Tariffs raised the Price of Honey while failing to keep Chinese Honey out of America

Posted by PITHOCRATES - September 28th, 2013

Week in Review

The typical argument for tariffs is that they will save American jobs.  But the cost of the tariffs added on to the products costs us a lot more than the wages of the jobs they save.  Because there are more consumers than producers.  So tariffs help a small percentage of the population while hurting a much larger percentage of the population.

Also, the cost difference between the more costly domestic produced goods and the much lower priced imported goods invites crime.  Because if you can get that lower-priced import and sell it at the higher tariff price you can make a lot of money.  So much money that some people can’t resist breaking the law (see The Honey Launderers: Uncovering the Largest Food Fraud in U.S. History by Susan Berfield, Bloomberg Businessweek, posted 9/23/2013 on Yahoo! Finance).

Americans consume more honey than anyone else in the world, nearly 400 million pounds every year. About half of that is used by food companies in cereals, bread, cookies, and all sorts of other processed food. Some 60 percent of the honey is imported from Argentina, Brazil, Canada, and other trading partners. Almost none comes from China. After U.S. beekeepers accused Chinese companies of selling their honey at artificially low prices, the government imposed import duties in 2001 that as much as tripled the price of Chinese honey. Since then, little enters from China legally.

In September 2010… ALW perpetuate a sprawling $80 million food fraud, the largest in U.S. history… to illegally import Chinese honey…

…E-mails mention falsifying reports from a German lab, creating fake documents for U.S. customs agents, finding new ways to pass Chinese honey through other countries, and setting up a Chinese company that would be eligible to apply for lower tariffs…

ALW relied on a network of brokers from China and Taiwan, who shipped honey from China to India, Malaysia, Indonesia, Russia, South Korea, Mongolia, Thailand, Taiwan, and the Philippines. The 50-gallon drums would be relabeled in these countries and sent on to the U.S. Often the honey was filtered to remove the pollen, which could help identify its origin. Some of the honey was adulterated with rice sugar, molasses, or fructose syrup.

Another argument for tariffs is that they keep inferior and dangerous goods out of the country.   Like this Chinese honey adulterated with ”rice sugar, molasses, or fructose syrup.”  So the tariffs didn’t do much to keep this inferior good out of the country.  It just made people pay three-times as much for this inferior product.  While making the Chinese and American honey industry richer.

Tariffs never help consumers.  They only help the businesses granted tariff protection.  And criminals.  While the consumers have to pay more for less.  Just so a small percentage of the population can keep their high-paying jobs.  Or sell their honey at three-times the market price.



Tags: , , , , , , ,


Posted by PITHOCRATES - September 9th, 2013

Economics 101

The Proponents of Tariffs say they will Protect Infant Industries and Domestic Jobs

Tariffs.  What are they?  And what are they for?  A tariff is a tax.  Or a duty.  The government applies tariffs to imported goods.  Making them more expensive.  So people have to spend more money for them.  Leaving them less money to spend on other things.  Which seems counterintuitive to trying to increase economic activity.  Increasing prices the consumers pay, leaving them less money to buy other stuff.  So why do they do it?

The argument for tariffs is typically to protect ‘infant’ industries.  To give them a chance to get off the ground and establish themselves.  So they can later compete with this more developed and less costly foreign competition.  Which they couldn’t do if those foreign competitors can sell goods just as good if not better at lower prices.

Another argument is that tariffs protect domestic jobs.  A lot of imported goods are less costly than the same domestically produced goods.  Because of less costly labor in these other countries.  Often developing economies.  Unlike the developed economies who pay their people more.  And give them more benefits.  All paid for with the higher prices the people pay for their goods.  Tariffs raise the prices of foreign goods so they are not less costly than the domestically produced goods.  To get people to buy domestic goods.  Thereby saving domestic jobs.

Americans have to Pay about $1.25 more for a Bag of Sugar than the Rest of the World

These arguments make tariffs sound noble and good.  For they’re helping the little guy.  And protecting middle class jobs from cheap labor in foreign countries.  But they also hurt the little guy.  And poor families.  Because tariffs raise the price of the things they have to buy.  For example, tariffs on sugar imports raise the price Americans pay for sugar higher than people can buy sugar outside of the United States.  So the sugar they buy, and anything that contains sugar as an ingredient that they buy, is higher than it would be if the sugar tariffs weren’t there.

