Tag: free trade

Trump to Rebuild Steel Industry

A new executive order from the God-Emperor 2.0 places 25 percent tariffs on imported steel from all sources.

In Proclamation 9705 of March 8, 2018 (Adjusting Imports of Steel Into the United States), I concurred in the Secretary’s finding that steel articles, as defined in clause 1 of Proclamation 9705 (as amended by clause 8 of Proclamation 9711 of March 22, 2018 (Adjusting Imports of Steel Into the United States)), are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States, and decided to adjust the imports of steel articles by imposing a 25 percent ad valorem tariff on such articles imported from most countries. Proclamation 9705 further stated that any country with which the United States has a security relationship is welcome to discuss alternative ways to address the threatened impairment of the national security caused by imports from that country, and noted that, should the United States and that country arrive at a satisfactory alternative means to address the threat to the national security such that the President determines that imports from that country no longer threaten to impair the national security, I may remove or modify the restriction on steel articles imports from that country and, if necessary, adjust the tariff as it applies to other countries, as the national security interests of the United States require.

This is absolutely necessary if the USA is going to remain even a regional power. Whereas in 1945, the USA produced 72 percent of the world’s steel, it is now producing 4.2 percent of it. Whereas it once produced 229 million metric tons of iron and steel, it now produces only 79.4 million, which isn’t even enough to account for its annual steel consumption of around 100 million metric tons.

At this point the USA cannot even be considered a global military power because it lacks the industrial capacity to fight a war over an extended period of time. The President’s new steel tariffs are in place to allow the USA to begin rebuilding the industrial base that it stupidly abandoned in the post-WWII period.

DISCUSS ON SG

Eliminating De Minimis

The Trump trade tariffs are more sophisticated and even more necessary than they might appear at first glance:

So, Canada and Mexico get 25% tariffs, but China only 10%. Why? The secret is in that subsection “(h)” when it talks about de minimis treatment. Essentially, what President Trump is doing is levying a much more massive import tax, and possible confiscation impact on the core source of fentanyl (and other illegal) substances.

Approximately a billion packages are estimated to enter the USA under the cover of the de minimis exemption. This is where the enforcement mechanism of the “External Revenue Service” combines with the tariff approach and the “state of emergency.” President Trump imposed the tariffs under the International Emergency Economic Powers Act, a nearly 50-year law that gives the president sweeping power to impose sanctions after declaring an emergency.

Now the billion packages, mostly from China, Mexico and Canada are going to be subjected to review and interception.

The de minimis loophole comes from back in the 1930s. The idea back then was, say you went on a vacation to Paris, you shouldn’t have to file customs paperwork or pay taxes if you decided to ship some little Eiffel Tower statues to your friends back home. Congress in 2015 then raised the de minimis threshold from $200 to $800. However, the e-commerce world exploded, and Chinese companies began using the de minimis loophole to ship cheap goods (ex. Temu and Shein) into the USA direct to consumers without paying any customs duty.

It was reported last year that the U.S. was on track to receive a billion packages through the de minimis loophole that aren’t taxed and don’t have customs slips saying what they are. Making matters worse, illegal items are slipping through the cracks, including, knockoffs, unsafe items and even chemicals used to make fentanyl. The worst abuser that exploits this de minimis loophole is, by far, China.

President Trump can require a customs and duty declaration stating what is in every package and subsequently collect tariffs and duties.

Put it all together and President Trump is executing an Emergency Act executive order, plus the imposition of a tariff review, and simultaneous interception of de minimis packages previously unchecked as the enforcement mechanism. All executed by the External Revenue Service.

Increasingly, it is becoming obvious how derelict in their duties the various branches of the US federal government have been in their favoring foreign interests over the national interests of the American people. Nationalism is observably and conclusively the moral position vis-a-vis the corrupt globalist ideology that necessitates dishonesty and favors corruption.

