The European Union Tariffs have been imposed by President Donald Trump – get ready for the trade war of all trade wars! Or not. The Stock Market didn’t seem to care — it cared more the other day about Samantha Bee, or something, when it dropped 200 points. The Market has rebounded on a strong jobs report and low unemployment numbers. (You could have made a tidy sum if you acted on the President’s tweet about the jobs numbers an hour before the number was officially revealed. Nothing wrong with a little Inside Information, that’s how the Market works. What, do you think all those Ivy League graduates are just smarter than us? No, they have an Edge.)
The media is about scaring the chickens in the hen houses but this is all bologna (which, on a side note, is now more expensive). There is nothing to fear from retaliatory tariffs and taxes from Europe; truth be told we don’t need anything from them – we can subsist on all the consumables and wares made right here in the USA!
Realistically what do we import from Europe that we really need? Wine? Nope, we’re onto a new fad: craft beer. Aluminum? No. We make aluminum; Europe makes aluminium, there’s a difference. Steel? We haven’t used steel in anything for years, we’re surrounded by plastic. Get a clue! What else – oh, Bologna. Last I checked Oscar Meyer makes fine baloney, and Wisconsin has so much cheese to go with it they wear it on their heads to keep warm.
A tariff is an additional cost added to an item imported from another country. Europe places tariffs on all goods imported from the United States, in order to make their citizens buy domestic products to grow their economy. Canada and Mexico have tariffs in place on goods imported from the United States; they do this to encourage their citizens to buy domestic products and grow their own economies. China places tariffs on all goods imported from the United States so that their citizens can buy non-imported goods cheaper and grow their economy stronger. And the United States does not place any tariffs at all on goods imported from other countries, so we can choose to pay lower prices and the economies of other countries grow stronger.
And this has been decades in the making. Remember the Clinton’s in the 1990s yelling at us, “It’s the economy, stupid!” Whenever US jobs were outsourced overseas we were told not to worry, that we are engaging in a global economy for the betterment of the whole world. And if NAFTA is so great for us, why then do we have trade deficits with both Canada and Mexico?
To be fair, not many of us noticed a difference during the 90’s because we were riding a wave of economic fortune from the 1980s, and, the Internet was invented which really changed the consumer and corporate landscape. We literally had a virtual global economy once things settled down. Entire new industries were created – that generates a lot of cash flow. We experienced economic boom times the world had not seen since the first ships sailed around the globe filled with spices and gold and tea; when stocks were first traded; or oil was discovered (sperm whale and terrestrial); the invention of the telephone or the automobile.
The Raging 90s! DOW 10,000!
Unbeknownst to us, our biggest export turned out to be jobs. And unbeknownst to most, our economy (both then and now) is 70% consumerism. That needs explaining: 70% of our entire economy as a country (GDP) is us buying stuff. The receipts from goods bought and sold. That leaves only 30% left for building and exporting stuff. If we stop buying things (like, houses) we can crash the economy. If we stop buying consumables (like food or televisions and phones), we can put a big dent in the world economy as a whole.
But not as big as we could 25 years ago because the United States now has competition like it never did before. China is the biggest market by population and every company is racing into China to secure a share of the market; and the people have cash to purchase things – because they have a growing economy and protectionist trade policies. Europe banded together into one big nation (the EU) 40 years ago, and, because of their amenable trade practices with each other they collectively have a strong economy and money to spend; and are protected by tariffs on imported goods. India is the latest growth economy, with a huge population that has money to spend on consumables; a massive labor force that creates money for its citizens, and alleviates the United States of many jobs. (We have lost manufacturing jobs to China and Asia, and service jobs to India – the largest English-speaking population on the planet.)
We are not living in the 1950s anymore, when the world was in shambles and the United States was the only country relatively intact. Europe was a shambles; China was an agrarian society; India was living in the 1800s. Japan did not become a viable competitor until the 1980s, 40 years after World War II. In fact, many European countries had not even recovered from the first World War by the time the second one broke out.
We are not living in the 1960s either (yet), when the United States flew men into space, landed on the Moon, and funded a terrible war; all at the same time while having the biggest economy the world had ever seen. We didn’t need protectionist tariffs on imports in the 60s, nor during the dark days of crisis in the 1970s – We were still the biggest player on the field.
But is it too late to go back to the 1980s, that saw the biggest Bull run and economic prosperity from the mid-80s that lasted until 2007? With the President’s foreign and domestic economic policies, we just might. (Feels nice to write “economic policy” again, doesn’t it?)
First to the nay-sayers, tariffs on imported goods IS how you rebalance trade deficits. If countries don’t lower their prices or drop their tariffs they impose on you what’s left to do? (War.) By maintaining the status quo we are paying more, getting less in return, all the while our labor market is shrinking which impacts our citizens in the wallet so they can’t buy things.
Maintaining the status quo is good for multinational corporations, sure. They can offset tariffs with higher prices domestically, and offset tariffs overseas by lowering the cost of their goods. CPAs are good at doing this – balancing the books and increasing the bottom line to take care of their executives and stockholders. This is why you are hearing from top executives and some economists damning these US Tariffs, why some have resigned from their White House jobs, and why the media is reminding you constantly just how bad these tactics will end up. (The media simply just repeats what corporations tell them is true.)
But they neglect to mention something very important here. The Corporate Tax Cuts and Personal Income Tax Reform. Oops. Forgot about that.
US Corporations do not have to take dastardly drastic action to combat retaliatory tariffs on their exports because the cost is already offset by their 21% gift of a corporate tax rate. The money needed to pay wages and compete on price is already baked into the cake. (Still think President Trump doesn’t know what he’s doing?)
Now if corporations don’t play ball and raise prices at home but lower prices overseas, then well, they are greedy. And will cause Inflation. That could very well happen – it remains to be seen. But if it does, you cannot place 100% of the blame at the feet of the President.
It also remains to be seen if the European Union, Canada, and Mexico retaliatory tariffs will even be enacted. (Yeah, I saved that for the end.) All of these retaliatory threats must go through the World Trade Organization which oversees trade disputes between countries and will have a say on whether the retaliation is fair, balanced, reciprocal, or warranted at all. Countries can only counteract another country’s tariffs by an equal amount. Bet you haven’t heard anyone say that on television, have you. And if the WTO does its job, many many proposed EU tariffs should be struck down, just take a look at what they are tariff’ing. (Cranberries! Good luck growing those in the fjords of Norway.)
I’m fairly certain the WTO will side with the EU on this one, but hey, the time is better spent working out new trade deals not trading barbs and accusations over Twitter. But at some point this has to stop so we can have a stronger economy and be on equal footing with consumers around the world, which will happen if every country agrees to free and fair trade with the US.
- Retaliation requests in the WTO
- EU’s Section 232 Retaliation Tariffs Expected to Start in July
- List of European Union Product Tariffs
- How WTO Retaliation Typically Works
