Do you know why the Smoot-Hawley Tariff Act of 1930 was named as such? It’s because it was legislation named after two congressional sponsors. It was not a good piece of legislation, as it likely contributed to the Great Depression, but at least it was legislation.
Herbert Hoover, as president, had to sign the legislation for it to pass. He didn’t arbitrarily dictate it to everyone. At least it gave some notice and predictability to businesses.
All Taxes are Bad
All taxes are evil, but some are definitely more evil than others. If a society is going to have some form of forced taxation, then it is best for the taxes to be small, proportional, maintain privacy, and minimize the disincentive to produce and build wealth.
Excise taxes tend to be less bad because they minimize on infringing on our privacy, and they minimize disincentivizing productivity. Some are more fair than others.
If you have a gas tax that pays for the roads, that seems to be a rather fair way to go about it. Now we have electric cars that don’t use gas, so it isn’t taxing the users as fairly as in the past.
Some people see tariffs as a good form of taxation. It is a tax on imports. I hear some Republicans justifying Trump’s tariffs by saying that it would be great if they could replace the income tax.
Guess what? Trump isn’t getting rid of the income tax. He can dictate higher tariffs, but he can’t dictate an end to the income tax. Anyway, he doesn’t want to end the income tax because he needs the money to fund his massive budgets.
It’s not as if Trump is pushing to end the income tax at the same time he is imposing higher tariffs. In fact, Trump isn’t even pushing for any of his campaign promises to stop taxing Social Security and no taxes on tips.
It’s not even clear if Trump is imposing higher tariffs in order to collect more money for the government. He sees it as some kind of power trip to order other countries around.
The Excuse Factory
With Trump’s tariffs and a wild stock market, we get to hear the Republican talking points come out trying to justify it.
“He is using it for leverage.”
“He is trying to bring back manufacturing.”
“China is refusing to negotiate.”
“Other countries are manipulating us.”
It is all a bunch of collectivist thinking and bad economics.
Why does China have to negotiate with Trump? Just because Trump said so? Why can’t Trump just allow Americans to choose whether or not to voluntarily buy things from China?
For manufacturing, I don’t think most Americans really do want to bring it back. How many Americans really want to work in a factory or some kind of manufacturing plant? I don’t. If there are people in China who want to work in factories and sell us things we want, why wouldn’t we let them?
This whole thing about manipulation and fair trade is a joke. The Federal Reserve is the biggest currency manipulator in the world.
If you really want to help businesses in America, then start reducing spending, reducing taxes, and cutting all of the red tape.
How Can a Business Plan Properly?
Imagine trying to operate a business in this environment. The costs of imports are fluctuating constantly as new tariff announcements are made.
Even companies who manufacture products in the U.S. often import materials. This would include American car companies.
Imagine being the head of a construction company. A client comes to you and says they want a quote on adding additional space on their building this summer. In order to do the job, you will need quite a bit of lumber.
The lumber you will need cost $5,000 last week. Next week it may cost $8,000 because of higher tariffs. Maybe Trump will announce a reprieve for 90 days and you can get your lumber for $6,000.
If you quote a higher price than you would have before all of these new tariffs, the client might just say no. If you quote a price assuming lumber will go back down to $5,000 but it ends up being $8,000, then you risk not making much profit on the job.
Now picture this scenario with tens of thousands of businesses and millions of people. It is complete craziness. It is impossible to predict or properly plan when your prices can arbitrarily go up or down depending on the mood of the president.
Feedback Mechanism
There is one good thing about this tariff disaster. There is a fast feedback mechanism in the form of the stock market. When higher tariffs are announced, stocks tank. When there are signs that there will be tariff relief, stocks go up.
Trump announced today that he would be suspending much of the tariffs for 90 days while imposing 125% tariffs on China. If these China tariffs stay in place, prices for many consumer goods are going to go a lot higher.
I told someone that I feel better about these tariffs than I did about the vaccine mandates from Joe Biden and company. With the tariffs, there is instant feedback, and the majority of Americans don’t want to see their stocks crash and prices increase. With the vaccine mandates, there were probably only 25% or so who were adamantly opposed to them. It was definitely a tougher battle.
Trump has already gotten the message. Now he is trying to find a way to backtrack on it. The recession will probably happen anyway, but now his tariffs will just get more of the blame, even if he cuts them back permanently.
Elon Musk attacked Peter Navarro, Trump’s economic advisor. Musk said Navarro is dumber than a sack of bricks. Musk understands that these tariffs are bad for business. We just don’t know if he still has influence on Trump.
I wonder if Elon Musk realizes that DOGE is almost dead. There will be no cut in federal spending of $1 trillion. The budget is going up. Trump is celebrating the first trillion-dollar “defense” budget.
The good news is that these high tariffs probably won’t stick for long unless Trump is trying to go down as the least popular president ever. The bad news is that we will still get a recession. The other bad news is that we are back to business as usual in Washington DC: militarism and massive spending.