Skip to main content

Steel Tariffs - A Good Thing?


MARCH 7, 2018


The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today

that the goods and services deficit was

 $56.6 billion in January

Image result for steel
 
While the over all trade deficit has risen for the United States and depending upon which side of the political spectrum you are on and which party is currently holding the presidency people raise alarms; it's a good thing or a bad thing.  It is a bad thing always.  While no it may not raise an immediate alarm, the way to look at the deficit is to look at your own bank account.  If you make $1,000 a month but spend $3,000 a month it isn't long before creditors will be knocking on your door, while you declare bankruptcy and get thrown into the street. You understand as a way of life you cannot keep accumulating debt until someone wants to collect.  In this case the federal government has a way out.  The government can issue bonds or print additional currency.  Lets take a look at those two scenarios:

Issuing bonds:
The government issues bonds that the American people, foreign investors, and foreign governments can buy.  Now remember that 56 billion dollars is going outside the country, that these foreign countries can buy those bonds with that $56 billion and invest.  This can work as long as these investors have faith that the US Government will be able to pay on those bonds.  As of the current writing of this article the United States has never defaulted on it's debt, that does not mean it can't happen.  In recent years Iceland, Greece, Ireland, Venezuela, Portugal and Spain have all had a financial crisis.

Creating more Currency:
Will work and usually only option after bonds will no longer sell but depending on the rate of the currency flooding the overall marketplace can lead to runaway inflation that currently is being (was) experienced in  Venezuela.
William you didn't answer why this is a bad thing?

This is a bad thing; rather than a surplus because if we were operating with a surplus then it means more money will flow through our own economy and raise our over all GDP (Gross Domestic Product, don't worry if you don't understand what that is that's saved for another article).  Again take a look at your own bank account if you make $3,000 a month but only spend $1,000 a month, creditors will not be at your door, and even if they were; you are out dining, seeing a movie or taking that trip to Hawaii.

You still didn't answer why steel tariff's Trump proposed is a good thing or a bad thing?

I believe it is a good thing.  The Chinese government has been subsidizing the cost of making steel for years.  The United States steel industry could not compete.  This devastated states like Pennsylvania, New Jersey, Ohio and Indiana that relied on the steel industry companies like Alcoa and Bethlehem Steel.  The Chinese government made Chinese steel so cheap on the world market after the dip in Iron Ore prices in 2008 they were able to obtain a significant percentage of world trade totaling 45% of the world market by 2011.  Six of the largest steel producers are now in China.

I understand the current climate, by consumers squawking about how this will raise the cost of stoves, cars, and just about everything.  The most devastating impact it will truly have is on how much it will cost to build Trump's wall and construction overall.  In fact that could lead to another building recession for a while.  But it will balance out in the long term by inflationary standards.  It's like when Grandpa say's to you: "Back in my day I paid 5 cents for a Coca Cola, I can't believe you pay a dollar for it out of those machines, it's pure robbery!" well back in 1950 you made on average $500 a week, today that average is $3,000 (or more don't quote me on that just trying to make example) the cost between 5 cents and $1.00 is inflation if we did the math adjusted today's dollars for 1950's dollars etc.  Chances are it is actually the same price.  With a trade surplus in the United States verses a deficit this will also balance out by inflation.  Provided corporations pay workers more that keeps of with rate of inflation but that's another article.

Is this trade tariff ideal, no but something needed to be changed regarding tariffs, Trump is not the first President to impose a steel tariff.  George W Bush did it for a short time back in 2002.

You still didn't explain what is a tariff? 

I think the best way to explain it simply is all of the raw materials to make a product let say a car is made and comes from the United States and Cars made in Korea all have their raw materials and production inside Korea.  The Cost of a US manufactured car is $20,000 but the cost of the Korean car is $18,000 for exactly the same car in all aspects.  Then a tariff of $2,000 would be imposed on the Korean car to make it competitive with the domestic car.  If you do not have a tariff then everyone will buy the Korean car and you create a $2,000 deficit per car that is now wealth leaving the United States and going to Korea. 

Comments

Popular posts from this blog

What is the Trumpty Dumpty Poem? Question from Readers Richard & Shannon

Richard & Shannon of Albuquerque, NM I am glad you asked that question.  I can see that the over 1,000 times I have posted this to social media it has seemed to take of and obviously I am able to borrow this graffic from someone who copied my poem.  I have seen variations of it but I can assure you mine is the original it dates dack to around March of 2017.

I did however not coin the phrase Trumpty Dumpty this was done by another Albuquerque resident that called into my friend Radio Talk Show host Norman Goldman (we met through our mutual friend Ed Schultz who just recently passed R.I.P.) you can listen to his show on AM 1350 in Albuquerque from 4-7pm Mountain (for the rest of the country check his website).  I wish I remembered the ladies name.  I first posted the peom on my Facebook page the day after the lady stated it on the show so if anyone claims copyright I can prove them wrong I wrote this enjoy"

"Trumpty Dumpty wants to Build a Great Wall"
"Trumpty Dum…

Homeless and Living with Covid 19 ~ My Personal Story

So I was diagnosed with Corona Virus on May 25th, 2020 at Martin Luther King Hospital in South Central Los Angeles. I arrived at the emergency room at 8:00am in the morning, after being triaged they suspected myself and two other gentlemen from the sober living recovery home where I was staying did indeed have the virus. So while we waited for the results which would take two hours I was scared my worst nightmare would come true I would have it, be homeless again and tossed out into the street.
     The two hours was an excruciating long time I was petrified, scared and facing the overall fact this may be it I might die. Then I remembered I have been through this before.  The first time I went in for my AIDS test back in 1986 after having been all over Europe and with many a man, I was back in my hometown in Waukesha Wisconsin and was the first ever patient at Waukesha Memorial Hospital to have the AIDS test administered. The girl in the laboratory was my friend from high school…

Liars and Buyer's and Bear's oh My!!!!!!!!! The Dow drops another 1000 points!

VS. 

If you have read my previous articles over the last couple of days I said I would be more worried if the DJIA corrected 2600 points in one day (10%)  well as of today that leaves us around 2,100 points off last week Wednesdays open.  I am still not in a panic and here is why:
Bulls vs. Bears
I'm looking at you right now stop talking to your dog and trying to make his head tilt to the side so you can do the Scooby Doo voice and say "Huh?"
What are they? Why do people on Wall Street keep referring too all these Bull markets, all these Bear Markets?  Why do people on Wall Street go South most of the time, North every so often but never East and West? These are terms that Wall Street users identify certain periods of time.  A "Bull" market is one that is charging upward (like a Bull lifting its horns upwards no end in site) while a "Bear" market means things are on the way down (like a bear striking with its claws downward)  this is also considere…