• Victor C. Bolles

Weaponizing Trade


Apparently in a fit of pique during the long flight back from Japan on Air Force One while enduring the nattering of top aide Stephen Miller, President Trump decided to impose tariffs on Mexico. Not because of the persistent trade deficit between the two countries which, presumably, has been resolved by the USMCA trade pact (that’s the new NAFTA for the acronymically impaired). No, he is imposing tariffs on Mexico as punishment for their inability to control Central American Immigrants from trekking across their country in order to assail our unwalled open borders pleading for refuge from their home countries (obviously agreeing with the opinion of Donald Trump regarding their countries).


But this is a typical response often used by populists. Guided, not by principle or reason, but by the popular reactions to any policy or action, populists go by the theory of “whatever works.” This is the same theory employed by president Obama but on the other side of the spectrum. The policy or action that a populist takes does not have to actually solve anything, it only has to appeal to the base of the populist leader. It does not even have to have any relationship to the problem at hand, as is the case of the imposition of tariffs on Mexico.


It doesn’t matter that Democrats oppose this policy. It doesn’t matter that most economists think that these tariffs are harmful to the economy. It doesn’t even matter that many Republicans oppose this policy or that the President may not have the authority to impose these tariffs (because the Constitution gives Congress the power “to lay and collect taxes, duties, imposts and excises” (in other words tariffs) and also to ”regulate commerce with foreign nations”. It only matters if the base approves.


It doesn’t matter that Mexico has little ability to stop the flood of immigrants crossing their country. We can’t stop them from crossing into our country, what makes you think that the Mexicans have any more power to stop them from crossing into their country? They have even less money than we have to hire border patrol officers and build barriers. They also may have laws that impede their ability to staunch the flow just as we do. They have less ability to incarcerate illegal border crossers than we do and have just as many citizens protesting harsh treatment of these illegal immigrants.


And all those drug dealers and gang members that President Trump wants to keep from crossing our borders. Keep in mind that the reason why drug dealers send so much cocaine, heroin and fentanyl across the border is due to the insatiable appetite of Americans for these drugs. And also keep in mind that if we had a wall and were able stop the flow of immigrants, that drug dealers would just find new ways to get drugs to their ravenous customers (unless that is another industry that President Trump wants to produce more in our country). And those nasty guys in MS-13? They got their start in Pico Rivera, which is in Los Angeles, not El Salvador.


But these new tariffs are not meant to stop illegal immigration but to punish Mexico for not stopping illegal immigration. The president of Mexico, Andres Manuel Lopez Obrador or AMLO, sent a very polite letter to President Trump requesting negotiations on immigration. Actually, an overly polite letter intended to not unleash another deranged twitter storm. Flippant or angry comments made on Twitter become policy for a narcissist that believes he is never wrong.


Markets are hopeful that the President will change his mind. The stock market tanked when the president announced this new round of tariffs, even though today (Tuesday, June 4th) they have rallied. But they rallied because the Fed has hinted it may have to lower interest rates to counteract the negative impact of the tariffs (once their cocktails wear off they will realize that the only reason the Fed would lower rates is to avoid or lessen the coming recession). The stock market, which did great in President Trump’s first year in office has been range bound for over a year, twitching down at every twitter storm.


I don’t know what President Trump wants the Mexicans to do about our immigration problem. Can they do more? Yes, probably. But like many of the problems we face, uncontrolled immigration is not easily solved. If a business deal fails, you shrug your shoulders and move on (often leaving investors hanging and lenders holding worthless paper). The Mexicans have been our neighbors for over two hundred years. They are not going away. Better to try and work with them to solve common problems than to threaten and insult them.


 

And while we’re at it.


President Obama was a fan of the “whatever works” philosophy. After visiting Cuba in 2016, he told students in Argentina, “You don’t have to worry about whether it neatly fits into socialist theory or capitalist theory — you should just decide what works” (see What Works, March 29, 2016).


You don’t need principles. You don’t need to understand how things work. Or what motivates people to do what they do. You don’t need to study Adam Smith or Karl Marx, let alone Daniel Kahneman or Robert Sapolsky. You determine the outcome you want and pass a law to mandate that outcome.


If the minimum wage doesn’t provide a “living wage” then pass a law that order all employers to pay a minimum wage of an arbitrarily defined “living wage” of $15 an hour. Ignore the fact that entry level wages are low because new entrants to the job market lack the skills and training necessary to be a valuable resource to employers. Ignore the fact that these low wages are not intended for adults with job skills and valuable experience. Ignore the fact that poor people earning the minimum wage lack the education and dedication to warrant pay above the minimum wage. While you are at it, ignore the fact that if poorly educated people cannot provide labor to the employer worth the arbitrarily set minimum wage, they will be unemployed poorly educated people with few prospects.


If you think that rental housing is too expensive then you can pass a rent control law to prevent rent increases and limit evictions as was recently done in Oregon. Ignore the fact that rent control like any form of price control does not work. Ignore the fact that if high prices increase supply then restrictions on prices will reduce supply. Ignore the fact that a news article quoting politicos and community activists praising rent control in Oregon also lamented the housing shortage in the same article. Forget supply and demand, just pass a law to get the outcome you want.


President Trump and populist Republicans are not immune to the “whatever works” disease. If you can’t get your administration or the Congress to address the issue of Immigration, blame Mexico and impose tariffs on them until they stop the flood of immigrants arriving on our southern border. Ignore the fact that there are very few Mexicans in these hordes. Ignore the fact that tariffs have nothing to do with immigration, they are just another weapon to be used to try and get your way. Ignore the fact that the tariffs will disrupt trade between our countries and cause as much pain for Americans as for the Mexicans – plus you will still have hordes of people streaming over the border.


Politicians of all stripes like “what works” solutions. They are simple and are easy to communicate to voters. The fact that they rarely work and often have harmful unintended consequences are ignored (and besides the failure and consequences occur later and are someone else’s problem).


Do not be fooled. Demand that your representatives support meaningful immigration legislation. Demand that your representatives provide the funding support to hire the immigration and border patrol officials and to construct the facilities needed for the job (even if it includes some walls).

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