Ron Paul: Here's Why Tariffs Are Not The Answer

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

President Trump’s planned 25 percent tariff on steel imports and 10 percent tariff on aluminum imports may provide a temporary boost for those industries, but the tariffs will do tremendous long-term damage to the American and global economies. Tariffs raise the price of, and reduce demand for, imported goods. Tariffs ensure the preferences of politicians, instead of the preferences of consumers, to determine how resources are allocated. This reduces economic efficiency and living standards.

Some justify these economic inefficiencies as being worth it to save American jobs. This ignores how tariffs increase costs of production for industries reliant on imported materials to produce their products. These increased costs lead to job losses in those industries. For example, President Trump’s proposed steel tariff could cost nearly 40,000 jobs in the steel-dependent auto manufacturing industry. Tariffs also cause job losses in industries reliant on exports. This is especially true if — as is likely to be the case — other countries respond to President Trump’s actions by increasing tariffs on US products.

Many of President Trump’s critics do not themselves support true free trade, which is the voluntary exchange of goods and services across borders. Instead, they support the managed (by government) trade of NAFTA and the World Trade Organization (WTO). NAFTA and the WTO promote world government and crony capitalism, not free markets. Any libertarian or free-market conservative who thinks the WTO promotes economic liberty should remember that the WTO once ordered Congress to raise taxes!

Foreign manufacturers may make convenient scapegoats for the problems facing US industry. However, the truth is that most of the problems plaguing American businesses stem from the US government. American businesses are burdened by thousands of federal regulations controlling every aspect of their operations. The tax system also burdens businesses. Until last year’s tax reform bill, the US had the highest corporate tax rates in the developed world. The tax reform bill lowered corporate taxes, but the US corporate tax rate is still higher than that of many other developed countries.

The United States not only spends more on military weapons than the combined budgets of the next eight biggest spending countries, but also spends billions subsidizing the defense of developed counties like Germany, Japan, and South Korea. Bringing US troops home from these countries is an excellent place to start reducing spending on militarism.

The biggest cause of our economic problems is the Federal Reserve. America’s experiment with fiat currency has enabled a system based on private and public debt. This makes trade imbalances inevitable as the US government needs foreign investors to purchase its debt. Foreign investors get the money to purchase the US government’s debt by selling products to American consumers. A trade war could cause foreign investors to stop buying US debt instruments and could end the dollar’s world reserves currency status. This would cause a major economic crisis — but at least it would stop our shores from being flooded with “cheap foreign goods.”

President Trump’s claim that trade wars can be easily won is as credible as the neoconservative claim that the Iraq War would be a cakewalk. A trade war would likely push the global economy into a recession or worse. Instead of imposing costs on American businesses and consumers and putting those whose livelihoods depend on imports out of s job, President Trump should address the real causes of our economic problems: the welfare-warfare state, the IRS, and the Federal Reserve.

Comments

truthalwayswinsout Mon, 03/12/2018 - 16:48 Permalink

You cannot lose a trade war when you have net $600 billion trade deficits. If you subtract out the people we actually have free trade with our exposure on the downside is $50 billion. So you risk $50 billion to gain $600 billion. You cannot lose.

Teja Blue Steel 309 Mon, 03/12/2018 - 16:57 Permalink

800 billion dollars of "free stuff" for the consumers. "Free" in the sense that it is paid for with freshly printed debt dollars which end up in overseas deposits until day x comes. Until then, it is free.

With 322 million citizens, this means about $1'200 subsidized consumption per year per citizen. Wonder if the voters like it if their toys & sweets are taken away!

In reply to by Blue Steel 309

beemasters Four Star Mon, 03/12/2018 - 17:04 Permalink

In short, tariffs are like getting the government to cut your nose to spite the face. But hey, you get to spite the face. Hooray.

"President Trump should [instead] address the real causes of our economic problems: the welfare-warfare state, the IRS, and the Federal Reserve." As usual, the government prefers to find a bogeyman....something that appeals to the masses.

