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DAVID KRUSE

By Staff | Oct 19, 2018

I think that most farmers know who John Phipps is. He is a Farm Journal columnist, a farmer who shares his writings on all of their mediums including Ag Day TV. John is a low key but professional farm advocate who is well educated and must have been a boy scout, which is still meant as a compliment by me. It doesn’t take much emotional intelligence to see very quickly that Trump tariffs and subsequent trade war bothered him to his very core being. These tariffs and John’s moral compass, intellect and promotion of the well-being of the agriculture could not conflict more. John is not one to belittle others but felt compelled to share his knowledge and understanding of what tariffs do to us, not for us. He wrote a series of primers on Tariffs…101, 102, and 103 “outlining the fundamentals of tariffs and how they impact international trade.”

In Tariffs 101, he correctly teaches that tariffs are taxes -period. They are taxes used as penalties in order to try to get someone to do something other than what they are currently doing…that someone wants them to change their conduct in order to avoid. It is not a polite request. It is a bullying tactic. Often the one who pays the tax is not the one it is levied upon.

When the U.S. puts a tariff on foreign made steel, all steel prices rise and whoever buys steel pays more for it. They in turn increase the price of what they are making from the steel and charge their customers more to compensate. The primary impact of tariffs is that costs go up.

John Phipps Tariff 102 was, “Do tariffs accomplish policy goals?” They get an F based on their historical record of accomplishing what they were intended to. Phipps cites the poor record of the more recent Obama and GW Bush steel tariffs but the long-term history of tariffs leading to things other than bad economic results and even hot wars, is worse. The Smoot Hawley Tariff Act of 1930 worsened the Great Depression making Germans more vulnerable to Nazi propaganda and the U.S. oil embargo on Japan caused them to strategically make decisions that led to their attack on Pearl Harbor. We did not start the war with Japan, Japan started the war with us. You can choose to place a trade embargo on another country in order to get them to do what you want them to, but you do not get to choose how they respond.

Trump’s trade embargo on Iran and countries that do business with Iran that do business with us, is historically a potential flashpoint. Trump is angry about higher oil prices, blasting OPEC, as oil interests get ready but his pending embargo which is the cause of higher oil prices disrupting the Gulf oil supply chain. China is no longer buying oil and LNG from us boosting purchases elsewhere such as in West Africa.

These trade embargos and tariffs have geopolitical objectives and repercussions beyond trade. Many in the Trump administration do not like the rise of China and want to take it down a few pegs. They are also allied with the Saudis and their Gulf allies getting involved in a sectarian war with Iran. We have no strategic oil interest in the Mid-East anymore so we are not there because of trade or oil. We have our own energy. Trade, tariffs, and embargos are being used as a guise to justify larger objectives.

I got a little away from Phipps’s question “will they work” and the answer is ‘no,’ if the objective was to return jobs to the US. Putting tariffs on China, thinking U.S. companies will turn to domestic suppliers, that is foolish anticipation. First of all, domestic suppliers do not exist for many of the goods that we import and they could not come close to competing with the cost of imports. What will happen is that when a 25 percent tariff is put on a widget being imported from China it will instead be made and imported from Vietnam, Indonesia, Korea or even Germany. They will be more competitive than making it in the US, so we simply shift buying from China to elsewhere at a higher cost. Not everybody loses. We are “Making Russian, Ukraine, Australian and South American Agriculture Great!”

So, in order to force the re-domestication of manufacturing, tariffs would have to be placed on the products themselves regardless of country of origin. Essentially tariffs would have to make it too expensive to buy goods from anyone anywhere else in order to force companies and consumers to pay more to make and sell them here in the U.S.

The larger problem is that the more we press the world with protectionism the more they will reciprocate. U.S. exports will decline as will global trade in general. When global GDP expands, the world is a calmer safer place than when it doesn’t.

John Phipps primer Tariff 103’s point was that, “Tariffs divide us.”

