A Bipartisan Zeal For Nonsensical Tariffs That Raise Prices And Slow EV Progress

Image Source: UnsplashTariffs are one thing that Republicans and Democrats, agree on. It’s economic madness.Tariffs Are for LosersAndy Kessler at the Wall Streety Journal accurately sums things up on four words, Tariffs Are for Losers

Who said this? “To really rebuild the industrial heartland of America, you need a committed national policy of tariffs, of protecting American industries.” It was J.D. Vance during his successful 2022 campaign for U.S. Senate. This thinking is dangerous and pervasive—bipartisan battiness. In reality, tariffs impose costs on all Americans to subsidize a few jobs.

Missouri Sen. Josh Hawley, also a Republican, has proposed the Raising Tariffs on Imports from China Act. All he’s missing is a colleague named Smoot to reprise the Smoot-Hawley Tariff Act and cause a market crash and depression. Mr. Hawley said in June that “in the last 20 years in the state of Missouri, we have lost 60,000 jobs to the People’s Republic of China—that number nationwide is almost four million.” No mention of the better jobs that were created. There were 130 million nonfarm payroll jobs in 2003 vs. 156 million today.

You’re going to hear a lot about tariffs this election cycle. President Trump’s tariff triplets—Steven Mnuchin, Peter Navarro and Robert Lighthizer—whispered populist gobbledygook in his ear that he was Tariff Man. Now Mr. Trump has proposed 10% tariffs on all imports. That sounds strong but it’s actually a weakling move, especially with U.S. industrial capacity already near an all-time high.

In October, the Journal ran an article by Oren Cass of American Compass titled, “Why Trump Is Right About Tariffs.” It’s filled with dime-store economic thinking, claiming that tariffs are for raising government revenue and that our service economy is about “cutting hair” and “serving fast food.”

Mr. Cass completely ignores that phones, medical equipment and other imports are often designed in the U.S. Sure, they are assembled overseas, but their value, usually software, is created here. Should we put tariffs on search engines and social networks? Of course not. China blocks ours to force its citizens to use inferior products. Tariffs denote weakness, not strength.

With tariffs, you get false price signals and less innovation. They misallocate capital and human resources by having entrepreneurs chase fake opportunities. Domestic manufacturers love tariffs, which allow them to raise prices, but the rest of us have to overpay for goods while manufacturers become lazy. The largest and lowest-cost electric-vehicle manufacturer in the world, China’s BYD, is effectively kept out of the U.S. by Trump and Biden tariffs, and we now have a glut of unprofitable and expensive domestic EVs.

If all the chips in an iPhone were made in the U.S., I calculate we would be paying close to $2,000 for one and unit sales would decline 50%. Would you upgrade at that price?

Fair Trade is Free TradeKessler is correct on all points but he even misses a key point. There is a constant whine in all corners that we want “fair trade not free trade”.Sorry everyone, the only fair trade is free trade.Assume China is unfairly subsidizing solar panels or anything else. What that means in practice is China is subsidizing US consumers at the expense of Chinese consumers.Yet we bitch about that, like candlemakers bitching about the free light of the sun.Bastiat’s Candlestick Makers’ PetitionWhat’s happening now is very much like French economist Claude-Frédéric Bastiat’s famous Candlestick Makers’ Petition written in 1845. His petition was sarcastic.Bastiat said that sunlight was unfair to the candlemakers. He proposed a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds in which the light of the sun would enter houses.Banning sunlight would increase the need for more oil from whales to make lamps. There would be more whaling jobs and more candle making jobs too.Solar Panels a Perfect Modern ExampleFor some of the same reasons and one different one, the Biden administration and the Trump administration both want solar panels to be made here.The result is we do not use them on roofs and other places to the extent we could because they are too expensive.Made in the USA effectively means made nowhere (a relative statement not an absolute one).Along with the solar panels not made here or there, we are killing part of our own climate push, and one that actually makes some sense.In the process, we are also losing out on specialized roofers to install the tiles, batteries needed to store the energy etc.Oranges and the SunIn his petition, Bastiat wrote about oranges and the sun.

If an orange from Lisbon sells for half the price of an orange from Paris, it is because the natural heat of the sun, which is, of course, free of charge, does for the former what the latter owes to artificial heating, which necessarily has to be paid for in the market.

How can French labour withstand the competition of foreign labour when the former has to do all the work, whereas the latter has to do only half, the sun taking care of the rest?

Those paragraphs apply not only to solar panels but the sugar lobby, ethanol imports, and everything else, especially cars and batteries.Ethanol is better produced from sugar in Brazil than corn in the US, but Trump and Biden both want the ethanol produced here despite the fact it is environmentally damaging, raises the price of corn and corn-fed animals, and puts small refiners out of business.If China offered us free solar panels we should gladly take them, but we wouldn’t. Instead, we would bitch about getting something for free.We cannot sell our own EVs because they are too expensive. So we block China’s EVs that are much cheaper.Whether you agree with his policy or not, Biden’s goal is to speed up conversion to EVs. Yet, he stupidly blocks imports that might do just that.I do not know how many US consumers would buy China’s BYD, but some would.That would translate to more demand for EV chargers and more EV-related infrastructure at a faster pace. There would be more EVs on the road and more curiosity about them.It would literally speed up everything EV related.But, the UAW does not want that, Biden does not want that, Trump does not want that, Republicans don’t want that, and Democrats don’t want that.Fair Trade and Fair Share go together.It’s only fair to US unions if everything is made here. Otherwise the candlemaker’s union known today as the UAW will bitch about it. And Biden is on the picket line demanding it.In How Many Ways are President Biden and Trump Alike?Yesterday, I also asked In How Many Ways are President Biden and Trump Alike?

More than most care to admit, Trump stands with Biden in many ways. I count 18 similarities. How many can you name?

My #1 point was tariffs: “Trump and Biden are the two biggest protectionists in history. Biden kept all of Trumps tariffs and added to them. Trump recently Leapfrogged Biden proposing a 10 percent tariff on all imports.”Damn It All, Ban Free Stuff and Good DealsDamn cheap EVs. Damn batteries from China. More accurately, damn that sun.Nobody really wants free sun unless it comes with the tag, “Sun Made in the USA by US Unions”.Transitory InflationYield curve at various dates. Data from the New York Fed, chart by Mish.The yield curve went from steeply inverted to nearly flat and is now becoming more steeply inverted. If inflation is transitory, then transitory to what?For discussion, please see Huge Moves in the Yield Curve This Year, What’s Going On?

Regarding the huge inversion between 1 month and five years then strongly steepening: Could it be the bond market smells a short quick recession followed by a big inflation problem coming down the pike?

Due to the rate cut headwinds listed above (inflationary tail winds if you prefer), I question the widespread hopium that the Fed has inflation fixed.Tariffs are one of the reasons I expect a decline in inflation to be transitory. Economic madness is everywhere.More By This Author:Are You Willing To Pay And Do Your “Fair Share” To Address Climate Change?In How Many Ways are President Biden and Trump Alike?We Don’t Need To Fix FDIC, We Need A Genuinely Safe Bank


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