Tariffs ?!???!!!

We’ve been asked about tariffs from many of our clients and what the economic impact is. And of D-J’s opinion on tariffs. Of course, our answer is always the same. It’s basic Econ 101. In a fully free market, a tariff is ALWAYS bad.

Just like the minimum wage. It ALWAYS hurts a functioning free-market economy. And one has to realize that different nations–just like different cities or states–have access to diverse resources others don’t. Pittsburgh once became the steel capital of the world (and we wish it would be again) because it had abundant access to Coke (the kind that’s carbonized coal that helps make steel), limestone (indigenous to the Pennsylvania region) and iron ore (easily transported across it’s 3 rivers). As well as a whole bunch of cooling and process water (via large rivers) to quench the heat-intensive process of steelmaking (as did Youngstown Ohio). And the ability to transport that steel (via rail and river) wherever it needed to be. Other regions have abundant resources and natural/man made infrastructure to transport what they make to wherever it needs to go.

So why are tariffs bad ?

Because basically they’re a tax on the consumer of the nation imposing the tariff–diverting even MORE money (in addition to the resources not confiscated by taxes or government permits or ‘fees’) into the black hole of a bloated government–usually used AGAINST most hard working people of the nation.

Adam Smith, Frederic Hayek, and Milton Friedman were brilliant economists. And they were right. One of the PROBLEMS though is they always assumed a working, free market economy unencumbered by coercion. And by statists with agenda; as insidious as it might be. Like Ayn Rand, there was a degree of naiveness as to how clever Marxists could be in trying to circumvent a free market system.

Teddy Roosevelt knew this–as a pragmatic student of the school of hard knocks. His ‘trustbuster’ crusade would have given Adam Smith the willies; but was well founded in that Smith assumed there wouldn’t be barriers to the entry or exit of the market in allowing for and promoting competition which drives the free market.

Teddy knew better.

Nations can be–and should be–devious in fighting wars. Whether those wars are economic, social, or direct military confrontation (the latter usually being reserved to when the first two fail. Like a strike in a labor action, direct military confrontation ALWAYS results in extreme losses to all sides compared to a more insidious approach). Economic wars are the most insidious–the most effective, and very difficult to control (even during the ineffective UN sanctions against Saddam Hussein, he made a robber-baron’s profit funneling ‘oil for food’ across Jordan and bolstered his position).

The default position of ANY economic system is–and will always be–capitalism. Even in draconian top-down penalty-of-death despotic communist regimes, small autonomous markets form. There are always black markets, and even in state controlled economies there are always bribes and incentives to make things happen. You can’t legalize away from a free market (the marijuana trade in America is a prime example of this). And shouldn’t. People find away around the rules to benefit their own and their families’ self interests. It might not involve money, but it will ALWAYS happen. It might be ‘illegal’ but it will ALWAYS happen.

One of Trump’s primary strategies is in imposing tariffs. We at D-J don’t particularly like this as an entering argument, but need to look (as Teddy Roosevelt did) a wee but beyond this (we don’t like ‘anti-trust’ either). And ask ourselves IS there EVER a reason for a tariff.

Unfortunately, perhaps.

Long term tariffs–or enforced tariffs–create hardship while increasing money in the coffers of the Federal Government. This is generally a BAD thing.

But how about to drive behavior ? How about in a military-economic war context ? How about if these tariffs are used in lieu of direct military involvement or the use of force ? How about the case where Japan (or China) is dumping Steel in America for the ultimate goal of destroying US capitalization and home run industry and workforce (something that takes decades to rebuild) ? Trying to establish a monopoly once the American people are ‘hooked’ (much like a nicotine pouch or cigarette company might offer a buck a pack cigarettes and then hike the cost to 10 bucks later) and then hike the price ?

And then–unfortunately–we have to admit that tariffs might be OK. With the qualifier that ALL income received via a Tariff is reinvested DIRECTLY into real capital that builds American industry. It doesn’t go into a ‘general fund’; it doesn’t even pay down the public debt–it’s used to no kidding build FACTORIES in America. Not studies or ‘environmental impact’ reports but REAL steel and mortar industries in America.

If Tariffs can achieve a socioeconomic goal–or prevent direct military conflict–we at D-J can accept them. With the caveat that ALL moneys received are used for direct building of factories in AMERICA. With the knowledge that our competitors and adversaries are NOT long-term embracers of the free market. And that a means to an end Tariffs can achieve political and socioeconomic goals that the free market cannot (due to encumbrances of the free market elsewhere).

A case study in this is what happened in Columbia.

Obviously, illegal aliens have been destroying our American economy–by loading it down and providing ‘free’ benefits to those who haven’t paid into our system. The democrats have been allowing this looking for free votes.

Columbia turned back 2 planeloads of Columbian nationals (mostly nasty criminals) who were here illegally. Initially Columbia balked–trying to make a point (even though ALL of the illegals deported were from that country). Trump (in a draconian fashion) threatened not only Tariffs but also severe economic sanctions and tariffs against Columbia for not accepting the legally deported Columbian nationals.

And Columbia capitulated within 2 hours.

By using the threat of economic sanctions and Tariffs–as well as everything else in the book, Trump successfully used the market (in very decisive action) to prevent a direct military and LE confrontation.

And concur that THIS is the way to use ‘tariffs.’…Not as a long term ‘solution’ but as a way to correct bad behavior by despots who might hurt others.

We at D-J fully support President Trump in his use of economic policy and ‘tariffs’ to force negotiations (as well as punish bad behavior) by those who’ve been enjoying an unfair advantage against the US–as well as those who might balk at help in supporting the unfettered US growth we’re going to achieve.

As an Epilogue we might urge those in the US to get onboard with the phenomenal economic growth we’re gonna get over the next 8 years.

MAGA !