A lot of taxpayers are now wondering why farmers are getting billions of dollars in tariff aid when they too are paying more and getting less because of the trade war and they are not compensated. GM lost a billion dollars just off the steel/aluminum tariffs alone. The Trump tariff aid has one primary objective, which is entirely political – to buy votes so they can continue to pursue the trade wars. Farmers voted for the trade wars once not really knowing that they were the pigs contributing the ham to the ham and egg breakfast that Trump was having. Next, we get to see whether farmers are smarter than the pigs, or are willingly consenting to the slaughter. 84 percent of farmers think that we are in an ag recession that 65 percent or so of them voted for.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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DAVID KRUSE

By Staff | Oct 19, 2018

I think that most farmers know who John Phipps is. He is a Farm Journal columnist, a farmer who shares his writings on all of their mediums including Ag Day TV. John is a low key but professional farm advocate who is well educated and must have been a boy scout, which is still meant as a compliment by me. It doesn’t take much emotional intelligence to see very quickly that Trump tariffs and subsequent trade war bothered him to his very core being. These tariffs and John’s moral compass, intellect and promotion of the well-being of the agriculture could not conflict more. John is not one to belittle others but felt compelled to share his knowledge and understanding of what tariffs do to us, not for us. He wrote a series of primers on Tariffs…101, 102, and 103 “outlining the fundamentals of tariffs and how they impact international trade.”

In Tariffs 101, he correctly teaches that tariffs are taxes -period. They are taxes used as penalties in order to try to get someone to do something other than what they are currently doing…that someone wants them to change their conduct in order to avoid. It is not a polite request. It is a bullying tactic. Often the one who pays the tax is not the one it is levied upon.

When the U.S. puts a tariff on foreign made steel, all steel prices rise and whoever buys steel pays more for it. They in turn increase the price of what they are making from the steel and charge their customers more to compensate. The primary impact of tariffs is that costs go up.

John Phipps Tariff 102 was, “Do tariffs accomplish policy goals?” They get an F based on their historical record of accomplishing what they were intended to. Phipps cites the poor record of the more recent Obama and GW Bush steel tariffs but the long-term history of tariffs leading to things other than bad economic results and even hot wars, is worse. The Smoot Hawley Tariff Act of 1930 worsened the Great Depression making Germans more vulnerable to Nazi propaganda and the U.S. oil embargo on Japan caused them to strategically make decisions that led to their attack on Pearl Harbor. We did not start the war with Japan, Japan started the war with us. You can choose to place a trade embargo on another country in order to get them to do what you want them to, but you do not get to choose how they respond.

Trump’s trade embargo on Iran and countries that do business with Iran that do business with us, is historically a potential flashpoint. Trump is angry about higher oil prices, blasting OPEC, as oil interests get ready but his pending embargo which is the cause of higher oil prices disrupting the Gulf oil supply chain. China is no longer buying oil and LNG from us boosting purchases elsewhere such as in West Africa.

These trade embargos and tariffs have geopolitical objectives and repercussions beyond trade. Many in the Trump administration do not like the rise of China and want to take it down a few pegs. They are also allied with the Saudis and their Gulf allies getting involved in a sectarian war with Iran. We have no strategic oil interest in the Mid-East anymore so we are not there because of trade or oil. We have our own energy. Trade, tariffs, and embargos are being used as a guise to justify larger objectives.

I got a little away from Phipps’s question “will they work” and the answer is ‘no,’ if the objective was to return jobs to the US. Putting tariffs on China, thinking U.S. companies will turn to domestic suppliers, that is foolish anticipation. First of all, domestic suppliers do not exist for many of the goods that we import and they could not come close to competing with the cost of imports. What will happen is that when a 25 percent tariff is put on a widget being imported from China it will instead be made and imported from Vietnam, Indonesia, Korea or even Germany. They will be more competitive than making it in the US, so we simply shift buying from China to elsewhere at a higher cost. Not everybody loses. We are “Making Russian, Ukraine, Australian and South American Agriculture Great!”

So, in order to force the re-domestication of manufacturing, tariffs would have to be placed on the products themselves regardless of country of origin. Essentially tariffs would have to make it too expensive to buy goods from anyone anywhere else in order to force companies and consumers to pay more to make and sell them here in the U.S.

The larger problem is that the more we press the world with protectionism the more they will reciprocate. U.S. exports will decline as will global trade in general. When global GDP expands, the world is a calmer safer place than when it doesn’t.

John Phipps primer Tariff 103’s point was that, “Tariffs divide us.”

A lot of taxpayers are now wondering why farmers are getting billions of dollars in tariff aid when they too are paying more and getting less because of the trade war and they are not compensated. GM lost a billion dollars just off the steel/aluminum tariffs alone. The Trump tariff aid has one primary objective, which is entirely political – to buy votes so they can continue to pursue the trade wars. Farmers voted for the trade wars once not really knowing that they were the pigs contributing the ham to the ham and egg breakfast that Trump was having. Next, we get to see whether farmers are smarter than the pigs, or are willingly consenting to the slaughter. 84 percent of farmers think that we are in an ag recession that 65 percent or so of them voted for.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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