Education, Education, Education

The primary purpose of this format will be education.

I'll discuss topics from economics to well anything that I feel like. I'll try to keep the jargon to a minimum so it more accessible for everyone.

Why education as the theme of this blog? Education is the foundation of understanding.

First some information science; Information is just that a piece of data. Giving that information context transforms the information into knowledge. Understanding comes when that knowledge is applied in the correct circumstance.

So with that said, let's look at a topic that very few people truly understand. The reason for this is Tariffs have not been used in the United States except very sparingly in over a century.

Tariffs.

Tariffs are a central part of President-elect Trump's economic plans yet very little effort has been made to understand how tariffs will be used by the new administration.

First, what is a tariff? A tariff is a fee charged on a good or service as it crosses the border of a nation state. In many ways it is like a monetary fence. Tariffs serve three primary functions, to raise revenues for the federal government, to protect native industries by restricting imports and providing negotiating leverage for trade agreements.

Tariffs were the primary source of tax revenue for the Federal Government until 1913.

Of the three, direct revenue generation is the lease important. This comes back the the reason for the US Constitution which for the government to protect the rights of Americans. As the chart above shows tariffs provided that funding to the federal government from 1789 till 1913. The income tax and federal reserve are out the scope of this post, but don't worry Ill get to them. They are after all a tax on your liberty. After the 16th Amendment in 1913 created the income tax it would bring in the bulk of federal revenue. Payroll taxes would be added during WWII.

Back to tariffs and reason number two. Protection of native industries. This is the heart of the Trump tariff policy. Since the creation of the Brenton woods economic system at the end of WWII, American economic policy has taken a back seat to security policy. The Brenton woods system exchanged free access to the US market for the right to determine the security policy of the collective west during the Cold War. At the end of WWII when the US was 50% of global GDP this was a good deal for the United States. As I right this the US is 26% of global GDP and only 15.5% in terms of purchasing power. We can no longer afford to fund the world through free and unbalanced trade. No longer will American industries be left exposed to unfair trade practices such as, product dumping or currency manipulation. Critical industries will be protected and that will result in good wages for their workers.

It's time for the business of the United States to be business again. Steps were made in this direction during the first Trump administration. Renegotiating trade deals with Japan, Canada and Mexico. Imposing the first tariffs on China since it joined the World Trade Organization. There is still much more to do. President Trump has spoken of using tariffs to achieve goals beyond just purely economic ones. This will have the knock on affect of bringing people back into the labor force. There are approximately 7 million Americans not looking of work and are not counted as part of the labor force.

The American Middle Class has paid the bill for Globalization

These unbalanced trade deals wrecked the American middle class over the last 20 years. They have paid the price of globalization. We all know this and no amount of gaslighting by the government, media or anyone else can erase what the chart above shows. This is where the heavy lifting will be done using tariffs. The Trump admin will control access to the US market through bi-lateral trade deals and enforce these deals with tariffs. Moving whole companies to the US to produce goods rather than importing them.

This is a very simple look at how tariffs will have a positive impact on the US economy. They are only part of the solution.

Until then, see you in the Arena

Joel