Imposing tariffs on foreign goods assists a young economy in gaining its ground. It helps new businesses and essentially new industries to have room to grow. Think of them as like those stakes you plant with a new tree to help it bear up against winds and other weather.
As a young economy flourishes the needs for government intervention is relative to where individual industries are in relation to foreign competitors. In the case of the steel tariffs Trump has imposed, there was a definite purpose for them.
China has built several steel mills from which they produce an over-abundance of steel. Their objective is clear. They understand market economics...supply and demand. They have a huge supply, they subsidize their steel industry and thus they can deal with selling their products far below market rates. In doing that, they put immense pressure on steel mills and companies globally. The goal being to put them out of business...and to have the world depend up on them for their steel.
There is a huge problem with this. Steel is the backbone of any modern industrialized nation. From making cars to building ships and airplanes. It's a core product from which the costs of everything 'upstream' from it is affected. And because of that, it becomes imperative that we, as a nation, not become reliant on any one for that product. If we have to ramp up our military for a war, we can't be depending upon a country like China for the steel we need. If we had a natural disaster and had to rebuild a city or region, we can't be completely reliant upon China for the steel we need.
In other words, while it is fine to be compelled by market forces to compete with China on the world markets, it is not right when we have to compete under unfair and manufactured market conditions. The imposition of steel tariffs on China and other countries which have become outlets for China's steel, has given our steel industry the chance to compete.
The short term problems with tariffs might be that the costs of some related goods would rise accordingly. The cost of a new car might be $100 higher. But the long term ramifications of NOT shoring up our own steel industry would be far worse.
In the face of not imposing these tariffs, our own steel industry was gasping for air and on the verge of collapsing. If that were to happen we would become completely dependent upon foreign sources of steel for every segment of our economy. Which is completely unacceptable.
The same thing was on the verge of happening to our energy independence. We had become so reliant upon foreign sources of oil and gas, when we have enough untapped sources, that we were facing serious issues overseas. When we are dependent upon the middle east for our oil, we have to become involved in regional conflicts in order to protect our supplies.
But when we tap our own resources and become energy independent, we don't have to take sides with parties in the middle east who don't have our best interests at heart. Our recent swing towards being a net exporter of oil and gas has put us in a position in the middle east where don't have to make decisions there based purely or even primarily upon protecting only our oil our interests there.
No conservative like taxes, and that's what tariffs are. But the bottom line is the long term value of those taxes. Congress knows this all too well. They do it all the time with our domestic taxes. They provide tax relief for this sector of the economy vs. higher taxes/fees for another sector. They add deductions here but reduce them there. All designed to aid or stiffen competition in areas of our economy.
Sometimes people balk at these things, but they have their place. Are they misused? Absolutely. Simply pointing out that the tax code has become a tool for politics will say all you need to know. There's a reason why the committee that writes and re-writes our tax code is such a prominent committee to be on.
Applying these principles to the notion of lower corporate income taxes. Trump's idea behind this was simple...it was doing to the rest of the world what China was doing relative to steel. But lowering corporate tax rates, essentially what Trump is doing is placing America as the premier place for corporations and the wealthy to invest their money. Its cheaper for them to invest it here. They can make more profits and accomplish more. And what are the consequences? New factories opening, millions of new jobs. Taxable activity.
But look at it by a simplistic example. Corporate ABC made, say $200M in profits last year...AFTER they parked $400M overseas and out of the reach of the IRS. They paid say $70m in taxes on that. But now this year they bring that money back into the country. They are actually able to do more business this year as well because more people have more money to spend. So they make $250M in domestic profits and another $500m they don't park overseas but keep here and pay taxes on it...at a rate of 20% say. 20% of $750m = $150m...more than twice what they paid last year.
That's how it works. That's how even with much lower rates, tax revenues rise. You see, tax revenues don't rise from higher rates. These tariffs are proof of that. The US won't collect more revenue from these higher tariffs. What they WILL do though, is help US Steel companies to stay in business, make more money and re-invest it back in the US. China won't pay more in money to the US, because they just won't do as much business here.
The same thing happens in domestic taxes. The liberals love raising taxes on the rich...their version of China. But the rich won't pay more taxes just because the rate is higher. They will simple transfer the tax liability risk to either the future, when they hope rates are lower or to a country where the profits aren't taxed as high
Let this continue for 3-4 years and watch how this economy grows.
No comments:
Post a Comment