DISCUSS ON SG

From Free Trade to Forced Trade

I sincerely hope this is overheated rhetoric from President Trump, because it strikes me as precisely the sort of attempted bullying from a weak position that has made it clear to the sovereign nations that they are better off not trying to work with or accommodate the USA on the basis of their economic interests:

US President Donald Trump has reiterated his threat to impose 100% tariffs against countries of the BRICS bloc, of which India is a part, if they attempt to replace the US dollar with an alternative currency. “The idea that the BRICS countries are trying to move away from the dollar, while we stand by and watch, is OVER,” Trump said in a post on his social media platform, Truth Social on Friday.

“We are going to require a commitment from these seemingly hostile countries that they will neither create a new BRICS currency, nor back any other currency to replace the mighty US dollar or, they will face 100% tariffs, and should expect to say goodbye to selling into the wonderful US economy,” he stated.

Now, tariffs are to the advantage of the US economy due to its negative balance of trade, so this is certainly the right time to attempt to utilize them in whatever fashion is most advantageous. But risking having the USA off from most of the rest of the world in order to maintain the ability to keep issuing more and more debt is neither advantageous nor wise.

On the positive side, no matter how this plays out, it should nail a wooden stake right through the heart of the free trade charlatans.

DISCUSS ON SG

The US Can’t Win a War with China

But it can certainly win a trade war. It appears the Chinese Foreign Ministry’s spokeswoman hasn’t done the relevant math.

AFP: US President Donald Trump in an interview with Fox News said he would prefer not to have to impose tariffs on China, but that tariffs were a tremendous power over China. Does the Foreign Ministry have a comment on this?

Mao Ning: We made clear our position on this issue more than once. Trade and economic cooperation between China and the US is mutually beneficial. Differences and frictions need to be handled through dialogue and consultation. Trade and tariff wars have no winners and are in the interest of no one, still less the world.

The annual US trade deficit with China for 2024 was $270.4 billion. US GDP for 2023 was $27.7 trillion. An end to all trade with China would cause the US economy to grow at least 1 percent, to $28 trillion. When the (X-M) component of GDP is negative, the more obstacles to trade, the more the economy grows.

DISCUSS ON SG

Mailvox: A Bad Case Against Free Trade

I was asked to consider Paul Craig Roberts’s case against free trade, which he describes as follows:

In 2004 NY Democrat Senator Chuck Schumer and I opened a New Year with a jointly authored column in the New York Times. We raised the offshoring issue. American manufacturing jobs and the tech jobs of American professionals were being sent to Asia. We posed the question that if jobs offshoring was free trade, as economists claimed, was free trade any longer in America’s interest? My position was that jobs offshoring is a contradiction of free trade–more later–and Schumer was still in his idealistic period when he was concerned about the displacement of American labor by foreign labor in the production of goods and services that Americans consumed.

Our article caused a firestorm. The Brookings Institution in Washington called a conference and asked us to come and defend our position. C-Span broadcast the conference live and rebroadcast it a number of times. Schumer and I carried the day.

Delighted with the publicity, Schumer suggested a follow-up article. The NY Times was eager. We began a draft, and then it went cold. My explanation is that Wall Street, which was committed to jobs offshoring, got to Schumer and explained campaign contributions to him.

I continued on. Conservatives, free market economists, and libertarians, who are indoctrinated with free trade, but who do not comprehend the theory, called me a heretic. Nevertheless, both the Wall Street Journal and the Washington Post were intrigued that the “most ardent” of the “Reagan policymakers” had taken a position against the policy that Wall Street was imposing on the country.

The Wall Street Journal assigned Timothy Aeppel to arrange a series of debates to be published in the Wall Street Journal between me and Columbia University Professor Jagdish Bhagwati. The question was: Is jobs offshoring really free trade?

Adam Smith and David Ricardo’s theory of free trade rests on the principle of comparative advantage. What this means is that a country’s capital remains employed at home and is employed in areas in which the capital is best used. If all countries do this, there are gains from trade, and all countries will be better off than if they are self-sufficient. I have wondered if the free trade theory was used as a stratagem to repeal the British Corn Laws and reduce the income and power of the landed aristocracy.

Both Smith and Ricardo made it completely clear that if a country’s capital left the country, it was pursuing absolute advantage, not comparative advantage, and free trade theory is vitiated. This is the point I made. Without comparative advantage, there is no case for free trade.

