Tariffs have become a hot word lately…a “dirty word” to some folks..
It is a very complex, and very misunderstand topic, so let’s consider the pro’s and con’s.
You can break the subject down into two camps of thought.
Short Term & Personal.
Some people are most concerned with the state of their 401k and savings, understandably so. It can be terrifying to consider that 10 or 15 percent of your savings can disappear overnight.
The Trump administration has insisted that the “pain” should be short term, (undefined) and the future market values will far surpass current levels. This does not convince some people, plagued with memories of severe market drops in 2000, 2008 and 2019. They may not have the luxury or interest to place the big picture “national condition” before their own. Is this selfish? For some it might be, for others it could be a matter of looming retirement, or need to make a major purchase. They can also be accused of overreacting.
Long Term and National.
Other people see that the current “national condition” cannot continue as is.
What is the “national condition”?
Since the end of WWII the United States has basically subsidized the rest of the world via one sided tariffs imposed on our exports to other countries, or subsidies and favorable trade agreements for our trading partners. It has been said that the America basically rebuilt Europe in this way via the Bretton Woods Agreement, and Marshall Plan.
This situation got more severe starting in the 1960/70’s when good paying middle class jobs started to disappear overseas, manufacturers seeking lower labor costs.
Today over 100 countries have tariffs on American exports, or restrictions, subsidies, stolen Intellectual Property, taxes or outright prohibitions that restrict our products. Some approach 100%. In contrast, very few products entering the United States are burdened with tariffs. Some of the worst offenders the European Union, 39%, China 67%, Vietnam 90%, and India 50%. The result of this has been an erosion of the Middle Class, wildly inflating debt, and a continued hemorrhaging of Wealth thru huge trade imbalances, with estimates of between $20 to $30 TRILLION since then.
Trump has responded with a tariff 1/2 that imposed by the partner country, that also attempts to resolve disparities in prohibitions, regulations and other non tariff inequities. To be honest, today there is no free trade.
Once upon a time, not that long ago, one family wage earner, a milkman, postman, factory worker, auto mechanic and so on, could support an entire family, with typically 3 or more children, on one wage. With the erosion of those good paying jobs, both parents have been commonly forced to work outside the home. The resulting impact on the Family has been predictable, and devastating: Crime rates increase, divorce rates up, latch key children common, and a multitude of other related family issues.
What drove those jobs overseas? Lots of reasons, the union forced increased labor costs, along with insistence by corporations (and the market) to maintain profit margins are among them.
Let’s be honest, the American family unit is in trouble, and this dynamic is one big reason why.
Donald Trump believes it is due to the disappearance of good middle class manufacturing jobs, and his plan is to return some of those jobs to America, and save the Family. Tariffs is one tool, intended to be temporary, he is using to do this.
Don’t buy any of that that?
Let’s look at our crumbling cities and compare them to those in Japan, China, the Middle East, where gleaming, sprawling new cities have been built, new airports,, highways railways and other public works, largely on the transfer of Wealth via US Dollar trade imbalances. The US Dollar, strangely, has been our biggest export; the dollar and American wealth.
Some feel that a manufacturing middle class is “behind us” and “history”, to be replaced with a hi tech “service industry”. The fault in that thinking is that those jobs have migrated along with the manufacturing jobs overseas to be close to them, as is natural. Consider that not everyone is cut out to “be a coder”, or work in a office as an engineer of other STEM job, and there are fewer of those jobs than people in need.
So, who is complaining about the drop in the market? Anyone with investment I am sure. But, some see the need for the actions taken by Trump. If not Now, then When?
I can suggest to you it is not the people in the bottom 50% of income earners. Those folks own almost no stocks; or savings! They live paycheck to paycheck. They really don’t share the fear and concern for the market drop, because they aren’t in it. The fact is the top 1% of income earners, own 30% of all stocks, the remaining 70% is owned by the folks between 50% and 90% off income earners So what you say?
History teaches us that a population in such a diametrically opposed polarization, with a vacuum in the middle, is a population in trouble. It breeds class envy, friction and violence. It also spawns the Marxist/Socialist thinking that has become so popular on college campuses, where 50%+ of students think that socialism is a good replacement for democratic capitalism.
So while we can all sympathize with market drops in our 401k, and share the pain,, the long option to ignoring the current wealth gap and loss of a viable middle class, is deadly, and will be upon us sooner than many realize.