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Trump’s trade war

Posted by John T. Reed on

A tariff is a tax on certain imports to a country levied by that country on those who purchase the targeted imports.

All tariffs are corrupt. They allow the protected industry or company to raise their prices up to the world cost of the import plus the amount of the tariff. Politicians vote for tariffs, or in the case of the President, put them into effect by executive order pursuant to statute, in return for campaign contributions and votes from the leaders and workers of the companies that are protected from normal international competition by the tariff.

Put crudely, the politician, including the president, enact the tariff, which raises the incomes of the protected companies and the employees of those companies give the politician campaign money and votes. In some cases, the sequence is reversed with the politician giving the tariff as a reward for prior support in a previous election.

As always, that is what is going on in the Trump imposition of a 10% tariff on imported aluminum and a 25% tariff on imported steel.

Who is hurt by tariffs? Foreign exporters of the products in question and American buyers of the products in question or products which contain those products.

There is a world price for all products. That is the lowest price you can find around the world for the product in question. The tariffs lower the world price of the products in question by eliminating the ability of non-U.S. producers to sell in the U.S. . The tariffs also raise the price of the products in question within the U.S.

In the case of aluminum and steel, the tariffs raise the prices businesses like beer brewers and soup canneries pay for aluminum or steel can metal. They also raise the prices of products like aluminum foil, aluminum siding, air-conditioners, I-beams, cars, trucks, appliances, aircraft. They also indirectly raise prices like airfares, home prices, and rents.

In the short term, salaries and wages of the protected industries go up and they may hire more employees. Salaries in industries that buy the protected products to incorporate them into their finished products either go down of some of those employees lose their jobs.

Tariffs do not increase the amount of money in the U.S. They just shift more of consumer and business spending to the protected products which means less money available for spending on other products. By raising the prices of products that use steel and aluminum, the overall sales of those products go down. Keeping out foreign competition with tariffs also increases the market share of the US companies, but the overall sales of all steel and aluminum in the US will fall.

to be continued

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