CORK, IRELAND – The U.S. president gave his assessment of the situation on Tuesday night.
No mention was made of the fact that the country is going broke…
…or that rising interest rates threaten the fake-money system…
…or that tax cuts, along with additional military, infrastructure, and entitlement spending, will surely bring on a financial calamity…
…or that his protectionist trade policies will raise consumer prices, drive up interest rates even further, and depress output.
Trade War
Spoiled for choice, today, let us look more closely at trade restrictions.
“The president’s action makes clear again that the Trump administration will always defend American workers, farmers, ranchers, and businesses,” said U.S. Trade Representative Robert Lighthizer last week.
“Trade wars are fought every single day,” added Secretary of Commerce Wilbur Ross in Davos.
The action to which Mr. Lighthizer referred was the president’s bold attack – hitting foreign-made washing machines, refrigerators, and solar panels with tariffs and import duties.
Left to their own devices, sellers and buyers are never at war. Instead, they always cooperate on win-win deals.
Both expect to come out ahead… or they wouldn’t do the deals. And since they generally do come out ahead, the economy comes out ahead, too.
The baker bakes better bread than the plumber. The plumber’s connections leak less often. Trading with each other, they both end up with more of what they want than they would have otherwise had.
Restraining trade with tariffs and regulations, on the other hand, produces winners and losers… and makes society poorer.
Winners and Losers
As to the winners from the latest trade barriers, there was one obvious one: U.S. home appliance company Whirlpool…
…whose lobbyists had urged the president to act…
…and whose stock rose 3% immediately following Mr. Lighthizer’s announcement.
There are also the solar panel manufacturers, Sunrun and First Solar… and their lobbyists… who benefit from the additional burden on their competitors.
Less clear was what or whom the Trump administration was defending farmers, businesses, et al., against.
Who were the losers?
That is the dot we hope to connect today.
Unfair Competition?
Whirlpool Corporation lists 28,000 U.S.-based workers.
A few thousand of them make washing machines, fridges, and other home appliances.
But hundreds of millions of Americans use washing machines and fridges. So while Whirlpool shareholders, workers, and company honchos win, consumers lose.
Consumers buy their home appliances on the open market, seeking the best quality at the lowest price. Now, they will pay more… as the feds impose import duties as high as 50%.
But wait, doesn’t Whirlpool face “unfair competition”?
Free competition reveals the best deal… and directs sales and profits (if there are any) to the most efficient producer.
The one who gives the most washing machine per dollar gets the most business. That is the only real measure of “fair” trade.
Unfree competition, on the other hand, directs sales and profits to the political favorite.
But here we add a “trigger warning”: Here comes the BS!
“The foreigners manipulate their currencies. There’s an overcapacity in the washing machine sector. Foreign firms pay lower taxes. Foreigners don’t buy our washing machines. Foreigners don’t pay workers enough. Foreigners don’t have the same environmental protections, zoning restrictions, or LGBT sensitivities. Foreigners allow children to work… and don’t give you a gluten-free meal selection.”
“Unfair competition,” allege the trade warriors.
Trade Bullies
But countries do not buy washing machines; individual consumers buy washing machines.
They use their judgement, prejudices, and delusions to choose the one that gives them the best deal. As The Black Swan author Nassim Taleb says, they have “skin in the game.”
It’s their time… their money… and their clothes that are at stake. If alleged “currency manipulation” – whatever that is – matters to them, they are free to take it into consideration.
The trade bullies have no skin in the game. They don’t care if you have less choice… pay more… and get an inferior deal.
They can say whatever BS they want… and pimp themselves up by claiming to represent the “workers” and “businesses” while pretending that only they know what deal is “fair.”
But what they are really doing is what governments always do: exploiting the many for the benefit of the few.
A letter addressed to the Diary from a dear reader in Australia tells us that the price of hooking up solar power Down Under is only half of what it is in the U.S.
The writer attributed this difference to heavier regulation in the U.S., sharply reducing the benefit of solar power.
And now, with new costs imposed on foreign-made solar panels, the entire industry – which was expected to be the largest single source of new employment in the U.S. in the next 10 years – is under a cloud.
But shares in U.S. solar panel maker SunPower are up nearly 10% since last Wednesday.
The many pay. The few profit.
Regards,
Bill
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Category: Geopolitics