By now, everyone knows what a tariff is.  This is the Trump Administration’s contribution to American education (as they work tirelessly to defund schools and dismantle the Department of Education).  But their redefinition of why tariffs are imposed on imports is just more of the ’emperor has no clothes’ BS we have come to expect from them.  Only now, all sides of the political spectrum are vocalizing what they had been thinking all along.  On Wednesday, a day that the President dubbed “Liberation Day” (choosing April 2nd instead of April 1st for fear of being called the fool, I guess), the administration announced a minimum tariff of 10% on all imported goods (not energy, mind you, ‘cuz ‘drill baby drill’) and called them ‘reciprocal’ tariffs.  Here’s a full list for your perusal.  

Now the word ‘reciprocal’ means to do something in return.  In this case, it means that the exporting country is punished for not buying enough goods from the US (meaning there is a trade deficit).  It does not mean that the country has placed tariffs on our goods exported to their country.  So a more accurate phrase could have been ‘protectionist’ – protecting US producers from having a price disadvantage from an import substitute.  And ostensibly this is the reason for the administration’s policy decision – to encourage manufacturing to take place in the US (employing Americans, or at least robots) instead of overseas.  But even this concept of protectionism would not have fully encompassed this policy – because tariffs on goods like minerals that we do not have (i.e. diamonds from Lesotho) will not result in onshoring of mining in the US.  

So who takes the big hits from our tariffs?  Well, some penguins on the Heard and McDonald Island are in the US crosshairs – mind you there are no humans on those islands, let alone electricity to create something to export.  Lesotho is the worst offender on the administration’s list of countries that have been ‘taking advantage’ of us for too long – they are a major exporter of denim jeans to the US.  Except being one of the poorest countries in the world, they aren’t capable of buying goods from us (let alone buying the jeans they are producing) – so whom exactly is taking advantage of whom here?

Economists and business leaders (who you’d think would be celebrating the protection that the President has offered) have been almost universally unhappy with the policy turn.  The American Enterprise Institute (conservative think tank) used words like not “credible”, not “sensible”, not “stable”.  The National Review is not much happier. Retaliatory tariffs are already happening, from both friends (Canada) and foes (China).  Businesses can’t plan when price volatility exists, so they will apply a risk premium to prices just to ensure they don’t lose money on their sales.  And the promise of more manufacturing jobs in the US is greatly in doubt – let’s face the facts that we don’t have enough skilled labor for our manufacturers now, so building more capacity isn’t going to make things any easier.  If we are upset that low cost products are made overseas (clothing, paper) then imagine trying to find the skilled trades people who used to work the now off-shored jobs before 1980 – they were low paying jobs that Americans were just as happy to give up.  Sewing classes aren’t being taught in school anymore for a reason.  Bottom line – tariffs are not likely to bring back manufacturing.

So what is the real ‘liberation’ that Wednesday’s policy shift unleashed?  Clearly it is a liberation of American’s pocketbooks.  Because tariffs are a tax paid by Americans, many times over.  They are inflationary (particularly when applied in such a broad brush way).  And even if some manufacturing capacity grows in the US (while employment in exporting segments shrinks due to higher export tariffs from other countries), the only economic reason for that will be that the makers can sell their products for much more than they could before.  So our clothing goes up in price.  Our appliances and electronics go up in price.  Our pharmaceuticals (one third of which are imported), go up in price and concomitantly our health insurance costs increase.  And, by the looks of things, the stock market takes a big hit (down 10% in 2 days) so our retirements and savings shrink.  It would seem well beyond reason that any countries would negotiate with the US when we lack the integrity to abide by the trade agreements we already have.  Congress could stop this nonsense, but asserting their authority is beyond the current leaders’ capacity.

In the Treasury Secretary’s words, “access to cheap goods is not the essence of the American dream“.  Affordability is irrelevant to the billionaires who drive economic policy in this administration.  Because increased prices don’t materially impact them.  And they believe the financial markets will come around to their way of thinking (and they have plenty of money to wait the market out).  The epitome of the administration’s attitude was the activity of the President on Thursday and Friday this week – he went golfing.  While the stock market had the largest weekly decline since the COVID economic shutdown, President Trump did his best imitation of Nero fiddling while Rome burned – with a golf club in his hand of course.

And the national disgrace continues…