In reply to by Four Star

Kafir Goyim BlindMonkey Mon, 03/12/2018 - 17:30 Permalink

The only reason to export anything is so that you have funds available to import those things that your country is not efficient in producing itself.

The US really should be able to be completely self contained, and not suffer for it.  We can produce everything we need, from steel to computer chips.  What is the import that we can't live without that we must purchase?  Only oil, and even that is our choice.

I can see that most small countries need trade, as they have a huge array of things they can't make themselves.  For US and Russia, this is not the case.  Both countries could survive just fine on internal production and resources.  Maybe that fact is why they are trying to destroy both countries, the US from within, and Russia from without.  Somebody doesn't like any one country to have the ability to be completely independent.

Let Trump tariff the shit out of everybody.  The worst thing that can happen is some growing pains as the U.S. becomes completely self sufficient, and Americans are lucky enough to live in a country where such a thing is possible.

If the reason a country trades is not resources, but to exploit cheap overseas labor, we now have abundant automation that will allow us to remove that as a consideration.

In reply to by BlindMonkey

snblitz beemasters Tue, 03/13/2018 - 14:50 Permalink
  • Auto Import Tariff: US (2.5%) vs EU (10%)
  • Auto Import Tariff: US (2.5%) vs China (18.5%)

How is that not an issue?

The US was the manufacturer to the world after world war two. 

If you want to put a positive spin on what happened, the US tried to create free and fair trade around the world by lowering tariffs in the hopes that other countries would "see" the positives of free trade.

Well the other countries did not see the positives of free trade and instead they saw the positives of tariffs.

In another view the US was manufacturer to the world and tried to implement free trade.  Politicians through the foreign interests of their relatives exploited this to enrich their families and friends.

The US trade negotiator has been out-to-lunch for at least 40 years.  Politicians foreign and domestic took advantage of the weak US trade stance to rob Americans.

Further they used not only tariffs but domestic policy to weaken US competitiveness.  It is only now that the decades of abuse have created a clear and easy to see result.

Americans deserve all of this for voting for politicians that sold them out to foreign interests.

However Americans also retain the right to make their trade policy what they wish and to vote into office people who will not rob them.

Lastly it is not a trade war to change these tariffs to

  • Auto Import Tariff: US (10%) vs EU (10%)
  • Auto Import Tariff: US (18.5%) vs China (18.5%)

Americans are on the only ones who use the word "fair" when it comes to trade policy.

Everyone else in the world thinks in terms of trade advantages and profit.

There is little wrong with changing the tariffs to

  • Auto Import Tariff: US (20%) vs EU (10%)
  • Auto Import Tariff: US (30%) vs China (18.5%)

And indeed the EU and China might respond by changing their tariffs.  But so what?

It comes down to the fact that spending by US citizens into the US economy is way more valuable than US citizens spending into foreign economies even if the foreign goods are cheaper.

The reason is that the US can make all its own stuff and ...

If you spend $10, or $100, or $10,000 into the US economy a lot of people benefit in the US.  Workers, investors, support services, good manufacturers.  If that money is spent abroad the follow on effects do not occur in the US.

Just think about what happens to $1000 spent on a speed queen washing machine (built in the US by a US company) verses $800 spent on an imported washing machine.

The entire $1000 flows into the US economy to part suppliers, workers, uniform makers, clothes cleaners, shoe makers, housing builders, food producers, and on and on.  This is referred to as the multiplier effect.

For the imported washer none or nearly none of this multiplier effect occurs in the US economy.

So let us add a $400 tariff to the foreign washer.

US made speed queen $1000, foreign washer $1200.  Hopefully Americans would start buying the speed queen washers.  And yes they would be paying $200 more than back in the non-tariff days when foreign washers were $800.

But ... all $1000 would flow into the US economy and trigger the multiplier effect.

Is it really better for Americans to be unemployed and on welfare than to have jobs?

I know the word "fair" is creeping into your mind again.  But only Americans think in terms of fair.  Everyone else in the world thinks about having a job and what fools Americans are.

 

In reply to by beemasters

Crazy Or Not eforce Mon, 03/12/2018 - 17:35 Permalink

I'm trying to get my head round this, and it feels way more complex than simple overviews suggest. 

