Tariffs - The Video

 My YouTube Narration

Choosing Words Carefully

JD Vance seems to believe that Donald Trump is a man who chooses his words carefully.

Donald Trump seems to believe that the statement, "Mexico will not be required to pay tariffs on anything," makes sense.

I can hardly believe he said that. Is there a chance he was misreported?

I'm sure Mexico is relieved to hear that the amount it will pay in US tariffs is, always was, and always will be zero. A US tariff is paid by US importers and / or US customers.

Does Trump not know this? He doesn't actually believe he has power to tax foreign countries, does he?

Could anyone suggest to me what Trump might have said on this issue had he not been choosing his words carefully?

Tariffs 2

I am afraid that DJT did not read my little article last week about tariffs. And that’s after me deliberately not entitling it “Economics for the economically illiterate.” I didn’t want to be provocative, you see.

I understand that the executive orders instituting the new US tariffs also contain anti-retaliation clauses. In other words, if the US tariffs are answered by corresponding tariffs against US exports, which is the usual, almost instinctive, reaction, The US will raise tariffs again in retaliation for the retaliation.

Welcome back to 1930, folks. Only, please remember that the last time the world travelled this road, it didn’t work out so well.

Tariffs

I am struggling to understand the sudden enthusiasm in the USA for the introduction of tariffs.

 
Tariffs are essentially a sales tax. It so happens that these sales taxes apply only to goods supplied to the US by other countries, but that does not alter their fundamental nature; a sales tax is a sales tax.

 
When you apply a sales tax to any product, its price rises. It may be that the supplier is able to absorb a portion of the new tax by reducing his profit margin, thus avoiding the need to pass the whole tax on to the consumer, but it will be a rarity for the price to the consumer not to rise at all. If the consumer goes on buying a product that has been subjected to a sales tax, then the consumer spends more on that product. In other words, price rises resulting from tariffs are paid by those who continue to consume imported goods.

These continuing consumers, therefore, must divert a portion of their spending that would have gone on other products to paying the higher price of the imported product. If that alternative expenditure would have been on domestic products, then the expenditure of those consumers on domestic products will fall, and the incomes of those who produce these domestic products will necessarily also fall.

Of course, some consumers will be deterred by the higher price from purchasing the imported good. The volume of imports will probably fall. This means the foreign suppliers of imported goods will have less income with which to purchase US goods and American exports will accordingly fall, along with the income of American workers who produce those exports.

There remains a question of whether domestic production will rise to replace the reduced imports. Domestic production that was able to compete at the previous import price would presumably already be doing so. Domestic production that is now able to compete at the new import price, but was not able to compete at the old import price, is probably going to avail itself of the diverted demand, but, by definition, only at a price that is higher than the old import price. So again, it is the consumer who pays, only he pays extra to a domestic producer rather than paying a tax to his government.

It has long been an accepted economic principle that more trade is generally good, in the sense of raising incomes all round, and that less trade is bad. Trade wars impoverish everybody in the world.
Protectionism may be justified when a foreign country’s government is breaking WTO rules by unfairly subsidising its exports, but if the foreign country simply happens to be better at producing a particular product than you are, then it makes sense to divert the domestic resources currently deployed to producing inefficiently into producing something else efficiently. That way trade will continue to increase and everybody benefits.

I acknowledge that the above outline may be seen as Economics 101 by those who know something about economics. I also acknowledge that I have glossed over problems of transition and restructuring.
However, this explanation was inspired by a vox pop interview in the US, in which a gentleman firmly asserted that tariffs on Chinese goods would be paid by the Chinese government. Oh, yes. And the only thing stopping pigs flying in the USA is that porcine aviation is prohibited by US law.

The So-Called Single Market

Right, let's be clear. There's no such thing as The Single Market. The other EU members call it The Internal Market.

Now if you're no longer a member of the EU you are, by definition, no longer internal. Therefore you cannot be a member of The Single Market.

Scotland cannot remain in the EU because Scotland, as such, is not a member at present. Scotland cannot therefore remain in The Single Market when the UK leaves.

What matters, to both the UK and to Scotland, is not membership but free trade. The UK has offered continuing free trade to the EU. This means the UK has offered the EU exactly what Scotland has asked for.

It is nonsensical doublespeak to suggest that Scotland's voice is being disregarded.

