Friday, May 24, 2019

Beware the Man who Doesn't Know What he Doesn't Know.





White House Announces $16 Billion In Aid To Farmers Hurt By China Trade Dispute



 "Sonny" Perdue, chicken farmer, moron and Secretary of agriculture




       Think about the ramifications of this as it exemplifies Trumpian stupidity. Having little or no grasp of economic theory, Trumpo the Clown has precipitated the current crisis being experienced by some American farmers by imposing tariffs on Chinese imports (which is passed on to American consumers in increased prices. What follows is a brief primer on tariffs and why they can be mutually destructive.

         Few Americans, unless they took my APUS History course and have memory for details, are aware that the Civil War might well have started in South Carolina (same place as Fort Sumter, where it did “start”) but in 1832, not 1861. What drove this controversy wasn’t slavery, but economic policy, framed in the Tariff of 1828, called by South Carolinians and most other Southerners the “Tariff of Abominations.”  

       Congress, controlled by Northerners, passed a tariff bill which placed high tariffs on manufactured products from overseas, principally England. This was specifically aimed at increasing the price of finished products (like shoes or furniture or fine fabrics for example) that were actually cheaper to import from England than to transport from the North, principally New England, by adding a tariff to these imports. The South, especially the port of Charleston, along with New Orleans a main import point of entry was outraged. They correctly understood that they, almost exclusively agricultural, with relatively little manufacturing, were being taxed (yeah, a tariff is a tax on imports) to enhance Northern economic competitiveness.

        Complicating this matter was that two particularly aggressive men were POTUS and VPOTUS. Andrew Jackson, from Tennessee, was determined that the tariff would be enforced and was also willing (and said so) to send the US Army south to enforce is collection. Remember, the tariff was imposed on the South Carolinians who imported the products, and passed that cost onto consumers, not on the British shippers. This is important, since Trump maintains that manufacturers (China today) pay the tariffs. This is diametrically wrong and is a rock- solid example of the man’s sheer incompetence.

       The other indomitable force in play was Vice President John C. Calhoun, a South Carolinian who abhorred the tariff. Beginning in 1828, South Carolinians began to speak of “Nullifying” the tariff, that is, simply declaring the Federal law void and unenforceable in South Carolina. This went on for several years, ultimately leading to Calhoun resigning the Vice Presidency and Jackson threatening federal military enforcement. When a modest tariff revision, in 1832, was passed, the reductions were too little for South Carolina.

       In November 1832 the state called for a convention. By a vote of 136 to 26, the convention overwhelmingly adopted an ordinance of nullification. It declared that the tariffs of both 1828 and 1832 were unconstitutional and unenforceable in South Carolina.  Understand, this was a huge Constitutional crisis, revolving around a state disputing and rejecting the concept of the Federal government’s supremacy. The “Nullification Crisis” was resolved with a compromise (reduction in a wide range of tariffs) known as the Tariff of 1833, but tariff policy would continue to be a national political issue between the Democratic Party and the newly emerged Whig Party for the next twenty years.

      It is noteworthy that the federal government derived most of its operating funds from tariffs or excise taxes, which are taxes on domestic products like whiskey, cigarettes, fuels (19 cents per gallon for gasoline today) at this time before income tax. Since 1914, however, the primary source of government operating funds has shifted to other sources (income taxes, primarily) and negative tariff effects in the 20th  century have been highlighted by such retrograde economic faux pas as the Smoot Hawley Tariff of 1930, which instead of correcting the sliding US Economy, plunged it farther into the tailspin which became the Great Depression.

        So today, we have another version, sort of, playing itself out on the national stage. In the years since the Great Depression tariffs have ceased to be the principal source of US operating revenue, and in general, among developed countries, attempts to “protect” one class or industry can, and do, have a Newtonian “equal and opposite reaction” in others. This is what has happened in this instance. Raising taxes on some Chinese industrial exports has resulted in China increasing or imposing tariffs on US agricultural exports, such as wheat and soybeans.

         US farmers, and especially agribusinesses,  are already to great extent the richest welfare babies in the nation with the support of yearly Farm Subsidy Payments. The U.S. government presently pays about $25 billion in cash (that’s 5 “walls” if you’re counting) annually to farmers and owners of farmland. This is in several forms. One is to guarantee the price level of things like corn, wheat, sugar, milk, and several other staple consumables. This is also the exact opposite of the “market economy” Republicans so adore, since it (price controls) makes consumers pay more for food than a competitive market almost surely would. Even more “nanny state” like, the government also offers and underwrites crop “insurance.”  Crop insurance is purchased by agricultural producers, and subsidized by the federal government, to protect against either the loss of their crops due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities. So…the price is guaranteed, and if the market price drops below that level, Insurance makes up the difference! There is almost surely no industry in America as protected as agriculture, and in the main, these main commodities aren’t so much family farms as Conagra, Archer Daniels Midland, Monsanto, Dow-Dupont, and other giant agribusinesses.    

        The real rub here, is that Trump’s tariffs have already cost consumers billions in increased prices, but the Chinese response has been to target mainly agricultural imports. So, what does China do? They buy soybeans and wheat elsewhere. Brazil has stepped right up and become China’s new best friend and soybean supplier. Even if tariffs disappeared tomorrow, why would China go back to the US once a rapport with Brazil has been established? What are US farmers not insured against? Decreased demand and excess production. No Chinese market? Where do the US soybeans and wheat go? How much tofu can the US consume?

        This poorly thought out action has, in truth created a few new jobs in steel and Aluminum production but has fallen far, far short of revitalizing these industries. Trump's one time boast of "6 new steel plants opening" was off by ...6 new steel plants! One recent estimate is that every new job created in these industries has cost millions in offsetting increased prices in other sectors.

        Of course, Trump has another opinion which he has been far less vocal about: In an interview gaffe in 2015 he let his true colors shine:  "We have to become competitive with the world. Our taxes are too high, our wages are too high. Everything is too high. We have to compete with other countries."  So, in Trump world, all we must do to right the economic ship is for working class individuals to take a pay cut, while he lowers taxes on his high roller cronies?  

        At the White House, recently, surrounded by farmers and ranchers, Trump said, "China has taken advantage of the United States for too long and has stolen billions in intellectual property.”  It is important to note that nothing Trump can ever do will correct or undo this last (intellectual property) fact. In fact much of that claim revolves around software and entertainment media. His administration's 25% tariff on products that Americans import from China was, he said,  necessary to "level the playing field," He then made the most egregiously optimistic statement possible, "The $16 billion in funds will help keep our cherished farms thriving and make clear that no country has veto on our economic and national security," Trump said. This assumes we regain those lost markets. With no end in sight and no sign of Chinese capitulation, this means the president just raised already bloated Agricultural freebies by 64%.

We deserve better and brighter, like, say, Liz Warren and Mayor Pete?

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