I noted with a
bit of surprise the other day that the next occupant of the old Obama place in
downtown DC shot off his mouth yet again without seeming
to consider the lunacy of his actions. OK, OK, not really surprised by that ,
it's a daily event, but surprised at the topic and the ignorance demonstrated
by his apparent lack of understanding of
the subject. I missed the question ( or bird fart, or nervous tic) which
precipitated it; but it was in general aimed at German luxury automobile
importers. The statement was a threat to "Slap 'em with a 60% Port Tax."
Now for a bit of (didn't you know I would) education re: terminology.
A "port tax"
is that line item on your cruise ship statement or which is shown elsewhere
when you purchase a ticket which is paid by the cruise line to the government
of the nation in which the port is located. Essentially every nation charges
them, and it adds a bit to the cost of your cruise. Local taxing authorities
may also, in some cases add a small millage rate which remains in the port city
and may be used for maintenance of facilities and in some cases even directed
to other uses, such as schools. However,
in the context Trump used the term, it doesn't mean port tax, a point I doubt he knew at the time he used
the term. What Trump called a port tax is really a tariff, which is a general
tax on imports.
A port tax is
paid, usually by the shipping company, as a sort of fee for service. A tariff
is paid by an importer as a percentage of the value of the imported product. So
is there a current tariff on import cars? Yes, Virginia there is, but it sure
as hell isn't 60% ! The standard tariff for importing cars to the U.S. is 2.5
percent of their value. In simple terms, tariffs are taxes. They're paid to
governments by the businesses that import and export products and are factored
into the prices we pay. This isn't a port tax. Knowing the company der Trump keeps, I can hardly wait to see the chill
caused by the threatened "Port Tax" on the Mercedes which cost $80K
with another $2k in tariff, retailing to the buyer at somewhere in the
neighborhood of $85,000 (dealer's profit, fees, prep, all the usual car dealer
bullshit). If someone allows the orange doughboy to do what he threatened, make that price more like $135,000.
I know, I know,
who gives a shit if rich cats pay more for their car? I do and here's why. Tariffs are a slippery slope, and historically,
have been the cause of wars and trade conflicts worldwide. Tariffs on a
specified country's industrial products as exports almost always generate
retaliatory actions by the country being taxed, since all nations want to keep
the rich happy.
In case you
think me an alarmist, let me propose several scenarios, none of which are all that far from the realm
of possibility:
First: Say the
US actually imposes much higher tariffs
on import vehicles. Some percentage of buyers will eschew that VW or Audi or
Mercedes, Volvo, SAAB, or Jag and buy American. Good, right? Yeah, right up to
the point where the imports are so non-competitive that US manufacturers raise
their own prices. Why? Because they can, since tariffs have priced imports
higher. The average US car buyer would see his car cost more.
Second:
What action might we see from the countries which have been slapped with these
new higher tariffs? Why of course, just as they have since the 1550s, they'll retaliate with higher
tariffs on American products which they import.
The impact of this could be (would be) lower sales and US manufacturers, already
struggling to gain foreign markets in most sectors, would suffer. Either wages would drop, or jobs would be lost.
Third, and
probably beyond the present comprehension of Trump, but please, please, not his
advisors, assuming they can get him to actually listen: In the era when worldwide trade
was largely the domain of northern European nations, wars were fought over who
could export what to where and how much would the tariffs be. Wars were fought
and Africa and parts of Asia were partitioned over this issue. Wars were fought
over who would get to control diamonds, gold, tea, opium, etc. In the modern,
these issues are not as pressing, as most of the world has rejected imperialism.
As true as that is, consider this: at the end
of WWII the US was self sufficient in steel and iron ore and production. Pittsburgh was
booming and US automakers were fabrication cars from US made parts. Neither
statement is applicable now. The same is true of aluminum, as Australia, China,
New Guinea and Brazil are the world leaders, with OZ alone producing 1/3 of the
world's supply. "Make America Great Again" to many who voted Trump,
means (to them, at least), an economy like they remember from the '50s. Ain't
gonna happen. Can't happen.
Additionally,
and even scarier, the rare earths needed for micro-processors and other advanced
electronics are primarily concentrated
in 2 countries - China and Brazil. U.S. manufacturers are now more than 40
percent dependent on imports of many commodity and rare earth metals. For
example, import reliance on gallium is at 94 percent, cobalt and titanium 81
percent, chromium 56 percent, silicon 44 percent and nickel 43 percent. These
minerals are critical for defense and energy technologies and many high-tech
consumer products. Rare earth minerals, such as neodymium, samarium and
dysprosium are crucial in the
manufacture of jet fighter engines, and many other high-tech applications — computers,
cell phones and flat-panel televisions, for example. Additionally, they are
essential to petroleum refining, automotive catalytic converters, wind turbines
and electric vehicles. The Chinese demonstrated in 2007 that cutting off some
of these materials can have a chilling effect on the economy of the target county.
In that case it was just targeted at one specific US petroleum refiner and
barely missed triggering a fuel shortage nationwide. Don't like globalization? Then you better find Marty McFly, Doc Brown, and a Delorean.
Implementing
tariffs on Chinese imports (what isn't?) would have the effect of reducing the
profits of the Chinese manufacturer, who would almost surely increase the price
to recoup. Who pays in the end? American
consumers, especially those Walmart shoppers who love those cheap, Chinese door busters.
Goodbye cheap TVs. Even if the result
was more products made in the US, prices would still be higher. Of course to
keep those new US made products affordable, wages would most probably remain
stagnant.
In summary, the principal victims of a rash
"revenge tariff" such as Trump threatened would be those of us about
whom he cares little anyway, and trust me, the One Percenters don't shop Walmart
or drive Chevies!
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