Tuesday, April 3, 2018

10,000 Tariffs

In working on my last post about import villains, I stumbled across an incredible realization. Steel and aluminum are just the tip of the iceberg. Most of us mere mortals have not tried to explore the labyrinth of information called the Harmonized Tariff Schedule (HTS) where we list all the tariffs levied against our trading partners. My reaction to perusing that schedule is a lot like the feeling one gets when they first try to understand all the notes on the neck of a guitar. Yikes, I didn’t realize all those notes were in so many places! Luckily, on a six-string guitar in one octave, there are only 72 places for notes.

The HTS contains 22 sections of goods categories broken into 99 chapters covered on 3,710 pages including over 12,000 import tariffs. Are you kidding me? I didn’t even know there were 12,000 goods.

What’s my point? My point is that a trade novice evaluates or judges the change in the tariff on steel imports without any real understanding of the whole tuna. Imagine such a novice who thinks that we don’t have many tariffs and that a 25% tariff is weirdly high or unusual. In that case you might come to one kind of conclusion about steel and aluminum. I am tired of typing steel and aluminum so let’s just say S&A.

But now, after a fascinating morning with my friend Google, I know there are more than 12,000 goods tariffs. One of them is the 127% levied on Chinese paper clips. Paper clips! I found examples of very high tariffs including those on canvas sneakers, leather and foot ware, synthetic yarns, canned tuna, and a large variety of lovely foods from the EU including cured ham, truffles, oats, and mineral water.

Inasmuch, a less na├»ve person would interpret the newly increased S&A tariffs in a different light. A 10% or even a 25% tariff is neither startling or unusual. That does not mean I am supporting or advocating these new tariffs – it simply means we need a more realistic approach to evaluating them. From the reactions in the press, you would have thought that CNBC had purchased Fox Business News. Not so.

These new tariffs are really like a blip in the ocean. Given all the tariffs we already have on imports, I doubt these new tariffs are going to drastically change those 3,710 pages. But it is interesting that among all those 12,000 goods that somehow S&A avoided a tariff and that past attempts to levy them had been so unsuccessful.

Why do we have so many import tariffs? Is the world so unfair to the US that we had to slap on tariffs to be competitive and save US jobs? Or is this more of the same game of government spoils that is applied so routinely by companies within our borders? The government has a lot of elected officials with lovely salaries and benefits. Perhaps we have so many protections because it pays well?

I am asking more questions than I am answering. But this thing with S&A really opens a much bigger set of questions once we view it in a wider context:
Why have we not had tariffs protecting S&A when we protect so many other industries?
What does any of this have to do with US national security?
How many of these 12,000 existing tariffs improve national security?
How many other goods should have tariffs because of national security?
Do we really need any tariffs to protect national security?
How can we preach the values of competition when we seem so far from the ideal?
While the WTO made initial progress in removing barriers to trade, why is the Doha Round dead after so many years of negotiation?
Have we given up on the idea that reduced trade barriers are good for the global economy?
Where is my JD?

10 comments:

  1. Your questions are good ones and are necessary for developing good policy.
    The big picture is complicated and maybe Bi-lateral Agreements favored by Trump make it easier to address cheating that large multinational agreements fail to police.
    To be “free trade” the ground must be level for both trading partners.
    Some industry is vital for National Security..S&A maybe of concern.. but especially cyber, and high Tech computing.

    ReplyDelete
    Replies
    1. Thanks Dan. What makes this murky and risky is that once you open Pandora's Box, you open something that may not be controllable. One country can label almost anything as good for national security. That means you are stuck with one-on-one retaliation or you bring in a world body to adjudicate. Neither way is guaranteed to work so long as international trade is desirable to countries. My preference is to have many fewer excuses to protect. A rich, strong, powerful, competitive country like the US has little to fear from a regime of greater openness and competition. The more we make excuses for protectionism the more we mover to unfair trade.

      Delete
  2. Just a question? Just how rich are we with our National Debt so high and growing? And when we borrow the from very Trade partners who set up trade barriers to US Exports. The cheaters get to steal our intellectual property, subsidize their industry, tax our exports in an unequal amount. Our country’s economy becomes a consumer economy rather than a producing country. The result is we borrow money from the “cheaters” to provide support for our growing welfare obligations.
    Reviewing our trade agreements for fairness seems wise to me. Otherwise at some point our Big Gov discovers it can no longer borrow money to buy imported goods and the domestic manufacturing base is non-existent.
    Every game has rules to follow. Like football, the referees need to apply the rules equally ...or the players will do stupid things and their Fans will riot.

    ReplyDelete
    Replies
    1. Go to Haiti and you will see how rich we are. We are not a producing economy? Oh I see -- producing consumer goods and services is a bad. Glass half empty for you. So sorry. Cheaters, governments, non-existent manufacturing base, welfare obligations. I wonder if you think about the other half of the glass?

