Opinion

Tariff Tea Party

“No taxation without representation”. Quote attributed to the 1773 Boston Tea Party because the colonists did not have representation in the English Parliament.

Would it be fair to say that current colonists have some representation in The US Congress? If fair representation is still part of congressional duties, why aren’t more Americans up in arms over the prospect of tariff’s on steel, aluminum and wash machine imports? These are a few examples of current tariff proposals within the Trump Administration. Tariff’s and inflation are dangerous hidden taxes that Thomas Jefferson and the founding fathers fought to avoid on its own citizens. And, if our trade deals are so bad, why are US multinational firms still engaged in foreign trade? US Companies are not in business to lose money, so what gives on the Tariff war, if US firms want to engage in un-coerced trade with China , Mexico or Canada, for that matter? Ironically, the trade coercion will occur when tariff’s ensue, because consumers like you and I will lose money and choice. This is where the nationalistic tariff party ends badly.

Tariff’s are anti free trade. If tariff’s were a good idea, the US would impose tariffs on all goods entering the country, imposing tariffs on all goods, in theory would reduce the trade imbalance or outright reverse it, right? Here is the math, the US trade deficit has been increasing ever since 1976 (the bi-centennial of the revolutionary war). 1976, is the same year our total domestic expenditures began exceeding our total domestic savings. Excess expenditures are usually met by imports, that is why since 1976, the US trade deficit is almost identical to the total US domestic savings rate. As a point of reference, the US did not run a trade imbalance while on the gold standard. As a reminder, the US ended the gold standard in 1971. Becoming a debtor nation and debtor citizens has had lasting consequences.

Currently, 6.3 trillion dollars of US debt is owned by foreign nations. China and Japan own the majority of this debt. Why? Because their trade surplus is used to purchase US treasuries. Are you prepared to pick up the slack in buying US Debt if China and Japan slow their US Debt purchases? Or, will our government stop spending beyond its means? I can tell you, I am not prepared to give our Congress money for 2, 5 or 10 years, when the majority of The Congress doesn’t understand where trade imbalances actually come from.

About the author

Craig Reger

Craig is a Registered Investment Advisor Principal at Leamington Capital Advisors.

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