The recent politics and media coverage of President Trump's tariffs on metal imports give us the perfect opportunity to open our eyes and understand some simple economic truths. It's pretty much President Trump versus both the Left and the Right on this one, so it gives us a great case study to show how free market capitalism is never honestly presented to the American public. Unfortunately, by design, most of us were never taught economics in school to ensure we never questioned the trust fund elites or challenged the bureaucracies of the State. Remember, the Rothschilds always stated that they did not care who controlled the country or the empire. They just wanted to control the money. In this tariff matter, the Left is staying true to form by presenting emotional arguments which adequately incite only Hollywood actors and most everyone else in California. The Right is promoting the academic argument, yet few members of the academic sector have ever run an actual business in the United States. In Yale, Columbia, or even my beloved Air Force Academy classrooms, tariffs are a terrible idea. They are right up there with price controls. In a balanced and closed economic model, manufacturers, distributors, and retailers all raise prices when tariffs come into play. But the problem is that real world economic markets are not classrooms. My CEO friends used to enjoy telling every consultant or academic who claimed to be able to "fix" their companies, "You go make a Friday payroll for all of your employees for the first time in your life, and then you can tell me how to run my company." We are not dealing with a balanced equation in global trade matters. Do you remember in the movie, The Matrix, how Morpheus explained to Neo that the Matrix was constantly attempting to balance the equation? China subsidizes their domestic industries to produce products at much lower costs, drive out global competition, and further their long-term economic strategy. Similarly, U.S. companies drastically cut prices and greatly increase volume (think supply & demand curve) in order to drive out upstart competitors. Following the 2008 Financial Crisis, China massively subsidized their domestic solar panel manufacturers and then exported to the U.S. millions of panels priced for sale well below even their own cost to manufacture. This is called "dumping," and it was the primary cause for the U.S. solar industry's implosion. My investment firm had made a small investment in a promising U.S. solar panel producer for whom Wall Street was busy preparing to launch their Initial Public Offering (IPO). Suddenly hundreds of U.S. solar companies could not compete on price. Sales screeched to a halt, financing evaporated, and these companies ended up declaring bankruptcy. I imagine you remember the stories of President Obama's Administration losing nearly $2 Billion on solar industry guarantees during this same period, nearly losing $500 million on the company Solyndra Solar alone! For decades, European aircraft manufacturer, Airbus, has only been able to compete with U.S. manufacturer Boeing due to European state-sponsored support, to include financing, tax relief, and direct capital infusions. The U.S. has countered with government-guaranteed financing from the Export-Import (Ex-Im) Bank for Boeing. The Ex-Im Bank is advertised by politicians as a necessary free market tool for U.S. small companies, yet over 75% of the money is actually loaned to large corporations such as Boeing and GE. It is simply another way to not use the words "tariffs" or "Government subsidies," and again, unfortunately, most Americans have no idea that the Ex-Im Bank even exists, or the fact that it is spending their tax dollars (Another Post). Remember, the Government has no money. It can only spend the money that you and your neighbors agree to give it (Also Another Post). Commerce Secretary Wilbur Ross says that your new car will cost only $4 ,more due to the tariffs, so you don't have to pass on the undercoating package. But, Chief Economic Advisor Gary Cohn actually resigned from the White House over this very issue. Fortunately, an even greater free markets advocate, Larry Kudlow, has filled his position. So nobody knows whether these tariffs will eventually be determined a good or bad decision, or even if they will stay in place past next Tuesday. But, I do know that the misinformation promulgated by the politicians and the media has nothing to do with actual economics, especially behavioral economics which is a much truer, more realistic discipline. Countries act with the same characteristics and self-interests as individuals. Could it be that President Trump believes that China and the EU will only properly balance the equation if he exerts a little gamesmanship, or if he stands up to economic bullies? Could it be that he believes the path of Churchill is better than the path of Chamberlain? We will see. In the meantime, we will promise ourselves to question everything we hear, and we will strive every day to take responsibility for educating ourselves on what is really going on out there. "Capitalism, with all of its possible faults, is the top-performing economic system in the history of this planet. It motivates low-income earners, as well as high-income earners, to earn more and promote their own self-interests. - Jeff Martinovich, "Just One More: The Wisdom of Bob Vukovich," Ash Press Spring 2019.
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