The 20% Tariff Trump wants will slay American economic freedom!
Well! It actually happened, the Donald has actually come up with the fiscally worst idea ever for building his much Unneeded border wall. Specifically, he wants to force a 20% tariff on trade with Mexico. On part of him and all of his fan base there is a giant lack of knowledge of trade. Also, there is a giant lack of knowledge of economics in general. In order to analyze this news objectively, I need to break down a few things. Firstly the trade between us and Mexico, and secondly the ease of starting business here versus there. Next, I will have to carefully explain how tariffs inherently do nothing but destroy job creating potential. Finally, I will have to propose a proper trade policy for America to preach and practice.
Monetary Benefit of Trade
Amazingly, the Census bureau, of all clubs, records data on US trade overseas, including with Mexico. And every time we import from them, they create jobs for Mexicans. Meanwhile, every time they import from us, we create jobs for Americans.
For example, just last year, we earned $212 billion exporting to them while they earned $271 exporting from us.
Ease of Creating Jobs here vs there
In the United States, starting a business means 6 procedures that take 4 days and in total cost $750. However, in Mexico, starting a business means 8 procedures that take 8.5 days and once finished cost $1855.
Going back to the Census data above, this means trade with Mexico opened potential for nearly 283 million American businesses. Ah, but this also opened potential last year for 146 million Mexican businesses! Who benefitted more from Mexican-American trade and why? We did because more economic liberty! And if a business starts off with 15 people normally, that means 4.25 billion American jobs. But, it also means 2 billion Mexican jobs.
How tariff is a synonym for cancer
Just as income tax reduces incentive to be locally useful, so too does the tariff reduce incentive to be globally useful. Simply, I will use Trump’s 20% tariff idea as my example in these equations.
If this 20% tariff toxin passes then in 2017 we will have much fewer new jobs than in 2016. America for one will have 750 million fewer new jobs than in 2017. Meanwhile, Mexico will have 400 million fewer new jobs than last year. So who will suffer more monetarily from this tariff idea: the US or the US?
What is healthy US trade policy?
A grand intellectual influence of mine, Yaron Brook, summed it up masterfully on Twitter one time. He said ‘free trade is not making deals. Free trade is unilaterally lowering foreign governments’ tariffs, regulations and migration limits to absolute zero’. Even though these are in no way his exact words, I cannot possibly disagree with Brook on this!
And that is what I want to see be the first pillar of four in US foreign policy, and in a better world Austin Petersen would be POTUS and he’d be making that Pillar #1 of an aptly named “Petersen Doctrine”.