Protectionism: Fantastically Idiotic
President Trump, in case you haven't seen... any news source at all... has decided we should really have some steel tariffs. And, of course, the EU and China are a little annoyed. Everyone should be annoyed. Especially when the President tweets about trade wars being good. In the words of my friend, "Good for who?", and in the words of myself in response, "Basically it's good for the US companies that make steel, but only in the short term."
Because I have to work on some homework for theoretical asset pricing and applied linear models I'll have to keep this post short, but COME ON. Protectionism is bad. It artificially raises prices - I mean that's the point. This means steel-using companies will reduce their steel consumption (which is why this is a short-lived triumph for domestic steel companies). This also means the price of steel dependent products made in the US will go up - but those produced outside the US won't. This makes US production less competitive worldwide and domestically. It raises prices for consumers, so they effectively can buy less, or if possible, they'll switch to buying imported goods. The impending trade wars will reduce demand for US goods even more, even in non-steel dependent products.
One could make the argument that we need to keep steel production available just in case a war or some such thing happens. Because steel isn't a tech-central product and nothing about it is perishable would be reasonable prep plants for "storage" and leave them unused until needed. A subsidy could be given in the form of a tax break for corporations that maintain such facilities. A reserve short term stockpile could be maintained that would last until domestic steel production could be reinstated. This seems a far better resolution that engaging in trade wars.
Protectionism is bad for businesses, it's bad for employees, it's bad for consumers, it's bad for other countries.... it's basically bad for everyone. Two thumbs down, Donald.
Leave a Reply.
I'm the cofounder of a fintech startup