Having a widely adopted internationalized currency as premier reserve currency/petrodollar seems a strong insurance policy.
The strength and sustainability of the petrodollar being deeply woven to Middle East (esp Saudi) geopolitics...
Foreign reserves held in Dollars - bleed off? Inflation by the back door???

I don't believe this is going to pan out as it's currently being portrayed....

In reply to by eforce

snblitz Crazy Or Not Tue, 03/13/2018 - 14:57 Permalink

The truth is that Americans are fools being relieved of their wealth, the productive value of their labor, and even the value of their natural resources.

The complexity comes from 2nd level effects.  Once you understand why raising raw steel prices destroys stainless steel coffee cup manufacturers you have the key that you need to understand trade policy.

https://www.finitespaces.com/2018/03/05/how-tariffs-really-work-in-the-most-simple-terms-possible/

In reply to by Crazy Or Not

Pumpkin duo Mon, 03/12/2018 - 17:23 Permalink

I'm a big fan of Ron P, but he forgets that our government was almost entirely funded by tariffs until the Civil War. 

 

That's the way it is intended to be.  It is why the federal government was given the power to tax imports in the first place.  Today, they just steal all they need (want) from the people they are meant to serve.

In reply to by duo

PiratePiggy Pumpkin Mon, 03/12/2018 - 18:46 Permalink

I'm a big fan of Ron and have been for decades. He is right on most things, but not this one... at least not for the United States.

 

Free trade does not exist there are special deals with every international trade deal.  Free trade makes perfect sense for a small country like Singapore that has no real bargaining power and really does need to import most goods. Free trade for Singapore is what skyrocketed its standard of living from below the Caribbean nations in the 1960s to one of the wealthiest nations in the world - all while the Caribbean nations relied on import duties.

In reply to by Pumpkin

anarchitect duo Mon, 03/12/2018 - 17:56 Permalink

Yes.  And without income or sales taxes.  The government was maybe 10% of its current size.  I'm sure Ron Paul would gladly go back to those days.  Even Harry Browne favored that, because tariffs and duties have a fixed upside.  If they're too high, domestic substitutes reduce the government's revenues.

In reply to by duo

TeethVillage88s duo Mon, 03/12/2018 - 19:46 Permalink

"The biggest cause of our economic problems is the Federal Reserve." - Let's Examine the Policies of Scoundrels.

- Foreign Policy, Monroe Doctrine, Bush Doctrine, Rumsfeld Doctrine, McNamara, ... Madeline Albright & Clinton Doctrine, ... Hillary Clinton Visiting women in Pakistan espousing a First Strike Drone Doctrine against families in Pakistan
- Domestic Policy, - Reaction to EPA & OSHA & Civil Rights & Union Rights... Cost cutting of US Employment, Benefits, Pensions, Labor Rates, ... Globalism, Off Shore Tax havens, Off Shore Tax Jurisdiction, Off Shore Production, Off Shore Data Entry... Slave Labor Rates for Trade with the USA... often by what is defined as US Corporations
- Trade & Tariff Policies... End of Corn & Wheat Protectionism, Lowering of Tariffs for CAFTA-DR, NAFTA, WTO/GATT
- Policies for National Jobs & Compensation for Bread Winner Jobs... Absent... Empty Set... No Response
- Protection for US Tax Base ... Absent, Empty Set.. No Response
- Protection for US Small Farmers, Small Tech, Small Business, Young Businesses,... freedom from big banking Regulations to protection small, community, public, or Credit Union Banks... Absent... Empty Set... No Response by US Congress who prefer Globalism & Treaties & Trade Agreements (Since the Money is big time, and Organizations are Big Time and often International, WoW)

 

In reply to by duo

RedBaron616 duo Mon, 03/12/2018 - 21:04 Permalink

I totally agree with you on both counts. Disappointed that Dr. Paul seems to forget that tariffs are what protected American industry and built it into the Juggernaut that it became. Lack of tariffs is what allowed CEOs to move production overseas where they could get labor for next to nothing and make obscene profits sending the items back to America. 

