Trump Tariffs --Keeping it simple

 Team Trump argues that a trade deficit is BAD.  A trade deficit is neither good nor bad, it just means that America imports more goods and services from a country than we export to them.  That is neither good nor bad, its just an accounting of trade flows.

For example, the US had a $123.5 billion trade deficit with Vietnam in 2024.  That is because lots of companies (including US ones like Nike and LuLu ) have chosen to make their products in Vietnam because its less expensive to make shoes in Vietnam than in America.  How much less expensive?  The average wage Vietnam is about $1.80 an hour.  Please let that sink in.  Even more crazy, people in Vietnam can actually live on that wage---food and housing and everything else is much less expensive--for example a hair cut is between $2-$5.  

While America is busy importing goods from a Vietnam, what does Vietnam import from America.  The answer is not much, because stuff from America is relatively expensive.  Most of the $13 billion or so of stuff they import are things like raw cotton and mechanical appliances used to make Nike shoes and LuLu leggings.  Vietnam is not going to be importing lots of expensive goods from America any time soon because they can't afford to.

Vietnam has indicated in response to Trumps tariffs of 46% they will cut their approximately 9% tariffs to ZERO.  Will full free trade with Vietnam reduce or eliminate the trade deficit with Vietnam?  Absolutely not.  Will cutting off US businesses and consumers from a source of inexpensive manufacturing raise prices for Nikes and LuLu leggings a lot.  For sure.    

At this point my brain starts to hurt.  Team Trump starts to stay stuff like, we need to bring these 'good jobs' back to America.  Which good jobs are they referring to.  Textile work paying $1.80 like Vietnamese workers are getting paid?  Do Americans want to pay $250 for a pair of Nikes made in America vs $60 for a pair made in Vietnam?  Do Americans want to work for $1.80 an hour?  Does Team Trump want to put Nike out of business?  

The one thing I do hear mumbled about in the background from some GOPers is that Americans need to buy less stuff and raising the cost of everything will achieve that.  This is obviously not an argument that wealthy Trump supports and Republicans want to make out loud in public but for a long time there has been a number of wealthy Republicans who think that joe six pack should just buy less stuff and we should have better manufacturing jobs here at America and that will Make America Great Again.  This argument makes me glitch.  First off, rich people telling poor people that they need to save more money and buy less stuff so that we can have a more robust manufacturing base is an ugly patriarchal approach to telling Americans what is good for them, and flys in the face of capitalism sounding much more like a command and control Marist economy.  Even worse, technology will displace those 'good' jobs.  Fully automating making Nikes doesn't make sense when you can get labor at $1.80 an hour in Vietnam, but might when you are talking about $50 an hour (including benefits)  for US based production.  What happens next?  Does the government tell Nike they can't use machines to make shoes in the US because it destroys those 'good' jobs?  

Capitalism is simple and works well when there is limited sand in the gears (in this case trade barriers).  Building walls will just raise costs and reduce competition thereby raising costs more.  Once again I will point to N Korea.  This is not a model America should want to emulate.  Global trade has been a huge benefit to America, it makes our companies more efficient, provides lower cost good to Americans and reduces the chance of war as countries become more intertwined.  Trump is trying to blow all that up so that he can collect bribes from individual companies to get better terms.  That might sounds crazy, but its the most rational explanation I can come up with. And he is already doing that with law firms that he is extorting for tens and even hundreds of millions of dollars.

I am done with Trump tariff talk.  There really isn't anything more to say.

Tariffs (4) Supply Chain Management Major

 As many of you know I own a ski rack business Gravirax  We manufacture near Kansas City, with materials that are almost all made in the USA.  However, we really don't reach into our suppliers to demand that they source from America, they source from the lowest cost provider.  Our manufacturing process seems pretty straight forward and simple, but I am sure some parts of our powder coating machine come from overseas, some of our hardware or the materials in the hardware might also sometimes come from non American suppliers.  Supply chain management is complicated.  

I sold a rack to a family in December and the father proudly introduced me to his son who is majoring in ....Supply Chain Management.  Yes you can get a degree in Supply Chain management from over 100 universities.  This wasn't the case in the late 1800 and early 1900s.  Someone please tell President Trump things have changed.  The world has become one big market place, and sourcing materials from all over the globe is one of the reasons the standard of living has improved everywhere while inflation rates have fallen.  From 1990 to today US inflation was at all time lows, while from the 1960 to the early 2020s the average size of a home in America is up 50%.  A huge reason for that is global trade.

No company thinks, jeez I want to source parts from all over the globe from thousands of manufactures because it will be fun.  No 19 year old college student thinks, jeez I really want to major in supply chain management because its fascinating or cool.  Elaborate supply chains exist because capitalism drives companies to become more efficient, and leveraging global labor, economies of scale, concentrations of expertise all help to drive down costs.  Take a look at TVs or desk top computers.  Absolute costs are way down and what you get for your buck is so much better.  Why can you buy a TV that is 500% better for half the cost of what you would have paid 10 years ago?  Global trade.  Why can you get avocados in NYC, global trade.

Why is team Trump determined to end global trade as we know it?  That is the trillion $$$ question.  I will address that next, but lets just say there doesn't seem to be a true capitalist in the Trump MAGA Project 2025 team.  Kind of ironic when MAGA accuses everyone who disagrees with them of being a Marxist, Communist Socialist that they are starting a trade war which will hurt American consumers and businesses profits all to protect some American manufacturing jobs that they deem 'good'.  

