Tariffs and Economic Disaster

There has been, so far, no economic disaster. In fact, Gerald Baker, in his Monday Wall Street Journal op-ed, put his finger on the longer term outcome of tariffs insofar as they lead to a decrease in the globalization of trade. Here’s his penultimate paragraph:

What difference does it make? An important one: If we see deglobalization not as a catastrophic act of self-harm but as a choice—even a rational one—we can position ourselves better to deal with its consequences. We know the costs of throwing sand in the gears of frictionless trade, but there are opportunities too: more-secure supply chains, a chance to nurture high-end domestic manufacturing and reduce our financial dependency on the rest of the world, and new attention to reducing the vast economic inequalities in the U.S. that globalization, with its incalculable rewards for the most advantaged, has exacerbated.

That’s on the right track. Also needed, though, is [ahem] some necessary parallel actions:

requirement that the “protected” industry companies use the large majority (60%-75%, say, just to have a starting point for discussion) of the increased revenues accruing from the increased sales at their immediately pre-tariff prices to achieve the following:

 

    • increase market share via their largely unchanged price
    • increase spending on innovation
    • increase spending on capital plant maintenance, improvement, and expansion
    • increase spending on line worker wages
    • increase spending on line worker hiring

And one more fillip: a hard expiration date of the protectionist tariff, in the range of 5-10 years, that cannot be extended except by Congressionally enacted statute.

Tariffs and Reindustrialization

This seems to be my day for letter-writers. Another writer in The Wall Street Journal‘s Sunday Letters section wrote about the current lack of effectivity of (protectionist) tariffs in stimulating moves toward reindustrialization in our economy.

Through initiatives such as Operation Warp Speed and strategic invocation of the Defense Production Act, the government took risk out of domestic production through substantial direct investment, guaranteed purchase agreements, prioritized allocation of critical materials and equipment, and streamlined regulatory processes.

He then proposed a similar program to spur reindustrialization.

He’s right as far as he went, but it’s too one-sided, lacking as it does any requirement for the targeted industries to do their part. Aside from the addictive nature of protectionist tariffs, it’s far too often the case that the “protected” industry companies merely take advantage of the increased prices of tariffed imports to raise their own prices accordingly, collect the increased revenue, and do nothing to improve their own competitiveness.

What’s also needed, as a part of these tariffs, is a requirement that the “protected” industry companies use the large majority (60%-75%, say, just to have a starting point for discussion) of the increased revenues accruing from the increased sales at their immediately pre-tariff prices to achieve the following:

• increase market share via their largely unchanged price
• increase spending on innovation
• increase spending on capital plant maintenance, improvement, and expansion
• increase spending on line worker wages
• increase spending on line worker hiring

And one more fillip: a hard expiration date of the protectionist tariff, in the range of 5-10 years, that cannot be extended except by Congressionally enacted statute.

That’s the route to actually reindustrializing: doing concrete things to achieve concrete goals.

Why Must They Be Mutually Exclusive?

A letter-writer in The Wall Street Journal‘s Sunday Letters section objected to an op-ed whose writer touted Federally mandated IVF insurance provided by private economy insurers as a means to elevate our nation’s too low birth rate.

The letter-writer proposed, instead, a tiered cash baby bonus: bigger for married women, smaller for unmarried women.

My question: why must it be one or the other? Why not both?

Follow-on question: why not consider the system of which these are just two components? If the Federal government, or at least the Republicans in the government, are going to work for increasing our birth rate and against the related universal and easily obtained abortion rate—and they should, on both—and on the underlying economic situation of the middle and lower class individuals and families, why not provide women—married or not—in parallel with a range of incentives to have more babies, with financial, educational, and medical support during their pregnancies and in the period surrounding birth, and in the first years (until kindergarten?) of the baby’s life, expanding that to include the baby/toddler/child in the support mechanisms?

If our government and us are going to be serious about birthrates and about right to life, government and we need to get serious about achieving those goals.

A New US International Trade Regime

As thought of by me.

The beauty of it, if I do write so myself, it that it’s wholly independent of tariffs, whether foreign policy or protectionist.

The idea, at a level of generality, is this. Congress, the President, and his Cabinet Secretaries develop a list of all goods and services critical to our national defense. The list must necessarily include dual use goods and services, those items that can serve both the private economy and our defense systems.

Then Congress and the President draw a hard line and require that 15% (to pull a number from the æther) of everything needed for production of those critical goods and services, from ore through intermediate components to the last components needed for final assembly or service provision, be produced entirely domestically. This would serve two purposes. One is that it would relieve our dependence on other nations, particularly enemy nations, for any of those goods or services, the denial of any one of which would stop our economy and our ability to defend ourselves beyond stocks already in place—a few weeks to a couple of months worth in an active shooting conflict.

The other purpose is that it would give us an extant production core from which we could surge production and expand production facilities much more quickly than if we had to attempt to start from scratch just to begin to surge.

The last step is to require a review of the list of goods and services every five years, de novo, adding to/removing from the list as necessary to keep it current. Every five years to relieve the review cycle, at least a little bit, from political cycles while keeping the update rapid enough to keep up with evolving technologies.

Of course, this will cost more than a classical Ricardian free trade, Smithian free market environment, but that’s the cost of national security. If we can’t protect a capacity for self defense, we’ll pay a far higher price.

Tariffs and Economic Growth

The good editors at The Wall Street Journal spent a lot of ink and pixels decrying President Donald Trump’s (R) tariff moves. They saved the money bit for the end, though maybe not in the way they intended.

The best response to the warning from the first-quarter GDP decline would be for Mr Trump to call the whole tariff thing off. Short of that, settle for 10% across the board and call it a day. If that’s too much of a come-down, Republicans will need to pass a pro-growth tax cut and accelerate their deregulatory push as their best chance to liberate the economy from its tariff kidnapping.

Those first two sentences are irrelevant, whatever one might think of Trump’s tariff moves. Republicans need to pass a pro-growth tax cut and accelerate their deregulatory push—and pass serious spending cuts—independently of any tariff moves.