Diary

An explanation of why Tariffs would hurt the United States

The United States is one of the most expensive nations on Earth. However at the same time we are very productive which has managed to keep us ahead in many ways, but not all.

The best way to look at this would be to understand how much work goes into an hours worth of production. In those regards we are near the top of expense.

We shall use a welder for this example. A welder can do so much welding per an hour. However he also has to wear regulated gear, this gear may only cost a minute in comparison to what he creates in value, but it is a cost associated with being a welder in the United States. Therefore with just the start we have an hour and a minute of labor to make an hours worth of production.

The welder has a complicated tax system compared to many nations, this will cost him another 16 seconds. He has sick leave, time off, vacation and this adds 3 and a half minutes to the clock. He has healthcare costs which currently adds a quarter of an hour to the clock. His business also must have people hired to follow many different regulations, thus adding 4 minutes to the clock.

These incremental additions never seemed like much as they were being added, but with every addition we became more expensive. This is why some of our industries started losing workers. The real costs compared to the real costs elsewhere were way out of wack. Yes we kept a lot, after the all the United States is very efficient and capable, but we also lost quite a bit.

When it comes down to it we compete against nations that may have 75 minutes of labor and cost where as we have so much cost that in some areas we may be 4 hours of cost in comparison. To produce 1 hours worth of product.

Simply put consider the following list of cost factor increases:

Government Healthcare
Corporate Healthcare
Time off Benefits
Regulated Power
Regulated Transportation
Subsidies
Highest Corporate Taxes
Local Taxes
Environmental Costs
Extra Education Costs

This list is hardly anywhere comprehensive or complete, it only shows the tip of the iceberg. Each of those costs increases the total labor required to produce an hours worth of product.

In Oregon alone trucking companies lose 4% of their gross profits to just one unneeded law for compliance. If the law was instead removed and a tax for similar revenue was applied these companies could fold the extra 4% into production.

To some of you 4% does not seem like a lot, but given that most industries generate 1 to 6% in net profits a change of 4% is huge. And it is just 1 bad law.

Tariffs will not change the labor costs in the United States. That is the fatal flaw of tariffs. To enact tariffs safely we would need to meet a level of cost efficiency per hour that would make many workers feel like slave labor again. It simply cannot be done.

A tariff is for all intents and purposes a tax upon products we cannot afford to make in the United States due to our own regulations, rules, laws, and codes. China does not have an EPA equivalent passing so many damaging regulations, nor do they have such a tax structure as we do. Russia does not ban certain lands from being drilled on as well. Others do things we would never even consider doing.

So a tariff, which is a tax upon incoming goods, is a tax upon Americans. We have to get the goods somewhere because we have made ourselves so expensive that we cannot afford ourselves in some fields. That rare earth metal from China, if we added a 20% tariff to it, would be a 20% tax we would pay for those metals.

There are some who would tariff Mexico willingly. Until they realize only the United States loses in that deal. Mexico drills oil for example. Oil, corn, peppers, cars, and other commodities/durable goods have a value. That value is represented around the world. China would leap at a chance to get Mexican oil, where we are the major foreign purchaser of Mexican oil currently. China would pay market rates, where the Mexicans would not be able to sell to us at market rates. This is true for all of their goods and services. More so is that shipping currently is highly available, with many advantages for shipping companies to replace trucking and train for Mexico. The prices will remain low for a long while, especially if the United States is stupid and tries to go it alone.

Worse it also reduces our ability to influence Mexico. Mexico could turn to the Chinese, the Russians, the Europeans… and completely tie themselves to those people. The Communists, the former Communists working on Tyranny, or the Socialists. Great choices there.

Boeing would lose contracts, we would lose many of the high value contracts where we supply high tech, big vehicles, big industry, to the new patrons of Mexico. In short Mexico would lose nothing, but we would lose a fair amount of our trade to Mexico.

In all ways the United States loses in a trade war, where Mexico would suffer only a short-term change of status. The collapsing peso actually makes it far worse for us to do a trade war, as they are becoming very attractive for developing and developed economies and the low prices really help us keep our prices at home down even more. Those lower prices allow us breathing room around those factors in our life where costs are out of control.

America would do far better if we just reduced the factors that drive our labor costs up. A tariff would only make us worse.