This is trivial and irrelevant Econ 103-level criticism of free trade. No one has ever denied it, and it permits the discussion to be transformed from “is free trade good for the nation” to “is the current situation one in which absolute advantage or comparative advantage applies”.

Political matters are intrinsically rhetorical, so building a circumstantial case on what most people will see as a minor technical point is never going to be very convincing. It’s no surprise that despite the fact that he and Schumer “carried the day”, they ended up completely losing the political battle.

The point is not that “free trade is sometimes bad”, the point is that free trade is bad even in the case of comparative advantage that supposedly provides for mutual benefit, but destroys both nations in the process.

And yes, the free trade theory was never more than an excuse to repeal the Corn Laws. Ricardo was an an investor and politician, not an economist, and the arguments he presented were dishonest, incomplete, and wrong, which is why Joseph Schumpeter labled the structure of Ricardo’s arguments “the Ricardian vice”.

DISCUSS ON SG

Free Trade is Economic Heroin

In all the many defenses of Free Trade going back to David Ricardo and his fatally-flawed concept of Comparative Advantage, and in all of the critiques going back to the 18th century mercantilists, one of the issues that no one either side of the economic issue ever seems to discuss is the inherent fragility of free trade and the way in which that fragility is imposed upon the economies of nations foolish enough to adopt a free trade policy.

I’ve already laid out, in statistically-significant detail, the proof of the total incompatibility of free trade with nationhood, in my Efficiency of Labor Mobility critique of free trade. But the scale and scope of that argument, combined with its requirement to have a basic grasp of neo-Keynesian economic theory, has proven to be well beyond the average individual and the average free trade economist alike. Lest you think I exaggerate, the total inability of the author of an introductory textbook on Austrian Economics to understand the critique, let alone formulate a response to it, really has to be read in order to be believed.

But the European Union’s successful attempt to force the Hungarian government to approve its economic aid package for Ukraine demonstrates another fundamental problem with free trade that even the average heroin addict is able to comprehend. It goes well beyond the obvious problem that many have previously observed with the regards to the way in which free trade can result in needing to buy weapons and raw materials from a trading partner with whom one is at war.

Several EU heads of state directly told Hungarian Prime Minister Viktor Orban that they would crash the Hungarian economy if he blocked a €50 billion ($54 billion) economic aid package for Ukraine, his adviser, Balazs Orban, has revealed.

EU leaders signed off on the mammoth four-year aid package earlier this month, after the Hungarian leader lifted his veto in exchange for some minor concessions from the bloc’s 26 other member states. These concessions included an annual debate on its implementation and a promise to review its impact on the EU budget after two years.

Before the package was approved, the Financial Times reported that the European Council had drawn up a plan to cut funding to Budapest and tank the Hungarian economy if Budapest maintained its veto. According to the Financial Times, the EU planned on pulling funding from Hungary, thereby hampering its ability to subsidize foreign direct investment and eventually crashing the value of the Hungarian forint.

EU leaders threatened to ‘politically rape’ us – Hungary, RUSSIA TODAY, 10 February 2024

In other words, since the Hungarian government foolishly permitted itself to become dependent upon the transfer of free money created ex nihilo by German banks, it now no longer has the ability to establish its own policies in the interest of the citizens of Hungary. Hungary might as well be a heroin addict attempting to defy the wishes of his heroin dealer.

This illustrates both the anti-democratic nature of free trade and usefully explains why Clown World is so hell-bent on imposing free trade policies everywhere from Azerbaijan to Zambia. Once Clown World can get a nation hooked on its destructive economic drug, it can literally dictate that nation’s policy. Only going clean, like Russia was inadvertently forced to do by the sanctions regime enforced by the West, can free an economy from the external chains and intrinsic fragility imposed by free trade.

Free trade is economic heroin for a nation. It might make things feel good for a while, but it’s very bad for your health and will eventually kill you if you don’t get off of it.

DISCUSS ON SG

Trump’s Trade War 2.0

Contra economists from both the Democratic and Republican parties, a trade war in 2025 would be a very, very good thing for the US economy:

Former US President Donald Trump has told advisers he wants to impose a 60% tariff on all imports from China if he wins this year’s election, the Washington Post reported on Saturday, citing three unnamed people familiar with the plan. The measure would trigger major disruptions to the US and to economies around the world, which would far exceed the impact of the trade wars initiated by Trump during his first presidential term, economists from both the Democratic and Republican parties told the newspaper.

