Tom Mullen: Donald Trump's Tariffs Harm Americans No Matter Who Pays Them

"President Trump announced Friday that his administration would impose a 100 percent tariff on Chinese imports “over and above any Tariff they are currently paying” in retaliation for China’s threat to impose export controls on rare earth exports, which the U.S. consider vital to national security.

This latest exchange of trade restrictions is purely intended to harm the other party rather than to achieve any benefit for the respective countries’ populations. But it has occurred in the context of the trade war with China started by Trump in his first term. The ultimate goal of these trade wars is still mysterious, given Trump’s own self-contradictory statements.

 Trump continues to claim both that the tariffs will restore American manufacturing and that foreign exporters will pay the tariffs rather than American consumers. Both cannot be true. The only way for the tariffs to reestablish American manufacturing is if they do raise the prices American consumers pay for the imported goods, and not just marginally. They must raise the prices so dramatically that they exceed the much higher prices for the same goods domestically produced that led to the imports in the first place.

 If the foreign exporters reduce their profit margins to absorb the tariffs and thereby make their exports available to American importers at the same price, as they have in most cases so far, then American manufacturing is not stimulated. Americans are still buying the imports at the same price just as they were before, which is still lower than they can buy goods produced domestically.

Trump represents this as a “win” for America, citing all the new tax revenue flowing into the treasury, but this doesn’t help Americans as workers or consumers. It doesn’t create new jobs or lower the cost of goods. On the contrary, the tariffs ultimately harm Americans even if foreign exporters continue to absorb them...

Source:Tom Mullen is a Libertarian blogger & author.

From Tom Mullen

I'm going to respond to the title of Tom Mullen's blog post, first and then I'll get into what I really want to talk about. 

To start with a hypothetical: 

Imagine someone just getting elected mayor of some big city. And this person has strong political connections with a local company, or an association of companies in the city and has an agreement with those executive that says, if the new mayor drives up the taxes on their competition, this company or association will bankroll this candidate's campaign for the mayorship of that city. 

So now there's a new mayor and that's what he or she does in the first year of his or her mayorship: the new administration drives up the taxes on this company's competition. The competition responds by leaving town and going somewhere where their tax burden is not as high. The company that's still there, that is friendly with the new administration, drives up their prices on their products for the people in that city because they no longer have any competition to worry about. 

Competition is for private enterprise, what fuel is for motor vehicles: there is no private enterprise, without free competition. The competition is what keeps prices affordable for as many people as possible.  But with crony capitalism, the idea is to eliminate the competition, even with government force and drive up your prices on your consumers. 

Tariffs are not that different from crony capitalism. You eliminate the competition (in this case foreign investors) by raising their prices through tariffs (which are domestic taxes) making it some expensive for them to do business in your country, that they either raise their prices (which is like raising domestic taxes) or they get out of your country to go somewhere which is better suited for them financially. 

But the problem with tariffs is not just the higher prices (or taxes) on your domestic consumers, but it also weakens your domestic supply chain, because you'll have fewer foreign companies who will want to invest in your country, because your government has made it too expensive for them to invest in your country. And that gives your population fewer options in where they can buy goods, which jacks up the prices for them. 

The answer to rebuilding the American manufacturing industry, is not to raise the prices on your population and raise their taxes. But encouraging more domestic companies to produce here, instead of going somewhere else and encouraging more of your own people to start their own businesses in your country. As well as producing a higher quality of goods that can compete with the foreign competition, so Americans would want to buy domestic, instead of foreign goods, or a combination of both. 

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