Economic Thoughts.

The economy is a very complex system but often a single factor can impact it significantly.

Some of that is simply mathematical but some of it is also based on psychological factors.

Everyone is always trying to predict how something impacts the overall economy, because the most successful strategy is to be ahead of the crowd, but not so far ahead as to go broke waiting for them to catch up to where you are.

So what about this economy?

In many ways it is considered robust, but is it?

Three areas that are still weak are manufacturing, mining and farming.

In 2004 there were over 13 million workers in manufacturing. This dropped to less than 11 million during the financial crisis and has been slowly improving since. However, the latest numbers show us still down over a million workers.  Considering population growth there are less manufacturing jobs available.  Still we have grown from the lowest point and we see that data claimed as a measure of an improved economy.

The big increase in employment has been in service jobs and generally they don't pay as well as manufacturing.

So the average American is having more trouble paying bills and saving for the future, even if fully employed.

This is one of the reason that we see so much income and wealth inequality, since the workers continue to get a smaller share of the pie as they are forced into lower paying jobs.

It wouldn't take much, maybe some increased cost because of tariffs to make the whole thing tumble.

Time will tell.

Paying for Tarifs

Manufacturers need to sell their products to stay in business.  Products that are essentially equal compete based on price.  Tariffs on a particular nation increase the price of that nations product.  If the tariff increases the price higher than its competition it won't get sold.  Manufacturers will reduce the price if at all possible to sell it.  It should be noted that the replacement item, is by definition more expensive than the original item, costing the buyers more.

The sentence above is a simplistic explanation as to who pays for tariffs.  What should be noted is that its always paid either fully or partially by the buyer, but the manufacturer or producer may lose profits.

In a simple example take an item that sells for $100.  First, the tariff is applied on the value of the imported item, not the final sale price.  So say that item when imported costs the importer $50 (the rest of the price includes the sellers costs and profit).  If it is hit with a 25% tariff the tariff would be $12.50.  If passed along completely to the consumer it would result in a final price of $112.50, not $125.

Now if a product is available that can be sold for less than $112.50 it will get more sales.  Assume the replacement product costs $105.  In that cast the manufacturer either reduces his price so he can match that price or accepts less sales.  In our example, and I apologize for the math, the $6250 of the imported item would have to be reduced to no more than $55 all things being equal.  With a 25% tariff, the price of the imported item would have to be reduced to $44.  So to stay competitive the manufacturer would absorb $6 in costs which could be viewed as paying part of the tariff.  However the tariff instead of being $12.50 is now $11 which is still passed on to the consumer, even thought the ultimate price increase was only $5.

In many scenarios the actual outcome is that the competitor sees and opportunity to raise its price from the $105 price point to say $110, make more profit and still capture more market share.

For all of you non-math lovers, the simple answer is that tariffs cause higher prices which consumers pay.  It may impact the place of manufacture or it may not, but it impacts our wallets.

A Tariff for You and for You and for....

One trick pony and he's not even good at the one trick.

Its like watching a toddler trying to act like an adult.

Possibly because even he might realize what a fool he looked like yesterday we got Mexican tariffs as a distraction.

It might be considered a good thing by some of his more racist or ignorant supporters, they don't like Mexicans to start with, but its going to hurt many more people and probably accomplish nothing.

Unfortunately, we have inflicted this joke of a President upon the world who by now realize that he is even worse than they imagined.

They must be wondering if his election was just an aberration or if this country has descended permanently into a rabbit hole?

I certainly hope not and don't think we have.

But unfortunately with the way our elections can be manipulated and factors like the electoral college and low turnout, there's no way to be sure.

After all our "moral" evangelical brothers and sisters decided to ignore his obvious moral turpitude and vote for him because they want to impose their abortion views on the rest of us.

Higher Prices and Bailouts Too!

Its a bit curious how the trade war with China plays out.

As a source of cheap labor they were able to get many companies to offload some of their labor intensive operations.

In exchange China got access to certain technology and to be honest copied or reverse engineered much of it, enabling them to make the same or similar product cheaper than the original.

This wasn't that different than what happened in Japan years ago.

It was in some ways part of the game they played but, the China market is huge and when they provided it with cheaper (stolen) tech gadgets, our tech companies were unhappy.

