Reed Smoot was wrong then & Trump is wrong now

[Silver]

http://www.internationalman.com//articl ... s-petition

The Candlemakers’ Petition
by Jeff Thomas

French economist Frédéric Bastiat was a man far ahead of his time. He was a “classical liberal,” which today would identify him as a libertarian. He expanded upon the free-market argument set forth by Adam Smith in 1776.

In 1845, the French government levied protective tariffs on scores of items, from sewing needles to locomotives. The intent was to protect French industries from companies outside France that could produce the goods more cheaply.

The reaction from Mister Bastiat was to publish “The Candlemakers’ Petition,” a satirical proposal to the government that was intended to help them see the nonsense of protective tariffs.

The petition was presented as having been sent by “the Manufacturers of Candles, Tapers, Lanterns, Sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.”

Their plea to the Chamber of Deputies was that the government pass a law “requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds—in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses.”

Mister Bastiat’s satirical petition did an exemplary job of exposing the tendency of governments to pander to special interest groups to the detriment of everyone else.

Throughout the ages, protective tariffs have been created for this purpose and, historically, they work only briefly, if at all.

In 1930, the US introduced the Smoot-Hawley Tariff Act, which raised tariffs on over 20,000 imported goods. Not surprisingly, the source countries for those goods retaliated by passing their own tariffs against the importation of American goods.

The net effect, in addition to the new laws cancelling each other out, was that free trade took a major hit. Consumers in all countries affected had less access to a variety of goods, and the GDP of each nation suffered as overseas orders dried up.

Of course, the justification for Smoot-Hawley was that the US had suffered a stock market crash and the demand to protect surviving businesses was considerable. It’s not surprising, then, that whenever a given country finds itself in an economic squeeze, industry leaders shout “foul!” and governments appease them with tariffs.
--
Again, not surprisingly, we observe the tariff question rearing its ugly head today, most visibly in the US, where new President Donald Trump has vowed to place tariffs on a number of countries, most notably on Mexico (20%) and China (a whopping 45%).

As is always the case when a government declares it will create a dramatic tariff, those who impose it look no further than the immediate effect—that of limiting importing goods to protect domestic industry. The immediate secondary effect is that goods from those countries suddenly become far more expensive, and domestic industry is either unable to produce the goods at all, or at best, it must do so at a much higher price.

At present, Chinese goods amount to 19% of American imports and Mexican goods amount to 12%. With nearly a third of all goods purchased by Americans during a difficult economic period increasing dramatically in price, the impact to the cost of living can be expected to be substantial. If the tariffs are extended to other jurisdictions, as in 1930, a few domestic industries would enjoy a brief period of benefit, but the population (and eventually all industry, through knock-on effects) would be heavily impacted.

So, why on earth are political leaders so quick to impose tariffs? Well, don’t forget: Tariffs are paid to the government. Any government that’s facing revenue problems will be tempted to go for a quick injection of revenue, even if it will ultimately be destructive. Regardless of how much damage tariffs do to the people of a country, tariff revenue is like manna from heaven for governments.

Of course, the revenue source tends to dry up before long as, ultimately, tariffs are destructive to free trade. Most tariffs are either abolished or at least lowered at some point. In the meantime, they’re like plaque in a body’s arteries, creating a sclerotic effect on the economy. Invariably, they’re a heavy price for a country to pay for a brief period of additional revenue that political leaders may squander.

But, understandably, the temptation is great for any government and, since memories tend to be short, governments can serially con the public into another round of protectionism every generation or so.

Returning once again to Mister Bastiat’s satirical petition, his final paragraph stated,

Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!

On the surface, tariffs sound like a good idea, but in reality, they’re veritable icebergs of economic destruction. Two principles should always be considered when musing on a tariff:

Tariffs (protectionism) never benefit a nation. They do, however, often increase the revenue received by the imposing government.

The more a people pay for products, the lower their standard of living.

Editor’s Note: It’s hard to overstate how much US consumers rely on cheap goods from countries like China and Mexico. But even without the Trump tariffs, many can already feel their once nice standard of living slipping away.

That’s because the US is on the cusp of an unprecedented economic storm—and we’re already feeling the raindrops.

[Silver]

Wow, Elder Smoot is mentioned in this article too.

https://www.sprottmoney.com/Blog/trudea ... meyer.html

Trudeau to Trump: Drop Dead! (Implications for Gold) - Peter Diekmeyer
By Peter Diekmeyer
April 3, 2017

Forty years ago, the Daily News published its famous Ford to City: Drop Dead headline, which dealt with President Gerald Ford’s response to a New York City handout request.

The article recalls Canadian Prime Minister Justin Trudeau’s message to US President Donald Trump, who has been seeking help to relieve America’s defence forces.

Trudeau’s blunt reply, delivered in last week’s Liberal budget, came in the form of vast cuts to Canada’s military spending. Just as important as the scale of the cuts was the timing, which came shortly after the US President had demanded an increase.

This sharp rebuttal has important implications for how a Trump Administration’s policies could play out on the world stage, the US economy, and yes, for gold.

First, a little background.

Donald Trump's threats

America is widely criticized for its wars, occupations, and bombings. However, the country also plays a crucial role as a global cop, which on balance, does a lot more good than bad, particularly for rich Western economies.

American soldiers guard the world's sea lanes, keeping commerce safe. Its bases in more than 100 countries help keep a range of governments in power, which are favorable to US (and Canadian) interests.

But that costs a lot of money, and American taxpayers have been footing much of the bill. American military spending, as a percentage of GDP, is roughly triple that of what other NATO counties pay, possibly more.