Tariffs (3) Trump MAGA reasons

The Trump administration officials keeps talking 3 types of BS to justify their tariff policy

1. Tariffs will bring ‘good’ jobs back home ---this would indicate 
   1. Tariffs will stay in place
   2. will create inflation because manufacturing goods will use expensive US labor as opposed to cheap foreign labor
   3. Or other countries will drop subsidizes or barriers which will make domestic businesses more competitive (total BS)
2. Tariffs will generate tax revenue to help offset tax cuts and pay down debt 
   1. This means tariffs stay in place
   2. This assumes that we continue to import a lot of goods
   3. This assumes the global economy doesn’t take a digger
   4. That there isn’t a better way to raise revenue (like hiking taxes on the rich and a higher global corporate tax rate)
3. Tariffs are all part of the deal to get better trade deals
1. Trump is a notoriously bad deal maker---almost no bank would lend money to him prior to 2016
2. The best way to negotiate to start with consequences and work back from there (it isn't)
3. Seems to show the administration has zero understanding of other countries policies like VAT (will the world let Trump dictate their domestic tax policy—me thinks NOT)

I think many in the administration have talked themselves into believing some version of the above, but its all BS. What are these tariffs good for? Trump based grift. Each company can/should/will go and give Trump something to get relief. This isn’t about revenue or ‘better jobs’ or making the US economy more competitive (its going to make it less competitive per Monday's blog) ---it’s about Trump grift pure and simple. I also read someplace---I think the Economist that this will result in like 2.6 million new individual tariffs---with no government employees left post DOGEing who the heck is going to track and enforce this mess. But the opportunities for grift will be huge as will the attention afforded to Trump.  Tariffs are a win for Trump and a loss for USA and the world.

Tariffs (2) yea they are inflationary

 to paraphrase Milton Friedman ' tariffs are always and everywhere inflationary'.  

Why?  First there is the 1 time hit of raising prices by the amount of the tariff.  Cars cost X today and 1.25X after a 25% tariff.  Many in the Trump administration are of course idiots and are trying to position this as a one time hit to prices (things costing 25% more), and then no more inflation due to tariffs.  They also claim that the 25% hit will be paid for by foreign companies or governments and be used to pay off the deficit.  This is wrongheaded in so many ways it makes me glitch---but that is an argument for another day.  Regarding the inflationary impact of tariffs, per yesterdays blog post, tariffs will protect businesses from competition and that is what will increase long term rates of inflation.  Protecting companies from global competitors will increase inflation.  Full stop.  If ACDelco doesn't have to compete with LG and other S Korean flat screen producers the new screen in your Jeep will cost twice as much and perform 50% worse.  That is inflation.  And that is bad for consumers.  BAM (aka mic drop).

PS this is a long term cost which financial investors and consumers will be slow to realize, but in a decade when our companies are less competitive than the rest of the worlds you can thank Trump's tariff policy.

 

Tariffs part 1 or is Team trump learning business from Marx

 I am going to spend many hours writing blogs about Trump/MAGA which is probably not good for my health and a waste of time and energy, but I do find many folks asking me things and being the thoughtful guy and excellent economist I am going to share.   I am going to provide a daily series of bite sized tidbits about tariffs to start.

Ask a macro economist what the singular most important factor is for a country to achieve and maintain a high standard of living and they will tell you productivity.  If you can produce more with less then you will have a higher standard of living.  There are many things that help an economy be more productive, from infrastructure to a highly educated work force to rule of law and even the old Protestant work ethic (can I say that without risk of being canceled?).  Something that absolutely makes an economy more productive is having to face competition.  Its a basic tenant of capitalism--think Adam Smith and animal sprits and creative destruction and all that stuff.  If a business (or an entire country) is sheltered from competition what drives them to innovate?  Guess what protects businesses (and entire countries economies) from competition?  Tariffs.  Want to see an economy that is protected from international trade--take a peak at North Korea.  When team Trump talks about tariffs being a tool to make America great again--more like make our businesses less competitive by protecting them from global competitors.  And that will lower productivity which will slowly but surely eat away our standard of living.  Make America Great Again is clearly a great slogan but Tariff man would be more accurate to say Make America More like North Korea.  MAMLNK---an ugly word just like tariffs. 

Imagine

kissing and hugging your child every morning before they go to school and you go to work because you don't know if you will be rounded up for deportation during the work/school day?  Imagine being deported from a country you have lived in for 20+ years, that your father brought you to because he was being targeted by Mexican cartels, but your family never went through the official channels to claim asylum because it didn't seem necessary when you arrived, and now has become impossible.  Imagine being forced to leave a home you own, a community and country you love because the GOP decided to use immigration as a wedge issue to get DJT elected so he could enrich himself with a meme coin and stay out of jail.  Imagine not knowing if or when you will ever seen your son again.

Imagine supporting policies like that.

ICE is in the roaring fork valley

 I am not sure if I should be sarcastic or not---given the lovely people at risk I am going to play it straight.

The roaring fork valley (Glenwood Springs to Aspen) is not know for lots of violence, or crime, or pets being eaten by anything but coyotes (the 4 leg kind).  But ICE is here and rounding up illegal immigrants many of whom have lived here for decades.  They work in restaurants, construction, house keeping etc.  This is an area of the country where there is huge demand for workers and these HUMANS fill that void.  If you think the Aspen area is dysfunctional and expensive, just wait till ICE gets through with deporting a huge chunk of the workforce.

PS if you are in the farming or construction business you are about to be fucked by MAGA/Trump.  I guess Trump was smart to get out of the real estate business and into Crypto and digital media.