The US population in 2012 was 313,914,040.  Let’s assume the adult population is approximately 250 million.  And that half of them buy sugar.  How many sugar producers are there in the United States?  Far, far fewer than 125 million.  The Washington Post noted in 2007 that there were only about 6,000 sugar farmers.  About 0.002% of the population.  While the sugar buyers are closer to 40% of the population.  Or more if you include the things we buy that have sugar in them.  The numbers are approximate but the point is clear.  The people helped by tariffs are an infinitesimally small number while the people hurt by tariffs are a much, much larger number.

Let’s crunch some numbers.  While people outside of the United States can buy a bag a sugar for $1 Americans have to pay $2.25.  Or $1.25 more.  To protect American jobs in the sugar industry.  The 6,000 sugar farmers.  Let’s triple this number for the corn farmers (for high fructose corn syrup) and the sugar companies.  Rounding it out to an even 20,000 jobs that sugar tariffs protect.  If half of all adults buy a bag of sugar that’s $156 million pulled out of the economy that goes to, for lack of a better term, Big Sugar.  Let’s say these adults buy two bags a year.  Bringing the transfer from the 125 million (sugar consumers) to the 20,000 (Big Sugar) to $312.5 million.  Let’s double that number to include everything we buy that includes sugar as an ingredient.  And then double that number to account for all the sugar and corn subsidies.  Bringing the total annual wealth transfer from consumers to Big Sugar to approximately $1.25 billion.

Tariffs transfer Wealth from the Many to the Few and Reduce Economic Activity

That’s an enormous amount of wealth transferred from less rich people to richer people.  From consumers to Big Sugar.  But is it accurate?  Well, according to an article published in the Washington Post, yes.  The article states:

The Government Accountability Office has estimated that the sugar program costs consumers and food processors between $1 billion and $2 billion annually in higher prices for sugar and a vast array of products that contain it. Meanwhile, the new sugar subsidy would cost taxpayers tens of millions of dollars a year, according to economists and U.S. officials.

So our crude calculation may be on the light side.  This is a lot of money taken out of the pockets of hundreds of millions of consumers to protect 20,000 or so well-paying jobs.  Nearly half of the US population supporting less than 0.02% of the population.  And those tariffs paid that 0.02% very well.  Because Big Sugar is very profitable.  And can pay their people very well.  As they have tariffs to increase their selling prices and subsidies to lower their costs.  Which greatly fattens the bottom line.

In the United States the price of sugar is so high that businesses have turned to high fructose corn syrup for their sweetener.  Which our tax dollars also subsidize.  Making it a very profitable industry.  And as an added bonus for Big Sugar, some studies have indicated that high fructose corn syrup doesn’t satiate your appetite like regular sugar.  Causing us to overeat.  Which lets the soda pop industry sell more soda pop.  The (sweetened) food industry sell more food.  And, of course, Big Sugar sell more sweetener.  Making them richer.  And the people poorer.  As well as obese.  All of this to protect a very few jobs in some very old industries.  Transferring wealth from the many to the few.  And reducing economic activity.  Pretty much the exact opposite of what the proponents of tariffs say tariffs will do.  But what they in fact do.  Help the few.  At the expense of the many.



Tags: , , , , , , , , , , , , , , , , ,

The Fed to Buy $600 Billion in Government Bonds

Posted by PITHOCRATES - November 5th, 2010

The Fed’s $600 billion government bond Purchase may Worsen the Recession

The Fed is preparing to buy some $600 billion in government bonds.  They call it quantitative easing (QE).  The goal is to stimulate the economy by making more money available.  The problem is, though, we don’t have a lack of money problem.  We have a lack of jobs problem.  Unemployed people can’t go to the store and buy stuff.  So businesses aren’t looking to make more stuff.  They don’t need more money to borrow.  They need people to go back to work.  And until they do, they’re not going to borrow money to expand production.  No matter how cheap that money is to borrow.