During his current presidential campaign, Trump has pledged to revoke China’s status as a “most favored nation” for trade. The designation is applied to almost all nations that do business with the US, and the White House can introduce any tariffs on imported goods from countries that do not have it. According to the GOP front-runner, tariffs on foreign goods raise vital revenue for the US budget, and current import levies are among the world’s lowest.

China ranks third in the list of US trading partners, behind Mexico and Canada. In November, Beijing accounted for 11.7% of total US foreign trade.

As I pointed out six years ago on Chinese state television, a trade war is very much to the advantage of the United States economy. The net effect of the Western sanctions regime on the Russian economy only serves to underline my original point: a trade war is, by definition, always beneficial to the trading party that has a negative trade balance. And the USA has a massive trade deficit vis-a-vis China. Unlike a naval war in the Pacific, an air war in the Middle East, or worse, a ground war in Europe, this is one war that the USA literally cannot lose.

The reason the Russian economy didn’t suffer from the trade war the West imposed upon it despite having a trade surplus is because the West is now actually the smaller of the two global markets by a significant margin, both in terms of population and purchasing power parity. What Russia lost in Western trade, it more than gained in trade with the BRICSIA countries. And from the defense manufacturers to fast food chains, Russia’s industries benefited massively from the protection from Western imports that was inadvertently provided by the sanctions regime.

As recent history has demonstrated, the Clown World economists are totally wrong, even by their own Samuelsonian metrics.

DISCUSS ON SG

Questionable Sushi

China suspended all imports of Japanese fish after the Japanese government permitted the release of more than one million metric tons of treated radioactive waste water from the destroyed Fukushima nuclear plant into the sea.

Chinese seafood imports from Japan have plummeted following Beijing’s ban on marine products from its neighbour in response to the discharge of wastewater from the Fukushima Daiichi nuclear power plant. Imports fell by 67% in August from the same month a year earlier, to about ¥3bn ($20.2m), the public broadcaster NHK said, citing data from Chinese customs. The decision by Beijing and Hong Kong to suspend all imports of Japanese marine products in late August has sparked a diplomatic row and a rise in anti-Japanese sentiment in China.

Maybe, just maybe, they had reason…

Thousands of tons of dead sardines, mackerel wash ashore in northern Japan.

Mystery surrounds the phenomenon of tons of dead fish that were washed up on a beach in northern Japan last week. Sardines and mackerel were washed ashore in Hakodate on Japan’s northernmost main island of Hokkaido on Thursday morning, creating an unsettling sliver blanket that covered almost a mile of shoreline.

Marine biologists have concluded that a lack of oxygen in the water may have killed the fish. The first theory is that the fish were being hunted by predators and were herded into the shallow bay by the village of Toi, where the huge numbers of fish quickly consumed all the available oxygen in the water.

An alternative explanation is that the fish encountered a sudden pocket of significantly colder water on their migration route, which weakened them.

It is, indeed, a mystery.

DISCUSS ON SG

The Red Terror of Free Trade

French wine terrorists are attacking and destroying Spanish wine trucks.

French winemakers quite literally painted the town red today when they intercepted trucks carrying cheap Spanish booze and smashed crate-loads of it all over the road. 

Le Boulou tollbooth, just ten miles from France’s border with Spain, was turned into a battleground this morning when dozens of protesting winemakers halted lorries and tore into their contents. They destroyed several wine shipments, smashing the bottles and pouring the red booze all over the tarmac in a vintage demonstration of the French public’s penchant for demonstrating against perceived injustices.

In videos posted on X, protesters can be seen tumbling over a mountain of crates carrying Freixenet wine. Many of the crates had been upended so their valued contents spilled out across the road. Bottles upon bottles of bubbly were seen rolling around amid a sea of broken glass and wasted booze.

What sort of world are we living in, that outrages such as these are allowed to happen! I blame teetotal immigrants and beer-swilling peasants. Thank Bacchus that they didn’t interrupt the Torres trucks!