Moreover, since we already enjoy free trade with the EU and have offered to continue it, it is up to the EU, if it is determined to act against its own interests, to erect the first tariff barrier. No-one is suggesting that the UK, or Scotland, should make the first move.

Meanwhile several powers currently held by the EU will revert to the UK and it will make sense for some of these to be further devolved to Scotland. Fisheries is an obvious case in point.

In the worst case scenario, the EU may choose to raise tariffs against the 15% of Scotland's trade that is conducted with it.

How by any stretch of economic logic does it make sense for Scotland to respond to such a piece of stupidity by leaving the UK Single Market which is responsible for over 60% of our trade?

The oil price has already halved. How poor are we determined to be?

Still Remoaning

I wish some of those anxious to remain within the EU Single Market would explain carefully how we are going to lose exports if we leave.

First of all, since we are already within the Single Market the EU 27 will need to take an active decision to raise tariffs against our goods rather than just let things go on as they are. They must do this in the context of full public awareness in their own countries that the UK has a large trade deficit with them and that the damage suffered by the EU if reciprocal tariffs are applied will inevitably be greater than the damage inflicted.

The only possible justification for such behaviour is that the political ideals of the EU are more important than the jobs of EU citizens. For all the sabre rattling coming out of Brussels and other EU capitals this will still be a 'courageous policy' (as Sir Humphrey Appleby would put it) to take before their own electorates in the next polls.

Secondly, the depreciation of the pound sterling since June 23^rd is already greater than the average tariff that would be justified under WTO rules, hence the overall result, even after a tariff war, would be cheaper UK goods in EU markets.

Once again, consumers have to be pretty determined to punish the withdrawing member if they are willing to boycott cheaper products.

Anyway, what does it say about the merits of belonging to an organisation that it must punish a member who leaves in order to encourage the others to remain?

Thirdly, while the UK prices of imported EU produce will rise as a result of sterling's depreciation, there is no obvious reason for the UK to initiate tariffs against other countries. Once again, as an EU member the UK already has numerous trade agreements with third countries. The EU will have sovereignty over neither party to future bilateral trade arrangements and it will be a remarkably impressive, not to mention vindictive, achievement if it is able to force them to impose tariffs on each other.

If President Obama had not already told us that the UK was going to the back of the queue, one might be forgiven for suggesting the revival of the North Atlantic Free Trade Area scheme.

The Betrayal of Steel

As a son of a steel city I am feeling particularly unhappy about the travails into which the UK industry has been forced by problems not of its own making.

It seems steel is suffering the consequences of four related problems:

1. The last Labour government (specifically Energy Secretary Ed Miliband) unwisely decided to set an example to the world by running well ahead of the field in anti-climate-change policy. As a result British manufacturing industry pays the highest energy costs in the world, far more than Germany or France and twice as much as China or the USA. In other words, metal manufacture, as a very heavy energy-user, was deliberately disadvantaged by our own government. This achieved negative results for climate change since it exported British jobs to China where the metals are produced by coal-generated electricity.
2. The present UK government is so keen on developing trade links with China that it wants to go ahead with the absurd Chinese-backed Hinkley Point power station project that will (if it is ever built) compromise our national security in order to produce electricity at triple the current wholesale price.
3. 

   And to make sure the Chinese stay on board with that and other trade schemes our government has led the way in blocking EU attempts to impose effective tariffs against the huge quantities of Chinese steel currently being dumped on the world market as a result of the economic slowdown in China itself. Moreover we are helping the Chinese achieve a fraudulent market economy status to make it even easier for their state-subsidised production to enter western markets. Meanwhile the Chinese themselves erect huge tariffs against Welsh Steel despite the fact that it is not state-subsidised and should therefore be entitled to free trade.
4. Domestic discrimination in public sector contracts or business rates in favour of British steel is outlawed under EU rules as long as we remain an EU member. Remarkably enough, the EU has managed to complete the single market in manufactured goods, in which the UK has a comparative disadvantage, but has not managed to complete the single market in services where the opposite applies. Needless to say, the same government whose energy policy has contributed so greatly to our problems in manufacturing trade is urging us to remain in the EU. No doubt they are worried that if the EU erected tariffs against us, obliging us to retaliate, it might even help us get a handle on our crushing Balance of Payments deficit.

Doing all we can, they say?