This isn’t hard to understand.  We all get it.  If we lose our job we don’t go out and buy stuff.  Instead, we sit on our money.  For as long as we can.  Spend it very carefully and only on the bare necessities.  To make that money last as long as possible to carry us through this period of unemployment.  And the last thing we’re going to do is borrow money to make a big purchase.  Even if the interest rates are zero.  Because without a job, any new debt will require payments that we can’t afford.  That money we saved for this rainy ‘day’ will disappear quicker the more debt we try to service.  Which is the opposite of what we want during a period of unemployment.

Incidentally, do you know how the Fed will buy those bonds?  Where they’re going to get the $600 billion?  They going to print it.  Make it out of nothing.  They will inflate the money supply.  Which will depreciate our currency.  Prices will go up.  And our money will be worth less.  Put the two together and the people who have jobs won’t be able to buy as much as they did before.  This will only worsen the recession.  So why do they do it?

Quantitative Easing May Ease the Global Economy into a Trade War

A couple of reasons.  First of all, this administration clings to outdated Keynesian economics that says when times are bad the government should spend money.  Print it.  As much as possible.  For the economic stimulus will offset the ‘negligible’ inflation the dollar printing creates.  The only problem with this is that it doesn’t work.  It didn’t work the last time the Obama administration tried quantitative easing.  As it didn’t work for Jimmy Carter.  Of course, when it comes to Big Government policies, when they fail the answer is always to try again.  Their reason?  They say that the government’s actions that failed simply weren’t bold enough.

Another reason is trade.  A cheaper dollar makes our exports cheaper.  When the exchange rates give you bushels full of U.S. dollars for foreign currency, those foreign nations can buy container ships worth of exported goods.  It’s not playing fair, though.  Because every nation wants to sell their exports.  When we devalue the dollar, it hurts the domestic economies of our trading partners.  Which they want to protect as much as we want to protect ours.  So what do they do?  They fight back.  They will use capital controls to increase the cost of those cheap dollars.  This will increase the cost of those imports and dissuade their people from buying them.  They may impose import tariffs.  This is basically a tax added to the price of imported goods.  When a nation turns to these trade barriers, other nations fight back.  They do the same.  As this goes back and forth between nations, international trade declines.  This degenerates into a full-blown trade war.  Sort of like in the late 1920s.  Which was a major factor that caused the worldwide Great Depression.

Will there be a trade war?  Well, the Germans are warning this action may result in a currency war (see Germany Concerned About US Stimulus Moves by Reuters).  The Chinese warn about the ‘unbridle printing’ of money as the biggest risk to the global economy (see U.S. dollar printing is huge risk -China c.bank adviser by Reuters’ Langi Chiang and Simon Rabinovitch).  Even Brazil is looking at defensive measures to protect their economy from this easing (see Backlash against Fed’s $600bn easing by the Financial Times).  The international community is circling the wagons.  This easing may only result in trade wars and inflation.  With nothing to show for it.  Except a worse recession.

Businesses Create Jobs in a Business Friendly Environment

We need jobs.  We need real stimulus.  We need to do what JFK did.  What Reagan did.  Make the U.S. business friendly.  Cut taxes.  Cut regulation.  Cut government.  And get the hell out of the way. 

Rich people are sitting on excess cash.  Make the business environment so enticing to them that they can’t sit on their cash any longer.  If the opportunity is there to make a favorable return on their investment, guess what?  They’ll invest.  They’ll take a risk.  Create jobs.  Even if the return on their investment won’t be in the short term.  If the business environment will reward those willing to take a long-term risk, they will.  And the more investors do this the more jobs will be created.  And the more people are working the more stuff they can buy.  They may even borrow some of that cheap money for a big purchase.  If they feel their job will be there for awhile.  And they will if a lot of investors are risking their money.  Creating jobs.  For transient, make-work government jobs just don’t breed a whole lot of confidence in long term employment.  Which is what Keynesian government-stimulus jobs typically are.

We may argue about which came first, the chicken or the egg.  But here is one thing that is indisputable.  Jobs come before spending.  Always have.  Always will.  And quantitative easing can’t change that.



Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,