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Tariffs Are Not the Answer
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President Trump’s planned 25 percent tariff on steel imports and 10 percent tariff on aluminum imports may provide a temporary boost for those industries, but the tariffs will do tremendous long-term damage to the American and global economies. Tariffs raise the price of, and reduce demand for, imported goods. Tariffs ensure the preferences of politicians, instead of the preferences of consumers, to determine how resources are allocated. This reduces economic efficiency and living standards.

Some justify these economic inefficiencies as being worth it to save American jobs. This ignores how tariffs increase costs of production for industries reliant on imported materials to produce their products. These increased costs lead to job losses in those industries. For example, President Trump’s proposed steel tariff could cost nearly 40,000 jobs in the steel-dependent auto manufacturing industry. Tariffs also cause job losses in industries reliant on exports. This is especially true if — as is likely to be the case — other countries respond to President Trump’s actions by increasing tariffs on US products.

Many of President Trump’s critics do not themselves support true free trade, which is the voluntary exchange of goods and services across borders. Instead, they support the managed (by government) trade of NAFTA and the World Trade Organization (WTO). NAFTA and the WTO promote world government and crony capitalism, not free markets. Any libertarian or free-market conservative who thinks the WTO promotes economic liberty should remember that the WTO once ordered Congress to raise taxes!

Foreign manufacturers may make convenient scapegoats for the problems facing US industry. However, the truth is that most of the problems plaguing American businesses stem from the US government. American businesses are burdened by thousands of federal regulations controlling every aspect of their operations. The tax system also burdens businesses. Until last year’s tax reform bill, the US had the highest corporate tax rates in the developed world. The tax reform bill lowered corporate taxes, but the US corporate tax rate is still higher than that of many other developed countries.

The United States not only spends more on military weapons than the combined budgets of the next eight biggest spending countries, but also spends billions subsidizing the defense of developed counties like Germany, Japan, and South Korea. Bringing US troops home from these countries is an excellent place to start reducing spending on militarism.

The biggest cause of our economic problems is the Federal Reserve. America’s experiment with fiat currency has enabled a system based on private and public debt. This makes trade imbalances inevitable as the US government needs foreign investors to purchase its debt. Foreign investors get the money to purchase the US government’s debt by selling products to American consumers. A trade war could cause foreign investors to stop buying US debt instruments and could end the dollar’s world reserves currency status. This would cause a major economic crisis — but at least it would stop our shores from being flooded with “cheap foreign goods.”

President Trump’s claim that trade wars can be easily won is as credible as the neoconservative claim that the Iraq War would be a cakewalk. A trade war would likely push the global economy into a recession or worse. Instead of imposing costs on American businesses and consumers and putting those whose livelihoods depend on imports out of s job, President Trump should address the real causes of our economic problems: the welfare-warfare state, the IRS, and the Federal Reserve.

(Republished from The Ron Paul Institute by permission of author or representative)
 
• Category: Economics • Tags: Donald Trump, Free Trade 
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  1. Issac says:

    Won’t someone think of the global economy?

  2. …. This would cause a major economic crisis — but at least it would stop our shores from being flooded with “cheap foreign goods.”

    Hey, Dr. Paul, the crisis is gonna happen anyway. You are completely right on the root causes of business, especially manufacturing, leaving America. However, the FED isn’t going anywhere UNTIL the economic SHTF, so may as well just get ready for it.

    The tariffs may help quite a bit in the meantime, but yes, the crash will be coming. Start prepping, bitchez! “Beans, bullets, band-aids” / “Bears, beets, Battlestar Galactica”

  3. Yes, taxes are bad, yes the government spends too much. Certainly the direct tax on my personal income impacts my personal economy in a negative way, much the same way a tax on steel will affect steel consumers.

    However, unless one is a pretty far out there politically, taxes DO need to be raised. For the short term I’m going to ignore the protectionism aspect, I don’t think things are out of hand for America in this regard, and so I think this is a relatively “good” way to raise revenue– indirectly.

    I’m a free trade, free market guy, Trump is also getting a pass on this one from me because he’s doing more for my cause than the side that opposes him. I also think the short term objections to these tariffs are overstated for political purposes. The tax will merely be passed down the line, much like other taxes.

    Long term focused protectionism will harm America’s competitiveness, much as it has always done to countries that practice this.

  4. KenH says:

    Foreign manufacturers may make convenient scapegoats for the problems facing US industry.

    This is a favorite hobby horse of the libertarians, viz, foreign industry is just so much darn better and more efficient than U.S. industry. Foreign manufacturers don’t have the regulatory & tax burden and their wages and benefits are frequently a fraction of U.S. manufacturers which puts us at a competitive disadvantage. Even if these burdens were lessened tariffs would still be required to protect certain industries.

    In most cases these foreign manufacturers wouldn’t even be in business were it not for greedy corporate executives looking to exploit the very cheap/slave labor of the third world. The monetary investment, technology transfer & manufacturing know how by U.S. companies to their offshore manufacturing sites is staggering and this all exerts pressure on domestic industry.

    U.S. industry is not perfect but the “problems” Ron Paul alludes to are largely artificial resulting from unfair trade and regulatory policy.

    Libertarians place a premium on national independence and rightfully so, but America can’t remain truly independent for long when we rely on imports for almost everything that we used to provide ourselves.

    • Replies: @Achmed E. Newman
    , @jtgw
  5. Paw says:

    Hey , how about stop filling pocket of the rich. Lower taxes , more wars , more military bases, damaging Bush , trillions lost in Pentagons, and in Iraq, count is endless..
    And how will the world respond ? The same. And import will be more expensive..
    And sanctions continue against the whole world…

  6. Karl says:

    is Ron Paul ok with allowing unfettered entry & practice of foreign opthomologists to Kentucky?

  7. @KenH

    Libertarians place a premium on national independence and rightfully so, but America can’t remain truly independent for long when we rely on imports for almost everything that we used to provide ourselves.

    AGREED!

    … with this whole comment and your comments in general (under iSteve), Ken. Good stuff all around, IMNHO.

  8. jtgw says:
    @KenH

    The issue is whether the cure is worse than the disease. Big trade imbalances are a sign something is wrong, but RP says, and I agree, that this is because of inflation. Foreigners exchange their goods for our debt. This is not a problem with trade but with our monetary policy. Imposing tariffs will not fix the underlying problem of too much debt; instead, it will prevent foreigners from acquiring our debt so cheaply, meaning we’ll have to keep it at home and this will lead to rising prices and lower living standards.

    Fixing monetary policy means we won’t be producing so much debt. Instead of offering debt in exchange for goods, we can offer our own goods, leading to mutual benefit. That’s how trade is supposed to work.

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