In reply to by duo

sarz whoisjg Tue, 03/13/2018 - 03:08 Permalink

Ron Paul, who is definitely a decent human being, is so despite his nutty Ayn Randian libertarian ideology. His basic assumptions are all wrong. We are not atomic individuals to begin with. I remember hearing the great Lee Kwan Yew say, If we are not responsible for our friends and relatives, who is? You can extend that to countrymen. Think of single payer or trade barriers. And then think of Ron Paul's ideology. 

In reply to by whoisjg

HRClinton truthalwayswinsout Mon, 03/12/2018 - 17:07 Permalink

Let's keep perspective here:

1. RP is an MD and career politician -- not an expert at business, economics or social complexity.

2. RP is an Economy Fundamentalist, an Ideolog.

3. RP has never run a large company, especially one with a national or global presence, to know what they are faced with:

   a. Zero backing from assholes, idiots, traitors and ill-informed ideologues in Congress.

   b. European and Asian companies get a boat-load of Gov backing and labor subsidies -- especially if these hi-cost (engineering) labor leads to many manufacturing jobs for the unwashed masses. They take a system approach, not a peacemeal approach of asshole, parasitic lobbyists. 

I happen to know more about all this in my pinkie, than ideologues and DC politicians know in their whole body.

I'm not buying what RP and his ilk are selling.

Go Donald Trump! If they're squealing, it's because it's good for the US, and bad for them and their overpaid DC lobbyists. 

MAIN St, not Wall St. W/o the former, you won't have the latter much longer.

In reply to by truthalwayswinsout

zzz111 truthalwayswinsout Mon, 03/12/2018 - 17:55 Permalink

The current US trade deficit is 807 BILLION DOLLARS!

YES, YOU CAN'T LOSE A TRADE WAR WHEN YOU HAVE ALREADY LOST IT!

Ron Paul is great on idealism, but we have huge facts here that he doesn't take into consideration in his theory; like the $807 billion and how huge this number is.  Also, he mentions or implies that trade wars are bad and the US should not engage in them but doesn't mention that other countries have already attacked the US with their surreptitious trade war tactics.  China has been doing it in so many ways I don't even want to mention it anymore.  I think in Japan they don't let anyone start US car dealers so no one buys US cars in Japan.  The trade wars have already been happening for many years and we have lost them, just now the news media mentions them when we try to keep ourselves from totally losing all manufacturing. 

Some may like to take down the US since when US consumers have less money they will consume less and reproduce less, and if the US money gets transferred to 3rd world nations and they have more money then they will reproduce less; so it's a win-win in a very few sick minds.  This doesn't apply to Ron Paul, he's just idealistic with his economic theories and doesn't look at the current meaningful variables.  When we lose manufacturing jobs, people go on: welfare, homelessness, unemployment, disability, or take out student loans from money printing. Competitive advantage economic theory does not account for important variables.  Other economic theories do not also.  Trump is practical and knows how to make money instead of being an economic professor.  Plus he may only be throwing this protectionism talk in order to get a good deal. Or maybe having steel and aluminum produced in the US rather than in China would also give us a better deal since the US could make tanks and planes in necessary.

 

In reply to by truthalwayswinsout

zzz111 Justin Case Tue, 03/13/2018 - 02:06 Permalink

The 1930 Smoot-Hawley tariff was a US protectionism measure that raised taxes on imported goods. I don't know if this law helped the US economy or contributed to the length of the great depression because there were many economic factors that were important in the late 20s and 30s. Even if it was bad for the 1930s US economy as many economists claim it was, it was not that bad because the US still had lots of manufacturing during the late 1930s; this is proven by the fact of the conversion of US factories into military products such as tanks and planes in 1940.  We have lost most of our manufacturing now so if a WWII style war happened now where we would need to use lots of steel and aluminum we would not be able to convert domestic goods factories into wartime factories because we don't have them anymore.  In the early 1930 there were major droughts all over the world so there was a food shortage.  Also in 1930 the FED reduced the money supply so that created deflation and people had no money; maybe they did this because of being afraid of hyperinflation happening like it did in the 1920s in Germany, I really don't know why they reduced the money supply. Being able to tradr is a very good thing in my opinion, but we don't have fair trade and this is why we have an 800 billion dollars trade deficit.    

