The World is Now a Game Show and The Price is Not Right. It's Very Very Wrong.
The Destructive Path of Tariffs: Market Interference and High Costs Passed on to Taxpayers.
The term "tariff" is essentially a tax on imported goods. Conservatives traditionally advocate for low taxes and free markets, creating a paradox in supporting high tariffs. This stance contradicts core conservative principles of minimal government intervention and free trade, presenting a conundrum where protectionist policies clash with long-held ideological beliefs about economic freedom and limited taxation.
During his campaign, Trump proposed extensive tariffs as a punitive measure against foreign exporters. He suggested a 60% tariff on Chinese imports and 10-20% on goods from other countries.
Trump also floated the idea of replacing the federal income tax with revenue from significantly increased tariffs, calling "tariff" the "most beautiful word in the dictionary"
Trump threatened to impose 100% tariffs on BRICS countries if they attempt to move away from using the U.S. dollar in international trade.
Specifically, he stated, "We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy."
He emphasized that there is "no chance" BRICS will replace the U.S. dollar in global trade, warning that any country trying to do so "should wave goodbye to America."
This threat was directed at the BRICS alliance, which includes Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates.
Trump's statement came in response to discussions among BRICS nations about potentially creating their own currency or using local currencies for international trade to reduce dependence on the U.S. dollar
This would be political suicide so it was just a threat
A 100% tariff would effectively double the cost of imported goods, as the full tariff amount is typically passed on to consumers. This drastic price increase across a wide range of products would severely impact American households' purchasing power, potentially leading to widespread economic hardship and voter backlash, making it politically untenable.
What would Ludwig von Mises say?
Ludwig von Mises viewed tariffs as market interferences that lead to higher prices and economic inefficiencies. He argued that tariffs distort price signals, which are essential for efficient resource allocation in a free market economy.
By artificially inflating the price of imported goods, tariffs disrupt these signals and lead consumers and producers to make suboptimal choices.
Mises contended that such protectionist measures benefit specific industries at the expense of consumers and overall economic efficiency.
The short-term advantages gained by protected industries are often dissipated as new entrants are attracted to the sector, ultimately leading to a cycle of seeking further privileges
Bob Coleman had interesting insight on the Tariff topic related to precious metals
Mexico, Canada, Australia, and China are among the world's largest producers of gold and silver.
Implementing tariffs on these countries would significantly impact the global precious metals market, including the trade of good delivery Comex gold and silver bars from their approved refiners.
The potential implementation of tariffs by President Trump in January 2025 could create a complex situation for short sellers and institutions with gold or silver short positions on the Comex.
These players may face a dilemma when closing their positions, as they would either need to buy back the short or deliver metal subject to tariffs.
Consider a scenario where a trader sells 100 silver contracts against their existing physical position, with a spot price of $31 and a March Silver contract price of $31.50. In a tariff-free environment, this trade could potentially yield a $250,000 profit. However, if a 20% tariff is implemented, the cost to deliver silver held outside the USA could increase dramatically.
The implementation of tariffs could make certain bars economically undeliverable, forcing short sellers to buy back their positions. This sudden buying pressure could lead to a spike in the Exchange for Physical (EFP) premium, potentially causing significant losses for financial entities typically net sellers of the EFP.
For silver, approximately 45 out of 140 approved hallmarks could be affected by tariffs, further complicating the market dynamics. The introduction of tariffs on major gold and silver-producing countries could disrupt the existing system, potentially forcing heavy losses on financial entities and reshaping the global precious metals market.
Ludwig Von Mises could not have seen the treasonous sell out of American politicians transferring our in-country manufacturing to China, Mexico, and other low cost (slave?) labor nations this gutting our middle class. We need to rebuild that manufacturing infrastructure and tariffs, which is us buying our capabilities back into the US, is thoroughly justified and necessary. The example of precious metals, and I know this is the Silver perspective newsletter, is nonetheless tunnel visioned. The overall health of our manufacturing base and rebuilding our middle class is the bigger picture.
Tariffs are badly misunderstood by 99% of the people who comment on them.
In practice, a tariff is NOT applied to the retail price of the product.
A tariff is applied to the good or product based on the ‘first sale price’. In other words, at whatever price the manufacturer sells the product to the first level of distribution, that is where the tariff is calculated. It cannot be any other way. Not logically, or logistically.
It would take 1000s of words to adequately explain how this works in practice and why this is the only way tariffs can be applied. So I won’t bore anyone with all of that. But, let’s use an example.
In 2024 Black and Decker builds a toaster in China. They sell it to a Distributor in Hong Kong for 14 dollars. After 2-3 more distribution steps the toaster ends up on the shelf at Walmart for $60.
In 2025 there is a 25% tariff on products made in China. Apply the tariff to the ‘first sale price’ and the amount of the tariff is 3.50. If Walmart passes along the entire cost of the tariff the toaster now costs 63.50. A 5.8% increase. Not insubstantial, but not 25%.
In practice, completion will likely result in some, but not all of the tariff being passed along to the consumer. I’m not arguing for tariffs one way or the other.
But the amount of misunderstanding of how they work is, like I said, around 99%.