And I think it’s gonna be a long long time
‘Till tariffs come down again
I’m not the man the market thinks I am
Oh no no no I’m a tariff man
– paraphrasing Rocket Man (starts tonight)

 

Tariff man hit me right in the gut and wallet last night.  Then the Warriors lost the first game of the NBA finals.  A night ruined.

I snapped this picture on Wednesday in celebration and gratitude for free trade.  True story.   I paid $4.99 for my last watermelon purchase.  That’s a $2.00 increase in my real income and purchasing power just from transacting in one item, folks.  Add it all up and it’s real money to be spent and spread around to create more American jobs.

Who will pay the 5-25 percent prospective tariff on the watermelon?  It will be the American business who imports the watermelon, who will then calculate if they can pass the additional cost of the tariff on to me depending on how sensitive my demand for watermelons is to price changes and how easy it is to substitute for non-Mexican melons.  Economic geeks call this the price elasticity of demand.   Either way, Americans pay 100 percent of the tariff.

Will Mexican exporters lower the price of the watermelon to compensate for the price increase in the United States and maintain their domestic price as the peso weakens?  TBD.

But either way,  make no mistake Americans will still pay the tariff (tax) that flows into the U.S. Treasury coffers.   Trump adviser Peter Navarro is dead wrong, which is surprising given his Ph.D. in econ, or he is trying to mislead the public.  We’re not having it.

By the way,  I didn’t feel like a fool nor feel abused as POTUS seems to suggest when I purchased the Mexican watermelon on Wednesday.

Furthermore, my family has suffered from the dark side of immigration more than most.  We completely reject the hysteria and racism this administration whips up and obsesses over and won’t seem to let go.  Yes, America needs sensible and effective immigration and border policies, which strike at the root of the problem but come on, man.  

No Surprise

Source:  Wall St. Journal via @scottlincicome

We were not surprised about Trump’s Mexican tariff announcement, and neither should you if you have been reading the Global Macro Monitor during the past few years.  We concluded early on in this administration, Trump is 1)  not a free trader; 2) does not understand basic trade theory, and 3) he has no strategic plan for a  trade or industrial policy.

Furthermore,  we don’t believe President Trump is a free trader at heart but more of a protectionist and neo-mercantilist.  There is no “Art of the Deal” – see his waffling on immigration  – and no method to the administration’s madness to negotiating anything, for that matter,  but only driven by impulse and myopia.  — Global Macro Monitor, June 24, 2018

Anyone who works with him knows he is not moored to any discernible first principles that guide his decision making….President Trump’s impulses are generally anti-trade and anti-democratic.  – Anonymous,  NY Times,  September 5, 2018

After all,  tariff man believes “the word TARIFF is a beautiful word indeed!”

God help us.

The Delusion Of Mr. Market

The market continues to delude itself that Trump is just using the hammer and sickle of tariffs to further crack open foreign markets to U.S. exporters.  Obviously, Mr. Market didn’t get the memo.

The problem is the lack of U.S. leadership in dealing with and compensating the losers from free trade — ironically not the losers from protectionism, see the $26 billion in subsidies to farmers — and has created a vacuum that Trump can fill with his impulses, which, we believe, if not checked will set the world on fire and lead to disaster.

Is It A Bluff?

Is Trump bluffing on Mexican tariffs?   We don’t know and one would think so if he wants to run on the strong economy and be re-elected.  That’s too rational, however.

T-minus 10 days and counting before Mexico will be forced to retaliate.