tariffs

Emily Post Values

Dave Davis Commentary, Policy, Uncategorized , , , ,

I’m far from alone in being frozen in place rather than making everyday decisions in a timely fashion. It’s hard to make choices and commitments when the situation can change in a minute on a whim. The president explained what each nation would suffer from U.S. tariffs, complete with a visual aid, only to turn around and delay much of the implementation. Then came exemptions. Worse, the whipsaws often came while markets were open, so there was no time to evaluate.

It takes investment capital to create productive jobs; how can I or anyone else commit funds and effort under today’s circumstances? Franklin Roosevelt’s ever-changing policies prolonged the great depression, in my mind. Yet, Trump makes him look like the sole of consistency. Nothing seems safe. Even if you negotiated a trade agreement in Trump’s first term, the president unilaterally pulls out and enacts new terms. Do we have allies? Do we have friends? What are the rules? For how long?

We hear of dozens of nations lining up to come to terms. Maybe they just want answers to these questions. If I’m having problems going about my business under these circumstances, imagine what leaders of nations are going through.

There used to be rules of the road to avoid unintended collisions. When I grew up, it seemed everyone had a copy of Emily Post’s “On Etiquette” or something similar. While this may seem quaint today, it served a practical purpose, preventing misunderstandings that could create ill will when intending none. Simply forgetting to send a thank-you note or a reply sends the wrong message and ruins friendships. If you don’t intend a slight, do the right thing.

We have rules governing relations between nations, the government, and the people in the U.S. When someone runs roughshod over regulations and conventions, what’s the message? Some of them are treaties and legislation signed into law. Can you do your thing without regard for others, without sowing distrust and anger?

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Haven’t We Seen This Movie Before?

Dave Davis Commentary, Policy, Uncategorized , , , ,

You’re settling in to spend an evening watching an interesting-sounding movie, only to realize you’ve already seen it. That’s the feeling I got when Trump suddenly reversed course and paused some of his tariffs for 90 days. The reason the administration and, indeed, Trump himself provided is that all those seventy-five nations already ripping us off, except for China, were lining up to lift their tariffs and other actions and finally move to free trade while leaving China on the outside. It’ll take time to accept their surrender.

Prominent countries named as heading up the list of supplicants were Japan, Malaysia, Vietnam, and Australia. These names rang a bell. Haven’t we sat down with these countries and others and worked out a lowering of tariffs and other trade restraints in the past? Then it came to me; we negotiated a trade treaty with these nations and seven others that accomplished these goals. It was called the Trans-Pacific Partnership (TPP). Negotiated over several years by then Secretary of State Hillary Clinton, who claimed “the deal set the ‘gold standard in trade agreements.” Twelve countries’ representatives O.K.’d the Treaty in 2016. It only needed to be sent to the Senate for approval by the new president.  

What happened then needs to be recalled and appraised in light of what is happening today. Donald Trump campaigned against the treaty, claiming it would join the already-in-effect NAFTA treaty in destroying middle America. This stance reflected his anti-free trade stance going back to the 1980s. What is surprising is that Hillary Clinton turned on her handiwork.

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The Cart Before The Horse

Dave Davis Commentary, Policy, Uncategorized , , , ,

The last post dealt with the unreality of finding the workers required to make it all in the U.S. President Trump almost daily continues to announce a company or nation will invest billions in production in America. According to our leader, we’re bringing back all those good-paying jobs that left our Rust Belt states in despair. However, Hyundai’s proposed steel mill in Louisiana may be the exception that proves the rule.

Since the 1970s, the U.S. steel industry, mainly in the Midwest, has been retreating. Foreign competitors used their comparative advantages to deliver quality products at better prices. The fate of U.S. Steel illustrates the decline. Once dominant, with its vast mills in places like Gary, Indiana, and Pittsburgh, Pennsylvania, it’s now a weak minor player subject to absorption by Nippon Steel.

In towns like Gary, Indiana, well-paid steel union members lived comfortable middle-class lives. Now, like their primary employer, the decline is evident. Even with ongoing government protections, U.S. Steel isn’t competitive.