In reply to by Justin Case

sixsigma cygnu… truthalwayswinsout Mon, 03/12/2018 - 18:30 Permalink

"You cannot lose a trade war when you have net $600 billion trade deficits."

Exactly. $600 billion trade deficits would suggest you have already lost the trade war.  Not sure why we're worried about how many U.S. factories will be shut down now, when most of them have already been shut down.

A temporary trade war forces your "trading partners" back to the table, so that it will take them some time to figure out how to cheat you again.

In reply to by truthalwayswinsout

sixsigma cygnu… BigJim Mon, 03/12/2018 - 19:35 Permalink

It only means you've won if your plan is throw the US dollar out the window and replace it with something else, and very soon. But currently, people still use it to sell things they have, like their homes.

As an example, in the early 1920s, there was a game played by foreign students in Germany to see how many houses they could buy in a single day.  With their lunch money.  Kinda like what is happening in every major city in the US and Canada by 17 year old Chinese kids.  See what I'm saying?

 

In reply to by BigJim

rhyzimmer02 truthalwayswinsout Tue, 03/13/2018 - 01:20 Permalink

The USA cannot have trade surplusses or else the entire financial system will collapse.  With the US dollar the reserve currency the only way other countries can get dollars is for the USA to have persistant trade deficits with them.  

This has nothing to do with trade agreements but with the Fed system in place.  Go back to the gold standard and we would have balanced trade immidiately.  

In reply to by truthalwayswinsout

LetThemEatRand Mon, 03/12/2018 - 16:52 Permalink

As much as I respect the man, this is one of those times that Ron Paul is blinded by his own ideology.  For example, US corporations only had the "highest tax rate" on paper -- none of the big boys paid close to the full rate.  And competing with slave labor countries with no environmental regulations is only possible if your country wants to compete on wages/pollution, meaning a race to the bottom.

gatorengineer Mon, 03/12/2018 - 16:54 Permalink

Cant this Globalist Hillary supporting Cocksucker just die already?  Not supporting the Orange Clown, but Ron Paul hasnt had a plan in forever, and his insensate bashing of the Right is getting tiring

D.T.Barnum gatorengineer Mon, 03/12/2018 - 17:08 Permalink

He says the bombing of the M.E. is about oil, but it's not.  It's about uprooting indigenous people, and flooding them into other cultures to dilute and weaken them as well.  There's only one tribe that's allowed to exist, that's how they control the whole world with such a small percentage.

Diversity and multiculturalism are weaponized to weaken the goy

The oil thing is just icing on the cake for them.  He needs to please stop with that false meme

deracinated, deracinating. 1. to pull up by the roots; uproot; extirpate; eradicate. 2. to isolate or alienate (a person) from a native or customary culture or environment.

In reply to by gatorengineer

D.T.Barnum Mon, 03/12/2018 - 16:54 Permalink

The biggest cause of our economic problems is the Federal Reserve.

And what is the name of the (((cabal))) that runs the FED?  If we can't even name the enemy we definitely can't beat them.

Here we go round the mulberry bush,
The mulberry bush,
The mulberry bush.
Here we go round the mulberry bush
On a cold and frosty morning.

This is the way we wash our face,
Wash our face,
Wash our face.
This is the way we wash our face
On a cold and frosty morning.

This is the way we comb our hair,
Comb our hair,
Comb our hair.
This is the way we comb our hair
On a cold and frosty morning.

This is the way we brush our teeth,
Brush our teeth,
Brush our teeth.
This is the way we brush our teeth
On a cold and frosty morning.

This is the way we put on our clothes,
Put on our clothes,
Put on our clothes.
This is the way we put on our clothes
On a cold and frosty morning.

Here we go round the mulberry bush,
The mulberry bush,
The mulberry bush.
Here we go round the mulberry bush
On a cold and frosty morning.