Tariffs On Washing Machines Coming Up; Mish Rages "Let's Tax The Sun And The Rain Too"

Authored by Mike Shedlock via MishTalk.com,

Whirpool bitched to the Trump administration and the International Trade Commission about unfair pricing on Samsung and LG-brand washing machines.

The ITC panel ruled U.S. washing machine makers hurt by South Korean imports, so your price is guaranteed to go up.

The U.S. International Trade Commission on Thursday found that imports of large residential washing machines were harming domestic producers, in a major step the imposition of duties or quotas on foreign-made Samsung- and LG-brand washers.

The case, brought by U.S. appliance giant Whirlpool Corp, asked the ITC to recommend to President Donald Trump “global safeguard” restrictions on imported washing machines to stop South Korean rivals Samsung Electronics Co Ltd and LG Electronics Inc from flooding the U.S. market with cheap washers.

The commission, which voted 4-0 in finding that large residential washers were being imported in such quantities to create injury to domestic producers, will recommend remedies by Dec. 4 to Trump, who is expected to make a final decision by early next year.

Crony Capitalism

The ITC ruling will not save a single US job. But it will drive up costs on US consumers.

When corporations cannot compete, they bitch. They also pad the pockets of politicians so the politicians see things their way.

French economist Frédéric Bastiat wrote about this in 1845. I encourage everyone to read Bastiat’s famous Candlestick makers’ Petition.

The petition was a sarcastic proposal on behalf of candle makers and similar occupations to tax the sun for the unfair practice of providing free light.

Were it not for the sun, there would be more jobs for the manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting says Bastiat in his petition.

Let’s Tax the Sun and the Rain

Bastiat’s petition explains the folly of tariffs. Samsung is no more stealing jobs than is the sun.

Speaking of which, the US has massive sugar tariffs to protect the sugar lobby from “unfair competition” from countries that happen to have better-growing conditions for sugar cane because they get more sunlight and water.

Hmm. It seems we need to tax water for falling into Lake Superior and Lake Michigan instead of the desert where’s it’s badly needed.

Why should Illinois farmers get more rain than Arizona farmers? By tariff logic, we need to level out the playing field so that all corn farmers in Arizona and Greenland are not disadvantaged compared to Illinois.

Related Articles

1. Reflections and Reader Comments on Free Trade: “China Doesn’t Play Fair!”


2. Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?


3. Trump Accuses Germany of “Currency Exploitation”: Merkel vs. Trump, Is Either Side Telling the Truth?


4. Navarro Nonsense and the Folly of Trump’s Proposed Tariffs

All this talk of “fair trade” is complete nonsense. The only “fair trade” is free trade.

Those who wish to understand the true source of escalating trade imbalances need look no further than Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold’s Honest Discipline Revisited.

The Broken State Fallacy - "No, Hurricanes Are Not Good For The Economy"

Authored by Caroline Baum via MarketWatch.com,

Yes, GDP may get a temporary boost from rebuilding, but there’s nothing positive about destruction

Once the immediate danger of a natural disaster subsides, and the loss of life, property damage, cost of rebuilding, and degree of insurance coverage can be assessed, attention generally turns to the economic effect. How will Hurricane Harvey affect the nation’s gross domestic product?

You will no doubt hear assertions that the rebuilding effort will provide a boost to contractors, manufacturers and GDP in general. But before these claims turn into predictable nonsense about all the good that comes from natural disasters, I thought it might be useful to provide some context for these sorts of events.

The destruction wrought by a hurricane and flooding qualifies as a negative supply shock. Normal production and distribution channels are destroyed or disrupted. Producers have to find less-efficient (i.e. more expensive) ways to transport their goods. The net effect is lost output and income, and higher prices.

Over the years, I’ve observed a tendency among economists and traders to view such events through a demand-side prism. They see lost income translating into reduced spending on goods and services, which might even warrant some largesse from the central bank.

