Sunday, November 4, 2018

Tariffs Are the Greatest

On October 23, the Carl-Schurz-Haus invited to one of its successful luncheon talks. Last December Red Baron already reported on an interesting presentation on “Shielding Democracies from Hacking and Misinformation”.

On the inviting poster, I had rather recognized Bill Clinton but the following twitter indeed is that of the present POTUS.

"Without being well aware, Trump is bound in his ideas of international commercial trade to a reasoning from the Stone Age of economics," as Oliver Landmann, professor of macroeconomics at the University of Freiburg, wrote.

Another excusable slip was the wrong orthography of Schurz on Professor Tim Krüger’s introductory slide. Only in German. the "z” is sharp so that for the reason of pronounciation the French too must write quartz instead of simply Quarz as in German.

Professor Krüger started his talk by showing how the economic structural change has irreversibly hit the States over the last 160 years. Agriculture has become an economically negligible quantity while the employment in the service sector is steadily increasing. The industrial production in the States leveled off during the 1960ies and is on the decline since then.

Why is POTUS so excited about tariffs? Does he have in mind the decrease of people employed in industrial production as shown in the above graphic? Or is the reason for his excitation, “Ich sage nur China, China, China”, words our former Chancellor Kurt Kiesinger spoke as early as September 1969, while hammering with his knuckles on the speaker’s desk.
*I only say China, China, China.

The trade deficit with China indeed is huge
POTUS has accused the European Union of unfair trade practices too. Indeed, I became uneasy when I read that American import duties on European cars are only 2.5% while the EU charges car imports from the States with a 10% tariff. When in the past those percentages were negotiated the 10% were rather aimed to protect the European auto industry against car imports from Japan while the US with their big internal market for cars did not care.

Professor Krüger’s slide spoke for itself, but then he explained that the existing tariffs are the result of negotiations and compromises between trading countries in the framework of the World Trade Organisations (WTO) while in an ideal world there are no tariffs at all.

The US levies its highest duties on milk and milk products, pickups, sugar, and tobacco ranging from 20 to 50% while the EU imposes its highest tariffs on meat increasing from 21% for chicken and 26% for pork to 67% for beef. Although agriculture adds little to a national economy it still is politically extremely important. Nations must assure the feeding of their people and to this end protect their farming industries.

It still seems that the States when signing the last WTO trade agreement were more generous judging from the number of goods originating from the EU and imported into the States being exempt from any duty.

The world economy is dynamic and developing rapidly. So international trade agreements are already obsolete when they come into force. Updating existing treaties is a tedious process in particular with many countries involved in the negotiations.

WTO’s Doha Development Agenda started in 2001 and was supposed to update the existing trade agreement by 2005. But negotiations are still on and there is no end in sight. This is why POTUS prefers bilateral deals. Indeed although some punitive tariffs are already in force talks between the US and China, resp. the EU are presently taking place.

Here are the basic principles of the WTO. They explicitly allow punitive measures by one country in the case of unfair trade.

However, it seems that the States should reconsider their punitive tariffs for in the past those turned out to be detrimental for the national economy as shown on the following slide.

The impact of the 1930 Smoot-Hawley Tariff Act on the US economy
was eventually revoked by the Reciprocal Tariff Act of 1934.
Note the importance of midterm elections.
At the end of the talk - Red Baron sitting as usual in the front row (5th from the left) for better listening and watching - had learned a lot although he did not taste the luncheon lasagne but had a big plate of green salad instead.


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