The Warm and Fuzzy Of It–Tariffs and Protectionism

Donald J. Trump‏Verified account @realDonaldTrump

….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN

Donald J Trump I am Tarriff Man Tweet

Politicians are a peculiar lot. One of their unique skills is to stimulate different parts of your brain at different times. First, they stimulate the emotional part—you know, the part that instantly feels without putting any thought into it. “When people or countries come in to trade the great wealth of our Nation, I want them to pay for the privilege.” Now to the emotional part of our brain, there is an instant flash of fear that some @##$$$ would try raiding our country, mixed with gratitude that we have leaders to protect us from such unscrupulous workers who would dare to make things for us should we as individuals decide to hire them. Immediately following the fear and gratitude, comes hope and excitement. “We are right now taking in $billions in Tariffs” MAKE AMERICA RICH AGAIN. Yeah! Who wouldn’t want to be rich? Bring it! But then there is that part of the brain that nobody likes having around—the one that seems skeptical of everything, no matter how well it is said or written. “Wait a minute” it seems to say, how is our wealth being raided? Aren’t we deciding for ourselves how we spend our wealth? “Who is taking in billions? And who is paying the billions?” Aww, you had to go there, didn’t you.

Since there are plenty of politicians to feed the warm and fuzzy part of our brain, let’s give the cranky skeptical part a little attention and see how it unwraps the above tweet. First, let’s deal with the raiders. When I was sixteen, I bought my first car for $300. I was flat broke, which meant I had to do all the maintenance on the car myself. Every time it needed an oil change, it was me squeezing under the car in our dirt driveway. As I got older and my skills developed, my income rose. I eventually reached a point where I no longer had to change my own oil. I had the privilege of outsourcing the oil changes to our local quick lube. Now it was a different young kid under my car, while I relaxed in the waiting room. Had I asked the kid to pay for the privilege of raiding some of my wealth while he was under my rusty Mercury, he might have thrown a wrench at me.

While it may seem different, it actually works the same way with nations as it does with individuals. The citizens of poor nations end up doing some of the dirty work wealthy nations grew out of. I developed more wealth and chose to outsource my dirty work—oil changes. As a nation develops and becomes wealthy, they have the means to hire less developed nations to do some of their dirty work, too. Instead of us toiling all day making t-shirts or bricks, we move up to the cleaner work, and get to hire the “teenager” nations to do our dirty work. Despite what the warm and fuzzy part of our brain might initially think upon hearing we were being raided, it is not a bad thing that we are able to afford to have others do things we no longer wish to do. If it were bad, we wouldn’t choose to do it, right? After all, it’s our wealth and as a free nation, we are supposed to be able to choose how to spend it. Speaking of spending, let’s move on to the part where the President says, “We are taking in $billions.

Protectionism - Wanderer Financail Stock Trading Newsletter

Again, Mr. Fuzzy thinks the President is making the evil Chinese fork over their cash to “WE the people.” Not a bad gig we have going! Not only do they do our low skilled dirty work, but now they will have to pay us for the privilege!  But Mr. Skeptical is having none of it. “Hold on” he says. You do know that Trump’s tariffs are levied on WE, right? You do know that when he says “We are taking in $billions,” he doesn’t mean the American people are taking billions from the Chinese. He doesn’t even mean the American government is taking billions from the Chinese on behalf of the American people. Nope. He may make is sound like that, but that’s not what he means at all. He means the American government is taking billions from the American people, not for the people. You see why nobody likes this part of the brain? It’s a good thing it resides deep enough in our gray matter that it does not get infected with Mr. Fuzzy’s enthusiasm.

Let me veer off for just a second. Let’s define a trade deficit. Trade Deficit = Value of Goods Imported – Value of Goods Exported. So, if the U.S. has a trade deficit with a country, it is because we are importing more goods than we are exporting. Simple as that. The political narrative somehow instead makes it sound as if we are both trading equal amounts of goods, but the other side (i.e. China) is making way more money off of this equal trade. As a quick scan of your household goods and clothing tags will tell you, the U.S. imports far more from China than it exports to them.

Certainly, President Trump knows it is the American citizens that pay any tariff imposed by him. The products themselves are incapable of paying anything, and China certainly doesn’t pay it. A tariff is first paid by the American company that utilized Chinese factories. The American company then adds the cost of the tariff to its total cost, and passes the cost on to the American consumer. So, if you take $1 from an American citizen and give it to the US government through a tariff (tax), how is America getting richer? If America is its people, then this is analogous to taking a dollar from your right pocket and putting it into your left pocket, and saying you are richer because of the new added dollar in your left pocket.

But it gets worse. The public sector has proven to be horribly inept at managing money. Ever hear of the 619 billion dollars the US government “lost”? It’s true. They have no idea where it might have gone. Do you think you might remember where you put that kind of money? Most people in the private sector would. Then there is the 5.4 million dollar bender the State Department went on the week before a government shut down. We could go on about the $98,670 outhouse on an Alaskan trail, or a million dollar bus stop in Arlington, but you get the idea. People take better care of things that they own, including their own money. The government tends to get less bang for its buck. While we might decide to see if a different contractor would be willing to build an outhouse for a little less than a hundred grand, the government doesn’t feel the same pinch we do when they spend. If the outhouse was built for $5000, there would be a few bucks left for some of that booze the State Department needed. When we get less bang for our buck, wealth gets destroyed. We as a people are poorer for it, not richer.

China US Trade War

There. Now that Mr. Skeptical had his little time in the sun, let’s make him acknowledge that of course there is a need for government, and politicians. Let’s also make him point out that both political parties are equally guilty of squandering wealth. Now, let’s bury him deep in the recess of our brain so we can get that warm and fuzzy feeling again.