Days of Change

The Steel Dossier | March 3, 2018

Almost any American (and certainly any non-American) would consider this system of government dysfunctional. The reasoning, however, changes based on the party in power, Right now, the Democrats don’t like executive authority because Trump and not Obama has it. Trump supporters don’t like the “swamp” that keeps every law on the hit parade from being passed instantly. Libertarians would have preferred that most of the laws of the last several decades weren’t passed at all.

This week we have the steel tariff. In economics, every transaction goes two ways. If I buy something, I lose money and gain an asset. The seller loses an asset and gains cash. A tariff on steel means that a company that uses steel pays for the steel and a government tax. If that company buys steel domestically, they avoid the tariff, but will pay a higher price.

The tariff is intended to combat Chinese “dumping.” Economically, dumping is selling an asset at less than its intrinsic value to gain market share. In a free market, this would be insane. However, if the Chinese government subsidized companies that engaged in dumping, it would be a long-term plan to destroy an industry so that prices could stabilize in the future.

Then again, whatever the Chinese may think they’re doing, the US companies that use cheap steel are able to make cheaper products. The companies that make the steel can’t compete with China. They also apparently can’t compete with Canada or other countries that sell steel to the US without dumping. Most of the time, Chinese products eventually become the standard, the prices remain low and American workers move from an “old” industry (buggy whips, for example)  to newer industries (intellectual property). On the other hand, we can engage in protectionism, where American companies will make products to any standard they feel like while charging up to the point of a tariff being more economical.

Every financial transaction involves getting something and losing something. The trick is getting the better value. With a tariff, the government is the only one who gets something for nothing.

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