Figures from the European Commission say wine consumption for the current year is estimated to have fallen 15 per cent in France, 7 per cent in Italy, 10 per cent in Spain, and a staggering 34 per cent in Portugal. However, production in the EU has risen by 4 per cent.

There is the real problem. Now do your patriotic duty, Frenchmen! Stand by your vines, Spaniards! Have a second glass at lunch, all you Portuguese! European civilization depends upon you!

I will do my part.

DISCUSS ON SG

Losing Their Free Trade Religion

The Tree of Woe contemplates the fallacies of free trade:

Fletcher’s assault on Fortress Free Trade consists of five interlocking theoretical arguments and one empirical argument. He begins by undermining the assumptions at the foundation of Ricardian free trade theory.

Labor and Capital are Mobile. Go back and re-read the examples above. Did you notice what was excluded from the hypothetical? The movement of capital and labor. That’s because Ricardian free trade theory simply assumes as given that labor and capital are immobile. All competition is via industry or product.

But this is not the case nowadays. Nowadays both labor and capital can move. The result of that is that investment capital and labor pursue absolute, rather than comparative, advantage. And with capital and labor mobility, absolute advantage trumps and gains from trade evaporate.

Let’s imagine that the advantage that accrues to British labor is due to better capital investment: each man-hour of labor is more productive in Britain because it has better factories. Let’s also imagine that Britain and Portugal have foolishly agreed to enter some sort of “union” which allowed their workers to work and live in either country. Labor is now mobile so each worker can move where the best jobs are available. Since labor wages tend to increase when productivity increases, the Portuguese workers will realize they can earn more and tend to move to Britain. The outcome is not happy Portuguese vineyard workers, but Portuguese immigrants trying to get jobs in British wool and wine factories.2

Now let’s imagine that the advantage that accrues to British labor is due to the fact that hourly wages are lower and working hours longer than in Portugal. The factories are equally the same, but you can get 60 hours of British labor for the cost of 35 hours of Portuguese labor. Let’s also imagine that Britain and Portugal have deepened their union such that financial investments can flow freely between the countries. Obviously, what happens is that the Portuguese investors invest their capital in Great Britain, where they can take advantage of the cheap labor. Many high-paying Portuguese jobs vanish as the capital flight causes the factories to shutter. This is, of course, exactly what has happened between the US and China.

Capital is Not Fungible. Go back and re-read the examples again. Did you notice that I said “each has enough factories to let 500 workers work in each industry” initially, but that when they began trading, “each specialize in the area where they have absolute advantage, changing their factories to the new type they need.” I didn’t allocate any cost to this switch — there was no depreciation of the old factories, no loss of investment, no scrap metal yards filled with wool-spinning machines the Portuguese no longer need, etc. Ricardian free trade theory just assumes that capital is fungible – an investment into wool factories is convertible into an investment into wine factories.

In the real world, we know this is not true. If it were true, the entire globe wouldn’t be fixated on Taiwan’s chip manufacturing factories. Capital is very much not fungible. To the extent that capital is not fungible, it means there are deadweight costs to free trade, in the form of shuttered factories, depreciated machines, and so on, that Ricardian theory does not take into account.

An orthodox Ricardian will reply to this criticism by asserting that in the long run capital is fungible and that the long term gains from trade will more than make up for the short-run costs. This argument will be accompanied by a complex econometric paper that uses 10 pages of math written in Greek symbols that says exactly the same thing as I just said in one sentence.

Not so fast, mathemagicians. Fletcher has another howitzer to fire at Fortress Free Trade, and it demonstrates why the infungibility of capital is a much bigger deal than the orthodoxy wants to admit.

Read the whole thing, particularly if you don’t fully understand why free trade doesn’t work. My Free Trade Efficiency and Labor Mobility critique is mentioned, but nothing more since it isn’t actually relevant to Fletcher’s critique of David Ricardo’s theory of comparative advantage. However, I do think it would be easier for people to understand if someone else were to explain it, as most people don’t appear to understand the real consequences if free trade were to actually work as advertised.

DISCUSS ON SG