Mexico’s Scramble Proves Free Trade Extremists Wrong

Initially, let’s get this clear and open our eyes:  President Donald Trump just put a knife to the throat of the U.S. Chamber of Commerce, the GOP “donor class,” and open borders Republicans.  Irrationally, Trump’s critics always misunderstand every action as being a single, isolated event, rather than a long-term process.

Trump’s proposal over the last ten days to impose tariffs of up to 25% on imports from Mexico was not primarily aimed at Mexico.  Trump’s tariff threat was aimed at open border / pro illegal immigration / pro amnesty Republicans who have been sabotaging conservative efforts to defend our nation’s borders for decades.

Trump laid down the law declaring that the status quo is going to change.  The open borders / cheap labor Republicans (not to mention Democrats) have maneuvered to block change.  For decades, long before Trump, these traitors to U.S. workers have manipulated the system to keep the status quo.

Trump just signaled that — one way or another — the open border exploitation by corrupt businessmen is going to end.  The party’s over.  You don’t have to go home, but you can’t stay here.  Trump will bring the entire charade to a screeching halt one way or another.  So get on board with the solutions and the new approach of actually treating the United States like a real country.

Last week, Republicans and other “conservatives” got a first-hand experimental proof that all of the propaganda on free trade and tariff is wrong.  Yet will Republicans and “conservatives” learn anything from this first-hand experiment, this empirical proof as a massive experiment?  Unlikely.

On May 30, 2019, President Donald Trump announced (initially on Twitter) that he would impose tariffs on products “from Mexico” imported into the United States if Mexico did not stop facilitating floods of Central American rent-seekers traveling over a thousand miles through Mexico to crash the gates at the United States’ Southern border.

(Most of the high-value products are not truly “from Mexico” but are products of U.S. companies that moved their factories from the U.S.A. into Mexico to screw U.S. workers.  We tolerate this shell game and pretend that this is okay.)

What happened?  Mexico scrambled to avoid the tariffs.  Trump announced that a 5% tariff would begin on June 10, gradually increasing to 25% by October.  Mexico panicked.  Mexico did back flips to avoid even the 5%.

Almost instantly Mexico’s diplomats assured the world publicly that the U.S.A. and Mexico could work out an accommodation and the tariffs would never need to be implemented.  Trump responded that he welcomed the talks, but the first round of 5% tariffs on Mexico’ imports would go into effect on June 10 no matter what.  Within days, Mexico’s top diplomats were in Washington, D.C. desperately working out a deal to avoid even the first round to tariffs.

But why did Mexico care?

Free trade fanatics insist that only U.S. consumers pay the tariff.

So why did Mexico care?

We are instructed to believe that tariffs are a tax on U.S. consumers.  (A tax you don’t have to pay if you just choose to buy American.)

We are instructed to believe that Mexico as the exporter does not pay the tariff and is not affected in any way, at all.

So why did Mexico scramble to avoid the tariffs?

Answer:  Because the Cult of Free Trade is wrong.

Here is the orthodoxy, which you are ordered to believe:

U.S. consumers pay the tariff when the U.S.A. imposes tariffs on imports from foreign countries.  The foreign manufacturer or seller is unaffected.

U.S. manufacturers pay the price when foreign countries impose tariffs on U.S. exports.  Foreign consumers are unaffected.

See the irrational cognitive dissonance?  This is why I use the term “cult.”

U.S. consumers are hurt while foreign manufacturers are unscathed by U.S. tariffs.  But, irrationally, U.S. manufacturers or farmers exporting their products are hurt by foreign tariffs on U.S. exports while foreign consumers are unscathed.  How’s that, exactly?  What???

No matter which way it goes, the U.S. is hurt by tariffs but the foreign country is never affected at all.  That is not a rational discussion.

You can believe in the value and benefits of free trade without losing your mind over it.  Being for free trade and being a fanatic are not the same thing.

Let’s (always) define our terms.  In this author’s experience, about 50% of 100% of the political controversies and life issues and even interpersonal conflicts comes down to undefined key concepts.  People trip over words that have different meanings to one side than the other.

So we can support free trade.  But when it becomes fanaticism that is a fundamentally different concept.  Weighing the value of free trade on a case by case basis is correct.  Jumping off a cliff to the extreme is not correct.

Heavily funded by the same businesses who profit from open borders, cheap labor, and exploitation of U.S. workers and consumers, the Cult of Free Trade insists that tariffs are always bad and wrong.  The donations from businesses who exploit our citizens have been very well spent.  U.S. workers who have lost their standard of living and often their jobs will zealously defend the schemes of the crony capitalists who undermine them.

But the U.S. Constitution funded the U.S. Government almost exclusively by “excise taxes” including tariffs (duties) on imports.  That changed in 1913 when the income tax was created by the Sixteenth Amendment.   Attacking the U.S. Constitution, these “conservatives” pursue a fanatical devotion to a caricature version of free trade that was never part of the Republican agenda, never true in the real world, and in conflict with real life.  They reject the system of tariffs built in to the U.S. Constitution.

Ronald Reagan was a free-trader.  Ronald Reagan was a protectionist.  Reagan was both protectionist and a free-trader on the same day, often in the very same speech.

President Reagan imposed hundreds of purely protectionist tariffs — for no reason but protectionism (unlike China which has clearly violated specific trade rules).  Reagan gave speeches in the very same speech praising the importance of the free market but simultaneously warning that protectionism is necessary to protect U.S. manufacturers at time.

Reagan imposed protectionist tariffs on imported motorcycles to save Harley Davidson from business failure, purely to benefit an American company. “President Reagan, asserting that he was trying ”to enforce the principles of free and fair trade,” imposed a 100 percent tariff today on some Japanese-made computers, television sets and power tools.” (Gerald Boyd, New York Times, April 18, 1987, page 1.)

The Reagan “administration imposed more new restraints on trade than any administration since Hoover.”  Bill Niskanen, a member of Reagan’s Council of Economic Advisers, summarized in his definitive book: Reaganomics: An Insider’s Account of the Policies and the People (Oxford University Press, 1988)

In other words, Reagan was not the fanatic that the Cult of Free Trade wants all Republicans to be.  How could Reagan be both a free-trader and a protectionist at the same time?  Simple.

Trade policy was a tool for Reagan.  A hammer. A screw driver.  Reagan did not bow down and worship at the altar of free trade nor declare tariffs the devil.  Reagan merely rummaged through his tool box and pulled out the right tool for the situation at hand.

I wrote a quick summary for World Net Daily on Reagan’s careful balancing between the two ends of the spectrum in The conservative position: Free trade or protectionism?   But there are dozens of such reviews of Reagan’s protectionism to be found.  See, for example:  Ronald Reagan: Protectionist | Mises Institute

Free trade is a tool.  Free trade is not “the one true god” that you must bow down and worship.  It’s just a tool. You don’t worship a screwdriver.  But a screwdriver comes in handy when you need one.

Yet the fever of fanaticism against tariffs has infected most of the Republican party.  We had Republicans in Congress about to revolt against their president to block the tariffs on Mexico.  Never did Republicans threaten to rise up against President Ronald Reagan’s protectionist tariffs on Japanese exports.

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