So if the rule is that significant U.S. steel production isn’t competitive on the world market, why is Hyundai bucking the trend? Tariffs play a part, but they’ve only kept the industry on life support. Does Hyundai see a comparative advantage?

This plant will be an electric arc facility that will consume much reliable power. Where better to locate than a place where natural gas is plentiful? This plant highlights our comparative advantage in energy production. In the modern world, machines do the heavy lifting, requiring inexpensive, reliable energy sources. If the government doesn’t get in the way, the U.S. has an energy cost advantage over almost all other nations.

Germany has learned this the hard way. Using cheap Russian natural gas to run its industrial complex, it produced the products that made the nation a great exporter. The Ukraine war cut its Russian gas imports while it was bringing online only unreliable wind and solar to replace its nuclear plants. Germany is struggling because it’s burning coal and importing more expensive natural gas.

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Working Towards Decline

Dave Davis Commentary, Policy, Uncategorized , , , ,

Two happenings this week show how far we’ve traveled from reality. The vice-presidential debate and the East Coast Longshoreman Strike may have little in common, but both evidence an archaic way of thinking. The idea that we can stand in the way of progress in a way that saves everyone’s present job has never worked out in practice. Pursuing such a program with an expanding wage scale is madness.

From Diocletion’s Roman Empire to China’s Qing Dynasty, stopping time by government fiat only resulted in decline. Yet both vice presidential candidates claim they can preserve and bring back manufacturing jobs. J.D. Vance hews to Trump’s tariffs to protect otherwise unprofitable businesses. At the same time, Tim Walz would continue massive subsidies and tariffs to do the same.

The East Coast longshoreman demanded a considerable wage increase and banned further automation. With its potentially severe economic consequences, this strike is a stark reminder of the dangers of resisting technological progress. The Luddites in the U.K. in the early 19th century, who violently opposed technological change and rioted over the introduction of new machinery in the wool industry, would seem to be a strange model to follow. There appears to be a settlement with a significant wage increase, but we don’t know about automation. It’ll be interesting to see the final draft.

Both presidential tickets employ industrial policy methods of protection and subsidies, disregarding the fundamental economic concepts of “Comparative Advantage” and “Opportunity Cost.” Some countries possess advantages that enable them to produce goods more economically. Understanding these concepts is not just important; it’s empowering. It’s the key to making informed economic decisions and fostering growth.

Understanding and applying the principles of comparative advantage is crucial for economic growth; it’s a beacon of hope. Canada could grow dates in greenhouses, but countries with a favorable climate can send them to Canada at a much lower price. On the other hand, wooded Canada has lumber unavailable in date-producing desert nations. Dates for the lumber trade leave everyone with more. Adhering to these principles has allowed billions of people to live better than ever, and continuing to do so can lead to even more prosperity.

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It Gets Worse

Dave Davis Commentary, Policy, Uncategorized , , , ,

It’s hard to believe, but both presidential campaigns keep getting worse. Have we learned anything? As I’ve pointed out in my series, “The Long Journey to More,” settled societies were run by the ruling elites for their benefit, while the masses were left to subsistence. Kings and emperors picked winners and losers. It was better to align with the ruling powers than rock the boat with innovation.

From the Pharaohs in ancient Egypt to Louis the Fourteenth in France, rulers dictated who got what. However, the fifteenth century ushered in changes undermining elite arbitrary authority, resulting in markets, not masters dictating actions. More people participated in making, trading, and benefitting from new goods used in innovative ways. A new system replaced the old great for the few but bare sustenance for most with “More” for those allowed to partake.

Moral philosophers began to take notice. The author of “The Theory of Moral Sentiments” proposed that markets, rather than potentates, making decisions on prices and what to produce and sell would bring widespread benefits. The “invisible Hand” of markets was the moral way to “The Wealth of Nations.” At the time, no one thought of this Scotsman as an “economist” because, in retrospect, he was the father of this “science.” He and his contemporaries thought of Adam Smith only as a philosopher.

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