Of course, that is precisely the wrong medicine. Supply shocks reduce output and raise prices. The Federal Reserve’s interest-rate medicine affects demand. Lower interest rates will increase the demand for gasoline, among other goods and services, but they have no effect on supply. An easing of monetary policy under such circumstances would increase demand for already curtailed supply, raising prices even more.

But wait. What about all the new construction and investment necessitated by the devastation? Homeowners will have to rebuild. Businesses will have to replace destroyed or damaged plants and equipment. Pretty soon, we should start to hear about a boost to GDP growth.

In the short run, yes. But focus on the prefix, “re,” as in re-building and re-placing. After a natural disaster, housing starts are bound to increase, but there will be no net addition to the supply of homes. Capital spending will increase as well, but it will not expand the nation’s capital stock.

Economics is about the allocation of scarce resources. A natural disaster commandeers those scarce resources in an effort to return to the status quo ante. Any boost to quarterly GDP from an increase in residential and non-residential fixed investment is an arithmetic expression of current activity, not a reflection of the wealth of a nation.

The one redeeming virtue of a natural disaster is that provides an opportunity to revisit a classic essay by the 19th century French political economist, : “That Which Is Seen and That Which Is Unseen.”

In Chapter I, “The Broken Window,” Bastiat relates the story of a shopkeeper, whose son accidentally breaks a store window. The shopkeeper has to pay six francs to the glazier to replace it. The glazier now has six francs to spend on something else. And so on. Behold all the spending that emanates from a broken window!

What is unseen is what the shopkeeper would have done with the six francs if he didn’t have to replace the window. “In short, he would have employed his six francs in some way, which this accident has prevented,” Bastiat writes.

The parable, or fallacy, of the broken window has applications elsewhere, even if no window has been broken.

Take the belief that government spending stimulates the economy, based on the notion that $1 of government spending provides the resources for someone else’s spending: something known as the multiplier effect.

If the government borrows from A to give to B, it constitutes a transfer of resources, not stimulus. (Fiscal policy gets its bang for the buck from monetary policy, or an expansion in the money supply.) A dollar spent by the government can’t be spent by the private sector. During a severe downturn or depression, when the private sector isn’t spending, government spending as short-term stimulus may be justified. But, as per Bastiat, we can’t ignore that which is unseen, or what would have happened in the absence of government co-opting savings to spend.

Estimates of the effect of fiscal stimulus are all over the map, according to a review of the financial literature by Veronique de Rugy and Matthew Mitchell, senior research fellows at George Mason University’s Mercatus Center. The estimates of the government spending multiplier range from +3.7 to -2.88. In other words, a $1 increase in government spending produces $2.70 of private-sector growth, or displaces $3.88 of private growth, or anything in between, depending on economic conditions at the time and how the money is spent.

Discussions about the merits of fiscal stimulus are generally clouded by political bias, with liberals finding huge benefits and conservatives pointing to steep costs. The cost-benefit analysis of hurricanes, on the other hand, should pose no such hurdle.

I found enlightenment back in 1992, as Hurricane Andrew was sweeping the coast of Florida. I turned on the TV to hear a business news anchor proclaim that this Category 5 hurricane would be “great news for GDP” going forward. My reaction and response to his comment proved to be one of my more memorable laugh lines when I spoke to audiences on the subject of economic nonsense.

If natural disasters are such a good deal for the economy, I said, why wait for Acts of God to come along? Why not nuke our own cities so that we can rebuild and reap the benefits?

Trump & The Candlemakers' Petition

Authored by Jeff Thomas via InterernationalMan.com,

French economist Frédéric Bastiat was a man far ahead of his time. He was a “classical liberal,” which today would identify him as a libertarian. He expanded upon the free-market argument set forth by Adam Smith in 1776.

In 1845, the French government levied protective tariffs on scores of items, from sewing needles to locomotives. The intent was to protect French industries from companies outside France that could produce the goods more cheaply.

