When my family and I lived in Colombia we always returned to Canada for our annual vacation. During our holiday time we bought the next year’s birthday and Christmas gifts for our young kids and carried them into Colombia on our return. To protect the gifts from the sticky fingers of aduana or immigration officers we put packages of Twizzlers on the top of each box of presents. Our sacrificial gifts worked perfectly.We carried our gifts into the country because the Colombian government had imposed high tariffs on all imports and the local producers of ersatz Mattel toys could not reproduce the quality of North American manufacturers. Tariffs are damaging to national economies. The cost of domestically produced goods is high and the quality is low due to the lack of market competition.That, at least, is the view of John Micklethwait, the editor-in-chief of Bloomberg News. And he is hardly alone. He recently interviewed presidential aspirant Donald Trump during which time Mr. Trump proclaimed that,“To me, the most beautiful word in the dictionary is tariff.”[1]Say what? But tariffs are a terrible drag on national economies. I saw it in Colombia and every economist ever has held to this view. Is Trump derangement syndrome an eponymous term for the state of Mr. Trump’s mind? His economic views expressed to Mr. Micklethwait were widely panned by economists across the political spectrum. In true Trump fashion, he doubled down on his economic heresy by telling the patrician Mr. Micklethwait,“It must be hard for you to spend 25 years talking about tariffs as being negative then have somebody explain to you that you are totally wrong.”In the 19th century, Thomas Carlyle quipped that economics is the “dismal science” because the predictions of its practitioners are often so gloomy. The riposte between Trump and Micklethwait highlights Carlyle’s description. It is important to remember that geniuses holding similar views to thise of Mr. Micklethwait are the ones who brought us the 2008 subprime mortgage crisis, the ten years of near-negative interest rates, and the destruction of the North American industrial sector. I say this to suggest that we should be slow to decry Mr. Trump’s unorthodox views of tariffs by giving too much credit to economists who have never negotiated a major business deal.The government of Colombia instituted massive tariffs to protect Colombian manufacturers from competition from North American imports. The result was a moribund industry which had very little competition. If consumers want access to the lowest cost, highest quality goods, there must be competition among the producers of those goods. Otherwise, you get Colombia in the 1980s. (Government policy has changed since then.)Rather than protect North American manufacturers, or what is left of them, Mr. Trump is looking at tariffs as competition-enhancing tools rather than business protection tools. The economists can’t understand this shift in definition and decry Mr. Trump’s lack of knowledge. Who are the idiots? As a consumer, I am in the Trump camp. Tariffs applied with tax incentives will invite the strongest competitors for goods manufacturing into the United States. This will lower prices, improve quality and create hundreds of thousands of new jobs. This is how it works.Ford produces cars in the United States and pays lower taxes for doing so. If Ford moves its plant to Mexico, it will pay lower wages in Mexico, higher taxes on its domestic production and pay a 150 percent tariff on cars imported from Mexico. The US government will lose income taxes and have to pay employment insurance. Car sales for Ford will drop dramatically. Will Ford move its production to Mexico?Mercedes Benz is watching all this and can’t sell cars in the US because its imported vehicles attract a 150 percent tariff making them too expensive. However, if Mercedes Benz builds a factory in the United States, it will pay lower taxes on this domestic production and avoid the tariff. The US government will increase revenue by the income taxes collected and the people removed from government assistance. Mercedes Benz will sell lots of cars. Will Mercedes Benz build a plant in the United States?Does Trump want to make lots of money on tariffs? No. He wants to make money taxing the incomes of the thousands of new workers and the new companies making new products. He wants to dramatically grow the US gross domestic product and tame the threat of outrageous debt accumulation. By changing the policy focus of tariffs from protection to competition, Mr. Trump has upended an icon of economics, confused the geniuses and elicited the knee jerk, “Orange Man bad!” reaction. It is entirely possible that Mr. Trump’s tariff policy can only work in the world’s largest economy but that is not the argument being made by the economists.No Mr. Micklethwait. You and the other geniuses had your turn, and you almost wrecked the most productive economy in the world. Let’s see what Mr. Trump can do. I think he is on to something.
