ICYMI – Exposing Trump’s Tariff Fraud

The last week and a half have been dominated by Trump’s “reciprocal” tariffs. You may recall his charts that showed what they said other countries were charging the US and the lower figure (usually 1/2) that the US was going to charge them.

Except it was all a sham. After some pushback they came up with this equation.

Looks impressive doesn’t it with all those Greek letters. Except it doesn’t have anything to do with tariffs. The equation was cracked by financial journalist James Surowiecki within a few hours and later validated by several other analysts. The equation takes the the US total trade deficit with a given country (Xi – Mi) and divides it by the value of the goods said country exports to the US (Mi).  The other factors were set so they cancel out, and the delta Ti is the supposed tariff rate.

If you happened to be watching The National on CBC the following evening, Andrew Chang (About That) did a very good analysis which is now posted on Youtube. It is worth watching; https://www.youtube.com/watch?v=PWhv-06DNjE

I expected the ridicule to blow across all the major media but the response from world governments has been muted probably because they don’t want to rile the beast. But certainly every government in the world is well aware of the fraud that these tariffs represents.

It is quite true that the US has a trade deficit problem and it’s getting worse, but massive tariffs will not solve the problem and will quite possibly drive the world into a recession including the US itself.

Trade Deficits Explained
Countries do not sell products to other countries – businesses do. Both Canada and the US are free enterprise economies and our free trade arrangement is supposed to mean that businesses on both sides of our border can choose to buy things across the border without tariffs. If an American company can get something cheaper in Canada they are free to do so. the fact that Canada has a trade surplus with the US is simply that a lot of American businesses can get things they need cheaper in Canada – so they buy from us – lots of it. Chalk one up for the good guys.

Trump has often repeated that the US doesn’t need any of our lumber, steel, aluminum, etc. But that’s his problem, they most certainly do – The US cannot produce much of what we have – particularly aluminum and potash – and for the other stuff, we can produce it at lower prices than can be sourced in the US.

Trump’s tariff policy was blindly premised on the idea that other countries would not retaliate or that they could be bullied into submission. It might have been possible if they had been more subtle – but 25% was bound to generate massive pushback and the US can’t win. The world is united against the US except maybe Russia.

The idea that the exporting country would absorb the tariff was a non-starter – perhaps if it had been 2 or 3% but there is no business that can absorb a 25% hit

If the US wants to reduce its trade deficit, tariffs are the wrong approach – Whether they import these things with the tariffs in place or source them domestically at higher prices, prices will go up, inflation will spike and Trump’s popularity (even amongst his base) will drop.

Much of the US trade deficit is with Asian countries where salaries are less than a quarter of those in the US – and that’s hard to compete with. If the US had taken a surgical approach which targeted this imbalance, it might have worked, but targeting all countries, especially their closest neighbours and allies, has just turned the whole world against the US.

The 145% tariff on China was just plain stupid. Tariffs that are that high simply cut off trade. China makes a lot of cheap stuff which fills the shelves of every discount store including the likes of Walmart. Average Americans (and lower) rely on that stuff and when it doubles in price they won’t be able to afford it. Most of it is non-essential impulse buys and simply won’t be purchased – and Walmart (and the American economy) will suffer.

TRUMP – The Grinch that stole Christmas
There was a piece on CNN this weekend about Christmas trees, Christmas lights and other decorations. A large percentage of these come from China and retailers are usually putting in their orders about now. With tariffs at 145% Christmas will be twice as expensive and we know who to blame. Canada won’t be affected.

And now there is a carve out for cell phones, laptop computers and some other electronics. This was almost certainly at the behest of US tech industry executives who are some of Trump’s biggest donors.

What’s next?

Trump and his gang want us to believe that all these flip flops are part of a grand scheme – carefully planned and well orchestrated – yeah sure – and the world is flat.

We are being told that 75 nations have called to get negotiations started – “the phone is ringing off the wall”. FAKE NEWS. We know that Trump and the people around him are good at inventing numbers and almost certainly this is such an example. I’m sure there have been some calls but not many looking to negotiate. His decision to pause the reciprocal tariffs for 90 days came just hours after the EU announced its decision to impose retaliatory tariffs.

Israel which already had low tariffs said they would reduce them to zero and Trump said maybe he would lower his tariff – and maybe not. Then Netanyahu said he would work to eliminate the trade deficit – which is not really a problem for them – all they have to do is pay for a few of those bombs and they’re balanced. The problem with that is that Israel is currently an economic basket case subsidized by the US (even before the war)

The positive side of this is that it can’t last. The pushback is already well underway. Leaders of countries around the world, the American people, much of the media and even the US Congress are drawing lines in the sand. It may take six months or a year and world almost certainly will be a different place but sanity will win out.