      Delete
  3. G’day, LSD. The Tuna thinks all the rough water turbulence about trade is no more than a drop in the ocean . . . or maybe a . . . er . . . . blip. When the dust settles to calm the seas and the talking heads have waterboarded themselves I think most of this will be seen in our rearview mirrors as ‘much to do about nuttin, honey’ in the grand scheme of things. Peter Morici, Professor of International Business at the R.H. Smith School of Business at the University of Maryland, College Park, and a frequent talking head on FBN said this a.m. something that got me thinking. He said something to the effect that there is no comparative advantage basis in trading with China. I’m unsure about that since the initial rationale of buying from China was lower cost to us—that seems to be a comparative advantage. Maybe his context was that China no longer has a comparative advantage since its economic mix has matured and production/shipping costs have reached parity with our domestic production costs.

    So, if there is no comparative advantage why trade? Sure, we could buy “authentic” fortune cookies from China, but surely we can produce them here and avoid tariffs, etc.—though the U.S. fortune predictions might not be as dependable. If Chinese-produced cars get a 10% tariff here and our cars get a 25% tariff there, why do the dance? I think you might agree that to get to pure and fair trade no trade barriers should exit anywhere. Heck, we could eliminate the Harmonized Tariff Schedule (HTS), the WTO, the Trade Adjustment Assistance Program, etc.—all those govomit agencies and economic development NGOs established to promote “fair” trade, etc.

    Until countries trade fairly and not impose any trade barriers DJT likely will keep the waters churning and the dust flying. Hope he gets what he wants soon ‘cause I’m getting a little sea queasy.

    ReplyDelete
    Replies
    1. The Tuna is sea queasy? Just think about the rest of us land lubbers.

      I would think that there is plenty of comparative advantage with China. Comparative wage levels and costs of doing business have to be quite different in most industries.

      I never said anything about wanting free trade. Like the role of government in our economy, I see its pluses and minuses but have no real hope or expectation that it will go to zero.

      What I don't like is protectionism. I agree with you that trade deals need to be reevaluated over time. Renegotiation is a must. And maybe that will be the end of result of Trump's dance. But I am afraid that others do not know how to respond to Trump and they could be stupid enough to start a trade war. Even if we won that war it might be a rocky ride. burp.

      Delete
    2. Dear LSD. Reread my reply; no mention of ‘free’ trade; only ‘fair’ trade. To the extent comparative advantage exits betwixt U.S./China in certain economic segments/industries let there be ‘free’ trade—no barriers—pure ideal trade. OK . . . true to Ricardo.

      You don’t like protectionism, OK with renegotiation, but concerned that folks across the table won’t ‘unnerstand/respond to DJT and light the fuse to a trade Roman candle. I think ‘unlikely.’ They’ll know they’ve exploited U.S. trade agreements and likely to end up on receiving end of colorful fiery balls. Don’t worry; be happy; JD is just ‘round the corner.

      Let’s send them his book on the art of the deal.

      Delete
    3. Dearest Tuna,

      Fair trade. Ahhh yes. Like beauty, fairness is in the eye of the beholder. Talk about an elusive topic.

      Yes, the folks across the table are both guilty and amateurs. I hope you don't get a chance to check these dangerous assumptions.

      Delete
  4. No, Larry... my glass is mostly full and when it approaches 1/2 full I start looking to refill the glass. The “Greatest Generation” gave the Boomers a full glass. The Boomers are passing down a 1/2 full glass to future generations. Americans could help defeat Hitler’s Germany because we had the resources and industry to build and supply the equipment, ships, planes, goods needed in the effort. After the war we still were producing as a Nation. We had stuff that other Nations either wanted or needed.

    Now we are content to live high off a Credit Card
    EBT Card, etc and buy cheaper good from China (and others).. We assume that our enemies will continue to supply our textiles, computers, computer chips, industrial metals, etc when our Credit Line is maxed out.

    I think Trump is looking for ways to refill our glass that is 1/2 full through Better and Fairer Trade Deales.

    ReplyDelete
    Replies
    1. Danny,

      Its nice to hear that your glass is half-full.

      But then, there you go again with the negative. Maybe I am reading your words wrong but when you talk about living high off credit cards and enemies supplying imports that seems a little negative and extreme. Some folks use credit cards for convenience and to buy the necessities of life. We do have a debt problem in the US but so does China and quite a few other countries. As for imports from enemies. I am not sure what the world enemy means here. Is Mexico an enemy? Was the University of Georgia our enemy back in 1966?

      I hope you are right about Trump. We will get to see how good of a negotiator he is outside of real estate. So far the ride has been unnecessarily bumpy.

      Delete