The reaction from Mister Bastiat was to publish “The Candlemakers’ Petition,” a satirical proposal to the government that was intended to help them see the nonsense of protective tariffs.

The petition was presented as having been sent by “the Manufacturers of Candles, Tapers, Lanterns, Sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.”  

Their plea to the Chamber of Deputies was that the government pass a law “requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds—in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses.”

Mister Bastiat’s satirical petition did an exemplary job of exposing the tendency of governments to pander to special interest groups to the detriment of everyone else.

Throughout the ages, protective tariffs have been created for this purpose and, historically, they work only briefly, if at all.

In 1930, the US introduced the Smoot-Hawley Tariff Act, which raised tariffs on over 20,000 imported goods. Not surprisingly, the source countries for those goods retaliated by passing their own tariffs against the importation of American goods.

The net effect, in addition to the new laws cancelling each other out, was that free trade took a major hit. Consumers in all countries affected had less access to a variety of goods, and the GDP of each nation suffered as overseas orders dried up.

Of course, the justification for Smoot-Hawley was that the US had suffered a stock market crash and the demand to protect surviving businesses was considerable. It’s not surprising, then, that whenever a given country finds itself in an economic squeeze, industry leaders shout “foul!” and governments appease them with tariffs.

Again, not surprisingly, we observe the tariff question rearing its ugly head today, most visibly in the US, where new President Donald Trump has vowed to place tariffs on a number of countries, most notably on Mexico (20%) and China (a whopping 45%).

As is always the case when a government declares it will create a dramatic tariff, those who impose it look no further than the immediate effect—that of limiting importing goods to protect domestic industry. The immediate secondary effect is that goods from those countries suddenly become far more expensive, and domestic industry is either unable to produce the goods at all, or at best, it must do so at a much higher price.

At present, Chinese goods amount to 19% of American imports and Mexican goods amount to 12%. With nearly a third of all goods purchased by Americans during a difficult economic period increasing dramatically in price, the impact to the cost of living can be expected to be substantial. If the tariffs are extended to other jurisdictions, as in 1930, a few domestic industries would enjoy a brief period of benefit, but the population (and eventually all industry, through knock-on effects) would be heavily impacted.

So, why on earth are political leaders so quick to impose tariffs? Well, don’t forget: Tariffs are paid to the government. Any government that’s facing revenue problems will be tempted to go for a quick injection of revenue, even if it will ultimately be destructive. Regardless of how much damage tariffs do to the people of a country, tariff revenue is like manna from heaven for governments.

Of course, the revenue source tends to dry up before long as, ultimately, tariffs are destructive to free trade. Most tariffs are either abolished or at least lowered at some point. In the meantime, they’re like plaque in a body’s arteries, creating a sclerotic effect on the economy. Invariably, they’re a heavy price for a country to pay for a brief period of additional revenue that political leaders may squander.

But, understandably, the temptation is great for any government and, since memories tend to be short, governments can serially con the public into another round of protectionism every generation or so.

Returning once again to Mister Bastiat’s satirical petition, his final paragraph stated,

Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!

On the surface, tariffs sound like a good idea, but in reality, they’re veritable icebergs of economic destruction. Two principles should always be considered when musing on a tariff:

1. 
   

   Tariffs (protectionism) never benefit a nation. They do, however, often increase the revenue received by the imposing government.

   
   


2. 
   

   The more a people pay for products, the lower their standard of living.

   
   

It’s hard to overstate how much US consumers rely on cheap goods from countries like China and Mexico. But even without the Trump tariffs, many can already feel their once nice standard of living slipping away.

That’s because the US is on the cusp of an unprecedented economic storm—and we’re already feeling the raindrops.

*  *  *

New York Times best-selling author Doug Casey and his team put together this groundbreaking video showing you how to build a financial shelter to protect yourself and your family. Click here to watch it now.