How I Learned to Stop Worrying About a Trade War

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It has been a hectic last couple of days and it is very hard to keep up with all the news. I take a long weekend and here we are with multiple topics for me to choose from. It seems like it is not enough to do one article a day with the quicksilver speed that Trump is moving in. I may do more soon. I’ll start with the tariff proposal to Mexico and the other methods discussed to make them pay for the wall. Make no mistake we will Build That Wall and Mexico will pay for it, though they will not do so voluntarily.

Logic

First of let me point out the logic trap for easy use. In 2014 Russia invaded Crimea. We retaliated with economic sanctions to get them to correct their behavior. We were told that the American economy was strong enough to impact the Russian one half a world a way and it looks like, outside of some very specific companies, there was no impact to the US economy.

Now we are told the US economy is too weak to impose sanctions on Mexico, which is essentially what the 20% tariff is, and it would devastate the US economy while Mexico would have no trouble finding other trading partners. Either the US has gotten absurdly weaker in the last 2 years of Obama or you can smell the BS from here.

Competition

This is the primary reason why you a 20% tariff of Mexican goods will not affect you. I guarantee you any product shipped from Mexico has a competitor. I also guarantee you that the price is nearly the same or even less and Mexico does not have the monopoly on any given market. If you are a business worried about your supply chain I guarantee you that another supplier sells that widget for the same price. If you are a mega corporation who set up a factory in Mexico taking away jobs from Americans to take advantage of cheaper labor. Well, this is part of the risks of outsourcing. You knew that coming in.

What the media or our economists who push for globalization fail to mention is that Mexico does not have a monopoly on anything. Say you get a soccer ball from Mexico. You normally paid 2$ for it. We place a tariff. According to the economists this would be passed on to the consumers 100%. In that case you would then be paying 4$ for the ball. What is the most likely scenario though?  Would you still buy that soccer ball for 4$ or would you buy one from another country like India or Vietnam from 2$ as well? Given that the quality would most likely be the same most people would select the 2$ option. Knowing that would the Mexican company price their products at 4$ knowing they will lose market share?

Let me reiterate. The only way the arguments by the globalist economists make is valid is if Mexico had an effective monopoly and could charge whatever it wanted. If it had anything close to this on any product it would be as rich as Saudi Arabia or Kuwait. Mexico does not even realistically have the option of selling to other countries as for most products the markets are saturated already and they would be keeping for market share with established players in those markets.

American Jobs

Another persistent message we hear is how would this create American jobs? This would just shift the supplier from Mexico to Vietnam or India. This may be true. Though I would point out at this point we should be making steps to incentivize businesses to come to the US such as lowering taxes.

This executive order does not have to create jobs. Each order or law has a purpose. If you ease regulations you aim to attract new business. If you ban refugees you aim to protect Americans. In this case you aim to extract enough wealth from Mexico to pay for the wall to help with immigration. Not every single executive order and law that will be created under Trump will target jobs.

There you have it. Just apply a little bit of logic and basic economics and you find you have nothing to worry about with a tariff to Mexico.

 

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