(The precise total is hard to determine, because reported US defence outlays exclude items such as nuclear weapons, military pensions, supplemental allocations, and the like).

Trump has demanded that NATO allies, which have been freeloading on the back of US protection, ante up. His key demand is that they abide by a target set more than a decade ago: to spend 2% of their GDPs on defence.

More important, Trump threatened to withdraw protection for laggards by hinting that the United States might not feel bound to defend countries that didn't meet their 2% commitments.

There's method to Trump's madness. Lost in his bellicose rhetoric is the fact that if NATO members adhere to his demands, it would generate huge business for American defence contractors, who produce much of the world's best equipment.

Trump's request, in short, is for foreign help to bail out America's military industrial complex.

Trudeau's response: smile, shake hands and cut defence spending

Like Gerald Ford before him, Justin Trudeau never actually voiced the words "Drop Dead." In fact Trudeau's recent meeting with the US president was characterized by smiles, much-publicized handshakes, and a co-announcement with a swooning Ivanka Trump of a new initiative to advance women's rights.

Then Trudeau got on a plane, went home, and did exactly the opposite of what Trump demanded. Worse, the $8.4 billion in "re-profilings" that Trudeau's government announced amount to the largest defence cuts in recent history.

Canada has no enemies to defend against, Trudeau is betting. Even if it did, with time and winter as our allies, Canada could defeat any invading force, the thinking goes.

Implications for gold and the economy

Trudeau's slap in the face of a nascent Trump Administration has huge implications for its agenda going forward. The most obvious of these relates to Trump's "America First," trade policies.

As previously highlighted (see Smoot-Hawley, Donald Trump's economic mentors), the idea that the United States can set up trade barriers without encountering serious retaliation is a pipe dream.

Unless Trump changes his bullying tactics, he is similarly unlikely to get his way with Congress. Like Trudeau, US Senators (both Republicans and Democrats) will simply smile at his tax cut, health care, and deregulation proposals, play along, and then filibuster to ensure they never make it to the floor.

There's even a takeaway for investors worried that Trump, who is facing the same liquidity trap that Franklin Delano Roosevelt faced during the 1930s, might similarly respond by seizing Americans' gold.

Because a Trudeau government that ignores Trump's threats on defence provides a strong signal that it would also be unlikely to comply with US expropriation requests related to American gold stored in Canada.

Trump is a quick learner. But whether he can adjust his tactics fast enough to force a shift in Canadian policy remains an open question.

[gclayjr]

Silver,

In 1930, the US introduced the Smoot-Hawley Tariff Act, which raised tariffs on over 20,000 imported goods. Not surprisingly, the source countries for those goods retaliated by passing their own tariffs against the importation of American goods.

In 1930, we were a net exporter. When a tariff stifled trade, we lost. Today we are a net importer. I'm not sure that a tariff would have the same result.

What good are cheap goods, if we don't have jobs, and just buy those cheap goods on credit?

I'm not sure that a tariff today would have the same result today as then. Also, I think producing and having jobs, and living economically, even if prices go up, is better than not having jobs and foolishly spending because goods are cheap and credit easy.

Regards,

George Clay

[Silver]

Silver,

In 1930, the US introduced the Smoot-Hawley Tariff Act, which raised tariffs on over 20,000 imported goods. Not surprisingly, the source countries for those goods retaliated by passing their own tariffs against the importation of American goods.

In 1930, we were a net exporter. When a tariff stifled trade, we lost. Today we are a net importer. I'm not sure that a tariff would have the same result.

What good are cheap goods, if we don't have jobs, and just buy those cheap goods on credit?

I'm not sure that a tariff today would have the same result today as then. Also, I think producing and having jobs, and living economically, even if prices go up, is better than not having jobs and foolishly spending because goods are cheap and credit easy.

Regards,

George Clay

George,
I think the lesson is that the average Joe always loses when the government starts regulating/taxing something. Why don't the busybodies in WashDC just get out of the way and allow me to decide what I want to buy & from whomever I want to buy, whether domestic or foreign, whether with cash or with credit, whether I pay with a chunk of metal or with tulip bulbs?

No matter how you slice it though, I'm convinced that paying more for a widget so the government can get a tariff only impoverishes me and enriches & emboldens the tyrants.

[gclayjr]

Silver,

The government DOES need money. If you study your constitutional history, you will find that before the 16th Amendment to the constitution, the primary means for funding the federal government were through tariffs. Perhaps this is a better means than income taxes. While we need a dramatically smaller government, we DO need a federal government.

Maybe we should go back to the original constitution this way also.

Regards,

George Clay

[simpleton]

Well i notice that not one word on the tarriffs that for example Mexico has on the goods imported from the USA to Mexico, I notice that is never discussed but from personal experience, all goods imported into Mexico have a 16% federal tax, duty, tarriff or whatever you want to call it. Another thing discussed somewhat but not enough is that the reason it's "free trade" into the USA ( or minimum or no tariffs)is that mostly the goods coming into the USA are from american companys that went overseas or into mexico to take advantage of cheap slave labor to make much more profit. Those american company's are the ones directly culpable of the "free trade" agreement.
What I agree with Trump in is his "fair trade" talk , let's just simply put the exact same tariff on goods being imported into the USA that other country's put on American goods going into their country.
But there is one problem that you will never ever resolve, and that is America cannot or ever will compete with slave labor. But how long can out of work Americans continue to buy cheap imported goods? That remains to be seen, but I don't think to much longer.
But do not blame other countries for their relatively almost free access to the American market, rather look within at all the political leaders in the pockets of the major corporations of America. They are the ones profiting upon the so called free trade at the expense of the slaves in america....