allowing this, Canada is letting its own steel and aluminum industries decline, so that they will not be available to the US in time of crisis.

Accordingly, if the security concerns are valid, which they seem to be, the US had no choice but to include Canada in the tariffs.

Ross further claimed that the Canadian government was apprised of this issue, and given the opportunity to impose their own harmonized tariffs on Chinese steel, over a year ago. That would have let Canadian aluminum and steel preserve its US market. The Canadian government had their choice, and they chose trade war with the US, presumably for the sake of preserving their trade relations with China. Understandable, perhaps, but you can’t blame the Americans.

One might imagine an alternative system which could clearly and indelibly identify Chinese steel as Chinese steel on entering Canada, so that it could not be re-shipped without hitting the US tariff protection. But it is hard to imagine how that could be done with a material. It would almost need to be coded into every molecule.

So there is no solution but this: either Canada enters a trade war with the US with devastating effects, in particular for Canada, or Canada makes the concession here. And the Canadian government and media stops playing political games.

Canada - US Trade War

Now Donald Trump has harsh words for Justin Trudeau. Harsher than the words he is prepared currently to use about Kim Jong-Un. Trump has called Trudeau “dishonest and weak.”

I can sympathize with Trudeau. His actual remarks, which set off the Twitter storm, were pretty much business as usual; they sounded familiar to any Canadian. Canada has been “insulted.” Canada would be “firm.” The US was being “unjust.” Trudeau as Canadian prime minister thought he had free license to poke the US in the eye whenever it seemed to be to his domestic political advantage, and the US, an indulgent big brother, would ignore it, swallow the insult, and look the other way.

The problem is, Trump has never been prepared to simply accept business as usual. As the US media has found out. Trump’s whole appeal is that there is going to be no more “business as usual.”

Canada’s advantage has always been doing a good job of keeping tabs on happenings down in the USA. If Trudeau’s government was really caught by surprise here, it is a stunning bit of incompetence.

It is not just Trump. His advisors Larry Kudlow and Peter Navarro were ready to immediately go on the US networks and use extremely undiplomatic language: “a special place in hell.” “Stabbed us in the back.”

Sure, they had license from above to talk that way. They were instructed to talk that way. But I don’t think they would have been so dramatic, public, and vocal if they did not themselves believe it. Americans are fed up with this sort of stuff. That’s why they elected Trump.

Time for Canada and everyone else to wake up and realize the game is over.

In a press conference, Trump has laid out his case: he is no protectionist. He is for free trade. He wants all tariffs and subsidies gone.

But what we have now is everyone else milking the US, getting free access to the US market, but then getting to set their own tariffs and subsidies. Trump cited a 260% (or something like that) tariff on US milk and dairy products entering Canada.

We all know about that, don’t we? Maxime Bernier ran against those tariffs. Yet Trudeau never mentioned them in his public comments.

If that is the position Trump presented to Trudeau during the talks—and I think we can assume that it was—you can understand his anger. Trudeau is falsifying the issue, and falsifying Trump’s position. It does indeed seem like “bad faith.”

Trudeau’s government can go two ways here: it can get involved in a trade war, with ever higher tariffs. Wrecking the Canadian economy, while possibly also somewhat inconveniencing the US. Or it can agree to cut existing tariffs. To the benefit of both sides, including all Canadian consumers.

Unfortunately, it has officially chosen the worse path.

About Those US Steel Tariffs

I am and have always been a liberal, in the true sense of the word. I believe in free trade. It is the issue on which I parted company with the Canadian Liberal Party, which shockingly came out against it in the 1980s. Violating their oldest principles.

On this issue, free trade, Donald Trump, with his protectionist talk, is not my man.

However, I see the logic in his recent imposition of stiff tariffs on imported aluminium and steel.

A lot of people are missing the point. This is not about trade or protectionism.

This is about national defense.

Suppose there is a long general war. Without ready supplies of steel and aluminium for munitions, any nation will soon be dead in the water.

Accordingly, it is only prudent for the US to sustain, artificially if necessary, a healthy steel and aluminium industry.

It is not just the issue of possibly being at war with your supplier. It is also the issue of having to transport supplies across vast oceans, vulnerable to disruption at sea.

Accordingly, it also makes sense that Trump has exempted Canada and Mexico from these tariffs. Land transportation is much more reliable, and it is hard to conceive of either being a future enemy. Even if they were, the US could probably overrun them before supplies of materiel even became an issue. 

An Old Hope

Cry havoc! And let slip the dogs of war!

I am no expert on economics. It fascinates me, but it is, in the end, a social science. Which means to me that its data are unreliable. So I am not qualified to comment on this recent piece. But I include it because of its possible relevance to my own point that Western Civ died in the First World War.

Despite the title, its thesis seems to me to be hopeful. It argues that free trade and globalization make war increasingly unlikely. The century of relative peace between Waterloo in 1815 and Sarajevo in 1914, sometimes called “Pax Britannica,” was, it holds, no lucky accident. The First World War was a desperate rear-guard action by the traditional old landed elites, seeing their powers slip away. And, if we can ever shake off the last vestiges of socialism and Keynesianism, we may yet get back on track.

The argument seems to me to make some sense. After all, more land or even more resources means nothing in an industrial economy and given free trade. Let alone that, in modern democracies, you have to give any conquered people the vote. The one group to whom it would matter is the old landed warrior class, committed both to land and to war, who would see an expanding empire as an opportunity for their younger sons. Moreover, going to war would magnify their political power back home.

Germany was clearly more worried about Russia than France...

I note that the nations most responsible for the war’s outbreak were those in which the old landed warrior class were a) most dominant, and b) most threatened; yet also the nations that c) as nations, had the most to lose. The initial culprit was Austria: a terribly rickety aristocratic government already clearly in decline. Next to break the peace was Czarist Russia, by mobilizing in response: still run by aristocrats, but developing quickly. After that, industrialized but autocratic Germany. It was the ancien regime’s last throw of the dice, driven to desperation by their declining importance in the modern world.

The Iowa Car Crop

Lifted from Andrew Coyne, who lifted it from someone else.

http://www2.macleans.ca/2010/09/16/the-iowa-car-crop/

Canada's Coming Role as the Centre of the Universe

With all the other news going on, nobody seems to notice it, but it looks as though Stephen Harper is negotiating a free trade deal with the EU.

It makes tremendous sense. For Europe, the attractions to free trade with Canada are great. Canada has a lot of oil. Europe lacks a secure supply. This is not to mention Canada's other rich natural resources. And both Britain and France feel historic ties.

If it happens, Canada in turn would have a unique competitive advantage, as the only nation trading freely into both the European and North American markets. It would make great sense for companies from both zones to relocate production to Canada as a result. It also provides Canada with its historically-needed counterbalance to US dominance, filling the gap left by the dissolution of the British Empire. More than most countries, Canada lives by external trade. If we can boost trade with Europe, it will cushion us somewhat from our over-dependence on one market, that of the US.

Of course, it also helps Canadian consumers; and we are all consumers.

It is an exciting prospect, and one, I think, whose time has come.