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Trump's Tariffs: Not Good For Anyone |
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By John Freivalds
Duluth finds itself smack in the midst of the heated debate over free trade. The Ports of Duluth and Superior are not imploding while miners and mines on the Iron Range want tariffs on imported steel. And we consumers want Walmart's mantra -- goods at low prices so what if they are imported
And then we have the bi-polar upper Midwest sugar beet industry and its farmers. They want both tariffs and free trade depending on the product: sugar beet pulp and the sugar itself. In my day I exported the by-product and my job was to find the highest priced markets. Free trade.
But on the sugar side, the industry is marked by import quotas and high tariffs which combine to make sugar more expensive for consumers in the US than any place else in the world. Protectionism on steroids what some politicians want. Not free trade.
The Trump administration, for political reasons, has started the tariff wars by levying tariffs on solar panels and washing machines and threatens more to come. Complaints about imports that compete with US industries start with the comment that "we must have a level playing field." Imports need to come from countries that operate under the same circumstances as US firms. This is impossible. The cost of land, incentives, taxation rates, financing packages, interest rates, worker benefits, nearness of suppliers, environmental laws, shipping rates, labor rates, cost of robots, electricity rates and weather patterns are different everywhere. One Moorhead farmer said that US sugar growers need a level playing field with Brazil. Duh? Brazil has a year round growing season and cane only has to be replanted every 7 years whereas Minnesota has a limited growing season and sugar beets have to be replanted annually.
All the trade issues that are being debated today are old hat yet the protectionist politicians believe they have discovered something new. In 1776 (a mere 343 years ago) a guy name Adam Smith wrote The Wealth of Nations which called for nations to specialize in those areas that they are good at.
The editor of a summary of Smith's book put it this way: "The idea that the economic system is automatic and when left with substantial freedom can regulate itself." This is often refrred to as the "invisible hand." The ability to self regulate and to ensure maximum efficiency is threatened by monopolies, tax preferences, lobbying groups (ed. note: there are 36,000 lobbyists in DC) and other privileges extended to certain members of the economy at the expense of others. Or to quote my boss in the grain business, who earned an export award for the export of beet pulp, "high price cure high prices and low prices cure low prices."
However, in 1930 two Congressmen named Hawley and Smoot fell prey to the idea that if we protect American business from foreign business this will pull America out of the Great Depression. So thought Republican President Hoover. But since President Trump says he doesn't read but watches cable TV, let us take a look at what the Smoot-Hawley tariffs accomplished a mere 88 years ago.
An Encyclopedia Britannica economist wrote this: "Smoot-Hawley contributed to the early loss of confidence and signaled US isolationism. By raising the average tariff 20 percent it promoted retaliation by foreign governments and many overseas banks began to fail. Within two years some two dozen countries adopted similar "beggar they neighbor" duties making worse a beleaguered US and world economy." President Franklin Roosevelt abolished most of the tariff in 1934. And today the consensus view is that the passage of the Smoot-Hawley Tariff Act exacerbated the Great Depression or in Iron Range English "we shot ourselves in the foot."
So here we go again.