Now the theft of intellectual property is a complex issue.

Ultimately it leads to lower prices for the consumer as the knock offs create competition.

So we protect the property so the companies can recoup their investment.  It doesn't work well outside of our borders, at least not in some countries and this accounts to some extent for our high drug prices as we let the OEM effectively charge whatever they can get away with.

Stealing is bad and should be punished.  One might want to investigate the laws related to intellectual property and see if they protect consumers too.

This was at the heart of the dispute as Chinese products, many of them knock offs, were lower priced than those of US companies.  So the Government imposed tariffs to make them more expensive.

China retaliated and hurt farmers in particular so we decided to bail some of them out.

So we get to pay more and see our taxes help other victims of this policy.

We are also trying to stop a major tech company form importing or exporting to this country.

One thing that many of us, in either party generally agreed to, was that Government involvement in business was often clumsy and ineffective.  Think that still holds true.

Tax Us Via Tariffs and Give it to the Wealthy

I was watching a show in which the question was asked if out dontard really believes it when he says the tariffs are paid by China?

The answer seems to be tat he does, which would have been my guess since he is imposing the tariffs on Chinese goods.

The fact that he doesn't understand this when he was in various business over his lifetime is a bit surprising.  He was not generally involved in the type of business where he would have learned this.

He was originally a developer.  Developers have their own issues related to labor and materials but dealing with tariffs is not one of them, its just part of the product cost.

Most of his other so called businesses only required the use of his name with him having little to no real involvement, except maybe approving a color or being in an ad.

Not where you would learn about much of anything and certainly not tariffs.

He then was a reality host for a period of time and once again no practical knowledge of business except how much he was getting paid.

Those who consider him a business genius should think again.

So does he understand how tariffs work?  Probably not and he obviously thinks the tax money he is collecting doesn't come from Americans.

While the tariffs increase the cost of items bought by everyone, it is by definition a regressive tax, since it is the same for everybody.

Not a Robin Hood, he takes from the poor and gives to the rich, like every self serving dontard.

Foreign Policy?

According to the administration Iran is planning some sort of trouble and we have dispatched a carrier.

In a somewhat sad commentary of our current faith in our government, there is a "show me" attitude since the WMD fiasco in Iraq.

Its also likely that our simpleton in the White House who bought in to all the FOX news criticisms over the years about how the prior administrations simply had to flex some muscle to get the world to comply with us.

It doesn't work, at least not in any meaningful sense.

Our foreign policy is pretty much a mess, with our allies concerned about our reliability and trustworthiness and our enemies manipulating our dontard.

One of the successes he touts is that he has inspired our allies to spend more money on their defense, and they have, but so have we.

If the benefit was supposed to be that we would spend less, it isn't happening.

Everyone spending more turns into an arms race.

Isis was being pushed out of territory when he took over and that continued.  They aren't destroyed and may be more dangerous than ever.  Certainly the middle east isn't friendlier and we managed to let Russia and Iran exert more and more influence.

North Korea played us and he let them.

Sanctions, tariffs and sending in a carrier are not much in the way of foreign policy.  Its all he seems to have though.

Just a Trickle So Far

Economics is generally a fairly slow process but if you are a small business it speeds up a lot.

Much like how some households live paycheck to paycheck many small businesses live on a similar shoestring, with the significant deadlines being when invoices and payrolls become due.

They count on a certain number of sales and certainly if they can secure longer term contracts they have a bit more comfort.

This of course often mean they have promised to deliver product at a set cost for an extended period, counting on stable pricing and other factors.

As the cost of their raw materials increase due to the tariffs, what was once a profitable arrangement can easily turn into an unprofitable one.

So we see reports of businesses closing plants, laying off employees or deciding to move production offshore to reduce costs.

These reports concern the most vulnerable concerns and as they stumble slightly bigger firms soldier on.

The impact of the trade war is insidious since it both makes your cost higher, it makes your ability to sell to certain countries very difficult.

We are in a global economy and there is a lot of competition.

The tariffs are a disadvantage to our domestic producers even for product they sell domestically, since the prices will go up and demand will go down accordingly.

It isn't very much so far and the dontard lives in a fantasy where steel factories have sprung up in every corner of the country employing millions.

That's not true and any jobs created are once again, just a trickle.

Future Markets

We live in a world that is in most respects much smaller than it was say a hundred years ago.

Of course it is effectively the same size but between physical and virtual movement we have become neighbors to people who live in what used to be remote locations.

This is a wonderful thing in almost all respects as we can break down barriers that separated us and led to conflicts, wars and economic distress.

This globalization however increases the level of competition for everybody.

Competition drives out the weak performers and allows the most efficient to survive, assuming of course that it is a fair competition.

In some cases of course, those who lose out are going to be unhappy.

The answer of course is to become more competitive but that can be difficult and instead we see a desire to restrict the competition.

However once the box has been opened it isn't easily closed as we see rising incomes in undeveloped countries making them the markets of the future.

America is a big market but it is not the only one and certainly not the fastest growing one.

Engaging in a trade war is going to block our industries from the big growth markets while increasing certain prices here.

The global market will survive with America playing a smaller role and America will survive, but the pain will be worse in America with future consequences as we lose markets to eager competitors.

We see Harley Davidson moving production to keep its European opportunities.

The past is gone but the future is coming, and we need our products capturing future opportunities if we want to create jobs and opportunities.

Tariffs don't work.

Economic Tipping Point?

Outside of the contentiousness we see everywhere, on the surface things are continuing to be okay.

We have had a fairly steady recovery from the 2009 financial crisis which has continued through the current administration.

Structurally there hasn't been much change as current policies haven't revived much manufacturing or mining and the areas improving are little changed.

There are of course economic forces at work that is using the power of the unseen hand to determine where work is best performed based on being most efficient.

Government involvement in this process is normally futile and almost always is ineffective.

We now see the dontard trying to influence the economy via tariffs.

The original group were apparently to appease a few of his friends who wanted to reduce competition to some businesses that faced foreign competition.

However, he apparently is unaware that other countries set their own policies and were going to react.

We see China targeting specific areas that will hurt many of his supporters and the same from the EU.

His response is typical, he escalates and we seem unable to get the congress, which is populated by proponents of free trade to do anything.

So we see the beginning of the most likely event to cause a recession.

There are other troubling signs, but the disruption that might be caused by trade wars is probably the most serious.

Recessions are unfortunately part of the business process as every few years excesses are adjusted and we see a reduction in growth.

We are certainly due.  However, as much as the recovery was criticized for being too slow, that may be why we have avoided one so far.  The excesses weren't created, or at least not to the extent they normally are.

The retaliatory tariffs will likely lead to reduce exports and increased domestic prices and it may be the tipping point.

Time will tell.

Tariffs are just Taxes with a Different Name

When you impose a tariff on an imported article, its only paid if the item is, well, imported.

Its only going to get imported if it can be sold and assuming the seller doesn't intend to lose money, the sales price is going to include any tariff he has to pay.

This increase in price is therefore paid by whoever actually buys the item, and clearly that person in this scenario is an American resident, since the tariff only applies to items imported here.

You might say you can avoid the tariff by buying a domestic item, and that is true if a domestic item is available and assuming the price is competitive.

Of course the tariff does make it easier for the domestic supplier to compete, at least here, but it doesn't help them in other markets.

So you would still be paying more, but it would be an inefficiency charge, not a tariff.

Still its effectively a commerce tax taking money our of your pocket and putting it into an inefficient manufacturer.

I'm generally opposed to tariffs since they prevent the markets from being efficient but I do understand that they might have a place in domestic policy to encourage a particular sector or give it a chance to mature, temporarily.

Of course the tariffs being imposed now, in the name of national security, are simply designed to pander to certain business owners who can't compete on their own.

This is going to create a few jobs, but as the other nations retaliate and we lose sales and market share in markets such as China, we will lose far more jobs than we gain.

So will everyone else.

A real lose-lose strategy.

Trade Wars

The impact of the tariffs that the dontard is announcing are clearly going to result in retaliations.

What does this mean?

Well it will mean that certain items get more expensive either because of the tariffs themselves are because item get produced domestically at higher cost.

More significantly, it is likely to result in less exports as commodities are targeted by China.

Since a tariff will artificially increase the cost of American commodities it will have no impact on our competitors, so sales will go elsewhere.

Commodities in general are pretty much the same no matter where you get them and are therefore extremely sensitive to market forces.

Manufactured products are a bit different, and while certain production can be ramped up, it not as easy to build factories or find skilled labor as it is to expand or decrease a crop like soybeans.

If you lose a significant market for your commodity you either lower price and absorb the tariff yourself or you reduce production since you can't sell your product.

None of this is good for the economy and certainly not for the reliably red states in the middle of the country.

The overall ripple effect of the trade wars is hard to forecast exactly, some say it is minor, some argue it will be significant, which all depends on reactions and escalations.

WE know our guy is a loose cannon, so I anticipate it getting worse.

He says we will win a trade war, but trade wars have no winners, just losers as everyone gets to pay more.

The real victims will be business owners, whether farmers or small manufacturers who become uncompetitive as prices here increase or overseas markets dry up.

Yes people in other countries will also suffer, not sure that will make our casualties feel better.

We'll see.

Economic Impact

Is the economy doing better under the dontard, or was it so strong that his policies couldn't derail it?

It certainly still seems like the Obama economy with just a few differences, one of which is the tax cuts.

Hard to say if they have any significant impact on what we are seeing, and if you are looking at the statistics the trend lines are pretty consistent since the change in administrations.

With April employment numbers being close to predicted but other elements such as participation rate yo-yo ing a bit its hard to see any change in the direction.  See following article.

Jobs

Still the economy hasn't crashed and the dontard now talks up the same Government reports he used to claim were fake.

In this article it talks about how the tariffs hurt small businesses, while the tax cuts and deregulation help.

small business

So maybe there is good and bad, at least as far as some elements of the economy.

What might take longer to impact us are the other changes to the tax laws, although there is no reason to believe that we are going to see any real trickle down impact.  If we do, it would be nice, but it looks like the wealthy people are doing what they know best, staying wealthy.

The long term impacts of these policies is probably predictably negative, considering the impact of higher tariffs and the retaliation to them.  This will simply make many items more expensive, like we are starting to see in gas prices.

Of course that's the result of a non-economic policy about the Iran deal and its those policies most likely to drive us into a recession at some point.

Simple Tariff

There's no doubt that some of the rules imposed by the Chinese government requiring in-country partners for access to markets result in the transfer of certain technology.

Its the very point of the program.

To the extent this expertise is stolen and then use to compete with the original company might violate certain provisions of those agreements which seem like a civil matter.

Companies eager for access to the vast Chinese consumer market were easy victims of these deals and they should have realized what they were getting themselves into.

I think they did.

I could certainly see us prohibiting any products here that infringe on copyrights or patents, but the real issue is that these products are sold in China.

That would require the Chinese court system to stop them and that is unlikely.

Imposing tariffs that end up costing consumers isn't really much of a solution.

Even worse they impose tariffs that hurt our producers.

The trade deficit with China and many other countries is to a large extent the result of our great prosperity in comparison to most of the world.

Other countries like China and India, among others, are simply cheaper places to produce goods because they have much lower labor costs.

Tariffs aren't going to change that.

They will just increase the cost of a lot of products and reduce our exports as the retaliatory tariffs hurt our producers.

Its all more complex than that, but we aren't dealing well with complexity in this country now-a-days.

Skill vs Luck

Well China imposed some tariffs on American products and we are seeing the beginning of the harmful trade war that ultimately will hurt us.

Many of the products involved are agricultural and will hurt the heartland, where a lot of people just vote republican.

It seems that China is just demonstrating what it could do as it didn't hit some the biggest trade items, like soybeans.

The odds are though that this will just escalate considering the fact that we don't have a coherent policy.

The net impact will be increased prices and less overall jobs, even if they create a few jobs in the steel or aluminum industries, since the increased cost will lead to reduced sales (demand).

Now of course, we see some American exports threatened which might reduce production and once again less jobs.

These type of impacts are complex and sometimes hard to calculate until they happen as sometimes what seems like a minor factor becomes a critical one.

We know this is too complex for the man in charge so he makes his decisions based on the most simplistic data, which is still sometimes too complex for him.

One hypothetical but possible scenario that should be considered is when our steel and aluminum get more expensive because of the tariffs do we lose export sales to countries still getting the lower costs?  Well of course we do.

If an American made product costs more than say a Japanese or German one, why would someone but the American one?

It may in fact make imported end products cheaper here, depending on how the tariffs are calculated.

Lots of complex economic issues involved, which means we didn't do any of them.

Pray for luck, we don't have any skill happening there.

Tariffs are Taxes

Well the dontard has the ability, at least for now, to impose tariffs depending I guess on his latest mood.

Yesterday he attacked China and targeted areas that we are just not likely to compete in, therefore doing one of two things.

Either a lot of technology prices will have price increases or the manufacturers will find another low price country to shift to.

Now the exact list of the items the tariffs apply to isn't published yet but the idea that somehow we are suddenly going to find people willing to do the type of work involved for competitive wages is pretty unlikely.

Manufacturers are unlikely to even try.

So the most likely outcome is that whatever tariffs are collected will simply increase some prices.

One area on the list that might help a bit is tariffs on solar panels which is an industry that has a growth future, although not favored by the dontard.

China has imposed a few retaliatory tariffs and the market has dropped significantly and looks to go down some more.

Trade wars lead to less jobs overall as they increase prices and reduce demand.

Naturally as in everything there are some winners but more losers.  The proponents will point to the winners, if any in this case, and cite it as a success, ignoring the losers for sake of their argument.

As bad as the recent tax law was, it would in the short term produce some jobs as prices would in fact decline a bit increasing some demand.  However the problem there is that the up side for demand isn't as great as the down side as we are near full employment.

The problem that actually exists in this country is that in the old manufacturing heartland, high paying jobs have been replaced with lower paying jobs.  Trying to compete with China on the low end isn't going to do anything for that.

Simple Economics

I can't remember a time when the people trying to run the Government were as disorganized and seemingly clueless as now.

Of course the dotard is the worst of the lot.

He seems to have an image of an America where what's good for US Steel is good for the country and Coal is King.

His simplistic views of how things work are so inept that we seem likely doomed to a real crisis, either a war or a recession or possibly both.

Let's hope that we somehow can avoid those things, but it seems likely that we are doing damage now that isn't going to be easily corrected.

Take his view on trade.

Government don't trade with each other, companies do.  Now Governments, via things like trade deals and tariffs set the playing field but once its set the companies need to adjust.

Goods are sold where there are consumers, and they need to be as competitive as they can be for what they offer.  Now, if for example Steel can be produced cheaper elsewhere and used here to produce consumer goods, everyone pays less.

If you increase the cost of steel everyone pays more.

Simple math.

Now possibly making more steel here might create some jobs.

Selling less items because prices reduce demand will eliminate more jobs.

Imported steel is about 30% of the steel used in this country and possibly increasing the cost of imports will shift some of that to domestic production.

Consumers will get to pay for that.

This might be minor but if the issue escalates to other goods we export it might become major.

One might wonder why the steel manufacturers couldn't figure out how to be more competitive without Government protection?

Hmmm?

Tariffs we get to Pay

If you believe in free trade you simply think all tariffs are bad.

They increase costs and represent a tax on the consumer.

Now some would argue that they can be used strategically to protect a business which is starting up from foreign competition.  The logic is a start up company needs time to become competitive so it is in the nation's long term interests to give it a chance.

In such a case of course the tariffs would be temporary, only needed until they could compete equally.

Of course the tariffs announced yesterday are more politically motivated than economically motivated and are clearly problematic.

I guess to some extent it will result in some increase in steel and aluminum production in this country, assuming that the increases make our inefficient production competitive.

But it will drive up the price of consumer products that use the materials, either because the tariff increases the cost or we produce it inefficiently here.

Further, it is very likely other countries will react and impose tariffs on our goods, hurting our production and exports.

It is likely to introduce some inflationary pressure into our economy as the dotard's price increases get reflected in end products.

I haven't seen a single favorable economic analysis of these tariffs and it is possible that congress may very well try to reverse them.  Its probably not going to happen, instead we will see retaliation, more price increases, more inflation and ultimately less jobs.

What you get when you elect a dotard.