When my family and I lived in Colombia we always returned to Canada for our annual vacation. During our holiday time we bought the next year’s birthday and Christmas gifts for our young kids and carried them into Colombia on our return. To protect the gifts from the sticky fingers of aduana or immigration officers we put packages of Twizzlers on the top of each box of presents. Our sacrificial gifts worked perfectly.We carried our gifts into the country because the Colombian government had imposed high tariffs on all imports and the local producers of ersatz Mattel toys could not reproduce the quality of North American manufacturers. Tariffs are damaging to national economies. The cost of domestically produced goods is high and the quality is low due to the lack of market competition.That, at least, is the view of John Micklethwait, the editor-in-chief of Bloomberg News. And he is hardly alone. He recently interviewed presidential aspirant Donald Trump during which time Mr. Trump proclaimed that,“To me, the most beautiful word in the dictionary is tariff.”[1]Say what? But tariffs are a terrible drag on national economies. I saw it in Colombia and every economist ever has held to this view. Is Trump derangement syndrome an eponymous term for the state of Mr. Trump’s mind? His economic views expressed to Mr. Micklethwait were widely panned by economists across the political spectrum. In true Trump fashion, he doubled down on his economic heresy by telling the patrician Mr. Micklethwait,“It must be hard for you to spend 25 years talking about tariffs as being negative then have somebody explain to you that you are totally wrong.”In the 19th century, Thomas Carlyle quipped that economics is the “dismal science” because the predictions of its practitioners are often so gloomy. The riposte between Trump and Micklethwait highlights Carlyle’s description. It is important to remember that geniuses holding similar views to thise of Mr. Micklethwait are the ones who brought us the 2008 subprime mortgage crisis, the ten years of near-negative interest rates, and the destruction of the North American industrial sector. I say this to suggest that we should be slow to decry Mr. Trump’s unorthodox views of tariffs by giving too much credit to economists who have never negotiated a major business deal.The government of Colombia instituted massive tariffs to protect Colombian manufacturers from competition from North American imports. The result was a moribund industry which had very little competition. If consumers want access to the lowest cost, highest quality goods, there must be competition among the producers of those goods. Otherwise, you get Colombia in the 1980s. (Government policy has changed since then.)Rather than protect North American manufacturers, or what is left of them, Mr. Trump is looking at tariffs as competition-enhancing tools rather than business protection tools. The economists can’t understand this shift in definition and decry Mr. Trump’s lack of knowledge. Who are the idiots? As a consumer, I am in the Trump camp. Tariffs applied with tax incentives will invite the strongest competitors for goods manufacturing into the United States. This will lower prices, improve quality and create hundreds of thousands of new jobs. This is how it works.Ford produces cars in the United States and pays lower taxes for doing so. If Ford moves its plant to Mexico, it will pay lower wages in Mexico, higher taxes on its domestic production and pay a 150 percent tariff on cars imported from Mexico. The US government will lose income taxes and have to pay employment insurance. Car sales for Ford will drop dramatically. Will Ford move its production to Mexico?Mercedes Benz is watching all this and can’t sell cars in the US because its imported vehicles attract a 150 percent tariff making them too expensive. However, if Mercedes Benz builds a factory in the United States, it will pay lower taxes on this domestic production and avoid the tariff. The US government will increase revenue by the income taxes collected and the people removed from government assistance. Mercedes Benz will sell lots of cars. Will Mercedes Benz build a plant in the United States?Does Trump want to make lots of money on tariffs? No. He wants to make money taxing the incomes of the thousands of new workers and the new companies making new products. He wants to dramatically grow the US gross domestic product and tame the threat of outrageous debt accumulation. By changing the policy focus of tariffs from protection to competition, Mr. Trump has upended an icon of economics, confused the geniuses and elicited the knee jerk, “Orange Man bad!” reaction. It is entirely possible that Mr. Trump’s tariff policy can only work in the world’s largest economy but that is not the argument being made by the economists.No Mr. Micklethwait. You and the other geniuses had your turn, and you almost wrecked the most productive economy in the world. Let’s see what Mr. Trump can do. I think he is on to something.
