Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Here’s What The Trade Tariffs Really Mean

Economics / Protectionism Mar 09, 2018 - 01:00 PM GMT

By: Rodney_Johnson

Economics Every day, you plunk out cash to support your neighbors. And they support you. That’s how economies work.

I buy from my local store, which employs people, and I use local services. Even when I buy from Amazon, the stuff has to get here somehow.

We also pay taxes, much of which goes to services that employ and support people in the community. In this instance, you can think of the entire nation as your community.

So, how much of your cash are you willing to give to your neighbors?


Would you part with an extra $50 per month so that others could have a bit higher standard of living?

How about $100 per month?

What if the money went not only to workers, but also to business owners? Would you give them extra cash?

Welcome to the world of trade tariffs.

I’m not saying that tariffs are inherently bad or wrong. When Adam Smith wrote The Wealth of Nations in 1776 and described how free trade made everyone better off, he lived in a world of scarcity.

I can’t imagine that he envisioned a time when nations (cough, China, cough), would use the public coffers to build more steel mills, when they already had a glut of steel, simply to boost employment.

But we have to remain clear on what tariffs accomplish.

If a country is “dumping” a good like steel on the world market, they are selling it much cheaper than it can reasonably be produced.

This is bad for other producers, but good for buyers. Those buyers can earn higher profits, pay higher wages, cut prices, or some combination.

The local steel industry suffers, but steel buyers are pretty happy… and so are their customers and workers.

Putting an extra financial burden on steel means that a steel purchaser, like John Deere or GM, will have to pay more, presumably raising the price of imported steel to the reasonable production cost of domestic steel. This benefits domestic steel companies, but obviously raises the price to buyers like GM and John Deere, who must earn less, pay lower wages, raise prices, or some combination.

Do you want to pay more for a car or tractor, or watch GM and John Deere eat higher steel prices so that steel companies in the U.S. earn more money?

Before you answer, think about the extremes.

Are we good with demanding all steel be made here, which would send steel prices to the moon, or are we good with allowing the domestic steel industry to die and just buy all of our steel from overseas? That makes it harder.

I’d imagine I’m like most people. I don’t want to kill an important domestic industry, but I don’t want the price to skyrocket because the industry has no competitors, either. I’d like Door #3, thank you very much.

Luckily, we have that option. It’s called The World Trade Organization (WTO) and it’s supposed to handle trade disputes just like this. Whether or not the WTO is efficient is another matter.

The president has introduced a new wrinkle by announcing his intent to impose tariffs because of national security. He suggests that steel and aluminum are key industries for our national defense.  That’s his prerogative, and I’m not judging whether it’s right or wrong.

Just know that, no matter what you hear, we as consumers, investors, and taxpayers, pay for everything.

Every. Single. Thing.

No one takes a bullet for us. Our fearless corporate and government leaders quickly step aside and let us get shot as they go on and on about principles.

So when we talk about tariffs, or trade barriers, change the words in your head to “more money out of my pocket,” and ask yourself, how much will you give your neighbor?

It could be that you’re willing to pay a bit more to support domestic industry, and to make sure that we keep resources like steel and aluminum available in this country in case of an emergency. Or perhaps you want to see workers in such industries earning a bit more. Nothing wrong with that. Just make sure you know who gets your money, and why.

I don’t think the president wants a trade war.

I think, true to his nature and self-description, this is simply one more negotiating tactic. But like with all negotiating tactics, it’s hard to tell. If we knew he was bluffing or would quickly give in, it wouldn’t be effective.

It could work. The administration announced that there would be no exceptions, and then, before the tariffs were formally introduced, reversed course and said Canada and Mexico might be exempt if they come to the negotiating table over NAFTA. The European Union prepared a list of items on which it will levy retaliatory tariffs, which can be just as painful on American companies by depressing sales of our products overseas.

It looks like things could get complicated quickly. And yet, at the core, things are simple. The more tariffs we have, the more we, as consumers, employees, and investors, will pay.

Let’s hope this game of economic poker ends quickly. I’m tired of paying when other people lose bets.

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2018 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules