Ep. 73 Trade, Tariffs, Walls, and Trump

10 February 2017     |     Tom Woods     |     19

In this episode we talk tariffs, taxes in general, and whether business can really “pass on” a tax to consumers.

Krugman Column

Building a Wall of Ignorance” (January 30, 2017)

Sponsor

The Jason Stapleton Program is another great Monday-to-Friday libertarian podcast, looking at current events from a libertarian perspective. Check it out!

Contra Column

The Consumption Tax: A Critique,” by Murray N. Rothbard (discusses why businesses can’t just “pass a tax on” to consumers)

On Immigration

Symposium on Immigration, Journal of Libertarian Studies
Bob on immigration and “privatizing the borders”

Episode Mentioned

Ep. 55 Krugman, Trump, and Trade

Join Us Aboard the Contra Cruise!

Bob and Tom are hosting the second annual Contra Cruise for fans of Contra Krugman! October 15-22 aboard Royal Caribbean’s Oasis of the Seas, and departing from Port Canaveral. It’s an absolute blast, as you’ll see in the video. Check it out by clicking here.

Need More Episodes?

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  • http://uviewnews.com/ UVN

    Blame big government (excessive regulation, excessive taxation, excessive spending and the Federal Reserve) for hoarding off-shore, outsourcing, corporate inversions and the problems of American workers; not innovation, not technology, not immigration, not globalization, not foreign currency manipulation, not foreign subsidies, not journalists, not the media.

  • http://uviewnews.com/ UVN

    Immigration reform is necessary because of inadequate immigration policy and execution, it will help boost the economy.

    Secure the border, expand guest-worker programs, increase work visas, give illegal immigrants that are already here legal status (Green Card) if they pass a background check and then send them to the back of the line to apply for citizenship.

    Track visas so people don’t overstay their visas.

    Decriminalize drugs. It’ll remove the problem of drug smugglers crossing the border illegally, lessen the danger to border security and residents of border towns.

    Government should have to verify legal status of those to whom they issue licenses, welfare and voter registration.

    Require the government to e-verify when an employer files an I-9 for an employee, not the employer; put the legal responsibility on the government if they get it wrong not on business.

    Increase work visas to match the demand by U.S businesses.

    Together all this will mean fewer people crossing the border illegally making it easier for border security to catch those who do cross illegally.

  • tolemo

    Bob made an example of a fictional 100% tariff on a product, but I recently received an email alert from the American Motorcycle Association of such a tariff that has actually been proposed on European motorcycles of 51cc to 500cc capacity. It is being called the “Bikes for Beef” tariff because it is a dispute about hormones in beef. Here is some of what the AMA says:
    “The AMA opposes the proposed tariff, because trade disputes residing within the boundaries of the agricultural industry should not be solved with trade sanctions levied against non-agricultural products.

    A 100 percent, or higher, tariff on these motorcycles would cause serious and potentially irreversible harm to American small- and medium-sized businesses selling the vehicles. Additionally, consumers will be denied access to certain models of competition and recreational motorcycles that contribute to the lifestyle and well being of millions of American families.

    Affected manufacturers include: 1) Aprilla; 2) Beta; 3) BMW; 4) Ducati; 5) Fantic; 6) Gas Gas; 7) Husqvarna; 9) KTM; 10) Montesa; 11) Piaggio; 12) Scorpa; 13) Sherco; 14) TM; and 15) Vespa.”

    http://www.americanmotorcyclist.com/Home/News-Story/american-motorcyclist-association-ceo-to-testify-against-motorcycle-tariff

    • Stratos

      Solution. Start building motorcycles in America

      • tolemo

        In response to hormones in beef?! That is a rather insane connection is it not?

  • martinbrock

    Regardless of the precise cost to consumers of a tax on Mexican imports, and even if Krugman is basically a hypocrite on this point, he’s right about Trump’s BS.

  • Ma Jun

    What Navarro, Trump, Tom and Bob seem to ignore is that all European countries – including Germany – levy a hefty income tax on companies ON TOP of having them pay VAT. Admittedly, in the case of Germany, the statutory rate got reduced to 15.8% but in addition, the municipality gets to charge an additional 10% or so (rates here being partly at the discretion of the local government).

    So to argue that European exporters benefited from a comparatively lower total tax burden is absurd. It is stagnating US labor productivity in combination with an overvalued dollar that made US exports of manufactured goods completely uncompetitive. Once the dollar starts to fall, the US manufacturing jobs will return. But the standard of living of those US workers will be much lower than what they have been used to since the 1980.

    • strasilo

      There are two seperate issues.

      Reserve currency status and deficit spending are causing trade deficits.

      Productivity/wage stagnation is caused by falling available capital per worker, ie mass immigration of people people who do not save (as much), ie US is becoming more like the rest of the world.

      Seriously, not that complicated.

      • Ma Jun

        Obviously, if US worker productivity was higher – all else equal including real wages – US manufacturing would gain global competitiveness.

        So the issues are not entirely separate. Seriously, not that complicated…

        • strasilo

          All else would not be equal

          Also, how would you separate productivity and wages?

          Also, trade deficits dont have, never had and never will have anything to do with productivity

          • Ma Jun

            Well, all else could still be equal: If for instance the US labor force was more productive because it was better qualified.

            That doesn’t necessarily mean you have to invest more in education. You would just need to do a better job at educating people with the same resource input.

            I have a free (actually even money saving) idea: Get rid of calculators in the classroom and you will drastically improve the everyday mathematical literacy of youngsters.

            But to stay on more general terms:

            The more productive workers are, the higher the wages they can command without running the risk that their employers lose out to global competitors. As we know, wages do not adjust as easily as other prices, they are somewhat sticky. In addition, people are known to exhibit loss aversion, so you will have a hard time getting them to accept cuts to their nominal pay to keep their jobs in the face of rising global competition.

            But for a lot of US manufacturers, this is what has happened since China’s ascent to the WTO in 2001: All of a sudden, Chinese exports became available that were so cheap that US workers would have had to accept wage cuts in order to compete. Now, to the extent that productivity growth in the US had not been as anemic as it has, the nominal wage cuts necessary to preserve their jobs would have been lower. As a result, potentially fewer jobs would have been lost and the trade deficit in goods wouldn’t be as gargantuan as it is today.

          • Ma Jun

            A small PS:

            It might be that you assumed in your argumentation that the labor market is perfectly competitive and US workers are paid exactly the productivity they deliver. Under that assumption, you are correct: It would be impossible to improve productivity while keeping wages constant. Therefore my above train of thought would not work.

          • strasilo

            not perfectly, but close enough!

          • Ma Jun

            I think it is fair to say that the labor market is one of the better examples of a market that is quite
            a bit away from being perfectly competitive. There are huge frictions such as information asymmetries, switching costs etc.

  • Jan Masek

    As for the wall keeping foreigners out vs keeping own people in: I’m gonna side with Dr Woods here. The way it worked in communist Czechoslovakia (country directly bordering west Germany and Austria) was using terror against remaining family. So there was a physical wall or barbed wire and soldiers with german shepherds along the border but that wasn’t the main lever to keep folks in. One could still find a way. Or emigrate via Yugoslavia (communist but lax border control with Italy). The problem was the commie apparatchiks would go after your parents, uncles, coworkers etc.

    • Luke Perkins

      The wall makes the task of taking loved ones with you when you leave more difficult (all else equal, naturally). It’s a different decision to take granny and flee Czechoslovakia than it is to take granny to Yugoslavia and then flee. Naturally, without being able to take loved ones with you means the commies have someone to torture. The recent (ongoing? I don’t know) genocide in Southeast Asia comes to mind. Without walls, entire families were fleeing through the jungle, often several families together with a single firearm per 40-50 people. The soldiers tasked with securing the border were all but helpless to stop them (well, didn’t want to die over it anyway). Put a wall in front of those soldiers and what happens to the families?

      In short, if walls didn’t help keep people in, the Soviets wouldn’t have built them everywhere they could. Just sayin’

      Regardless, building a wall would require giving more power to the feds… and that’s the opposite of what I’m looking for 😉

  • Adrian Gutierrez

    In reference to tariffs, I gave this some thought, that companies would not notice the decrement in profits as a tariff is imposed. The false boom would obscure the extortion which would be taking affect on the bottom line of their income statement.

    Bill Clinton, I believe, was able to make up ground in reference to his pilfering and accumulating of receipts which led him to seemingly have a surplus due to the false boom and higher corporate tax rates.

    The concept of the dollar turnover and the bidding up of prices will tend to, in most cases, be the main reason why companies raise prices. With this in mind, companies when faced with shrinking nominal profits could perchance raise prices in accordance with inflation. It is overall, a process of price discovery, a guessing game.

    We must remember as Austrians, and something Dr Murphy is quite aware of often, that the unseen effects of inflation abridge rates of return. Real costs tend to be much higher than nominal costs, and due to inflation being a subjective concept (incalculable, and only able to be assumed through proprietary estimates during price discovery), the gradual depletion of real wealth goes unnoticed.

    • Adrian Gutierrez

      Taxes are a form of capital consumption, end of story. Inflationary booms simply enshroud the negative effects of this expropriation. Additionally, we must remember that inflation is of the most dire forms of capital consumption, stealing at larger rates which is clandestine through and through.

  • Andrew Hayes

    There’s a ton of stuff in this episode to unpack, but one question I have is in dealing with the idea that Trump is going to protect American jobs and at the same time make Mexico pay for the wall through tariffs. Which is it?

    I would assume that to protect American jobs the tariff rate would have to be prohibitively high or close to it. On the other hand, If Mexico is going to pay for the wall (just granting for a minute that Mexican companies would be the one’s to feel the brunt of the tax) the tariff would need to be low enough to generate revenue, and thus not be prohibitive, and thereby not protect American jobs.

    Trump and Krugman deserve each other.