Ever hear of the "chicken tax"?

Back in the late 1950's US agriculture figured they could package frozen chicken and sell it in Europe, which was finally recovering from WWII.  European-raised chicken was expensive, more than most people could afford, but the imported American frozen chicken was affordable and sold very well.  Too well according to German chicken farmers, who asked their government for a tariff on imported American chicken in order to protect themselves.

The US said, whoa, whoa....not so fast.  This was back when Volkswagen's first began pouring into the US.  In fact they became cult cars....everyone wanted a beetle, or the even more oddball VW bus.  Seeing they were on a roll (pardon the pun) VW decided to chop the back off a VW bus and put a pickup truck bed there instead....home-run, right?

To retaliate for Germany's tariff on American chicken, the US imposed a 25% tariff on foreign-made trucks sold here.  This became known as the "chicken tax" and it exists to this day.  Tit for tat, that's invariably the way tariffs work out.  This shut down VW pickup sales instantly....with a 25% tariff they were then waaay too expensive. We lost chickens sales, they lost truck sales.  Lose-lose.

Fast forward half a century and it looks like the US is threatening a similar trade war with Mexico.  

"Pay for 'The Wall' or we'll tax your stuff being imported into the US by 35%."  

"No, wait, make that 20%."  

"Hold on, we're still doing the math....we'll get back to you...."

For the record, we sell several hundred BILLION dollars worth of "stuff" to Mexico every year, much of it components that are incorporated into the products they sell back to us.  In other words, if we put a tariff on their stuff, we're also killing the demand for (some of) the products they're buying from us.  This is simple Economics 101.

The Mexicans won't even have to pass a retaliatory tariff on American products because we'll already be shooting ourselves in the foot.  By putting a punitive tax on Mexican goods, we'll be costing AMERICAN jobs, too.  DUH!

All this for a border wall?  Have you ever heard of a wall that can't be climbed over or tunneled under?*  A wall might work in Israel because they have a soldier every 50 feet (slightly exaggerated) to watch their wall.   (Maybe we should just contract our southern border security to Israel?)  

We need to de-couple "The Wall" from NAFTA, and then respectfully renegotiate NAFTA.  Come on Prez Donnie John Trump.  Slow down and THINK.

S

*  Where there's a will, there's a way:  Foreign auto makers finally figured out a way around the chicken tax.  Ford/England, Mercedes, and others began shipping truck assemblies (complete cabs, beds, etc) to the US, then simply bolting them together in a US warehouse.  

Mercedes sent "passenger" vans here, then took out the seats, put in solid panels to replace the side/rear glass, and then sold them here as cargo trucks/vans, minus the tariff.  The removed seats were then sent back to Germany to be re-installed in the next batch of "passenger" vans being sent here, over and over. 

She played him like a three-dollar fiddle....

Did you watch the Presidential Debate last night?  What did you think?  I'm in a unique position to comment as I don't plan to vote for either of them.  As if you care, here are my thoughts:

Overall, Donald Trump had a few good ideas, but he failed to articulate them in terms voters could understand.  He often didn't connect the dots.  For example, he claimed that our trade deals to date, particularly NAFTA, were bad for working Americans.  Hillary said NAFTA was a net jobs creator for the USA.  But Trump didn't follow up with, "yes, but we lost millions of good paying manufacturing jobs and gained lots of lower paying transportation and distribution jobs.  That's a major reason our middle class is in decline."  I think he'll see that as a lost opportunity.

He said he didn't think many NATO members were paying their fair share of the organization's costs.  I tend to agree.  But he could have followed up with "those Europeans who enjoy that comfortable social safety net you're so envious of can only afford to do that because they scrimp on their own defense....they know we'll cover their a$$ if they're ever seriously threatened.  We can't afford those things for our people because we're paying to protect their people."*

But he didn't.

*Not all 28 NATO countries are stingy funding their military.  Notable exceptions include The UK and France.

Trump pointed out that there were TRILLIONS of dollars of earnings kept by American companies overseas because our high corporate tax rate prohibited them from bringing it back here.  Why didn't he expound on that by asking "why would they want to bring it back here and pay 35% when they can leave it in Ireland or the Cayman Islands and pay a single-digit tax rate?"  That might make a believable case for a corporate tax cut.

But he didn't.

When he said that he would stop American companies from moving overseas, and Hillary asked "how", he said he would put a big tax on their (now cheap) products being brought back here for sale. In other words he would start a trade war....a big no-no.  

He could have pointed out that as our tax laws are now written, companies that make a move overseas can take a one-time tax write-off for the expenses involved, often up into the $BILLIONS for large companies.  In other words, the American taxpayers are subsidizing their move....the very taxpaying workers being laid off are paying their former employers for laying them off!  

But he didn't.

Hillary let more than a few opportunities slip by, too.  When Trump said his massive tax cut (to the wealthy) would enable them to create new and expand existing businesses and jobs, all Hillary said was "Trumped-up trickle-down economics doesn't work".  Why didn't she quote some of the authoritative research (such as by the Wall Street Journal) that says there is at least $1.7Trillion in wealth sitting idle on the sidelines right now because wealthy individuals and companies can't find enough good places to invest it, and when they do, it's often overseas?  A tax cut to the wealthy will likely create relatively few new American jobs.  

A lost opportunity, Hillary.

When she pointed out that years ago Trump was sued for racial discrimination regarding the leasing practices of his properties, his comeback was, "and I settled that without admitting any guilt."   She could have said that was like a mobster saying sarcastically "I didn't do it, nobody saw me, you can't prove a thing."  It isn't that he didn't discriminate, it's just that he got away with it.  Bye-bye black vote.

But she didn't.

I could go on and on, but you saw the same thing I did.  Basically I thought Hillary looked poised and well rehearsed, while Trump was just scattershooting and rude.  Hillary goaded him and he took the bait.  She had him on his heels most of the night.

Overall I didn't get a warm fuzzy about either.  Ummm....where was the Libertarian candidate?  The stage looked plenty big enough for a third podium to me.   ;)

S

Globalization....two thumbs up or a giant disaster?

Depends on where you're sitting.

I recently thought of Thomas Friedman's 2005 book The World is Flat that told us, like we didn't already know, that we're living squarely in the Age of Globalization.  And that reminded me of 1992 presidential candidate Ross Perot's warning that "that giant sucking sound you hear" will be American jobs being sucked south and eventually overseas if the US passed the North American Free Trade Agreement.  

Perot lost, Clinton and Congress passed NAFTA, and he (Perot) was essentially proven correct.  New industries have since been created to make up for many of the lost jobs, but it's been an ongoing gut-wrenching transition.

International trade has been around for thousands of years, but things really kicked into high gear after WWII when America's revved-up wartime economy had the capacity to produce much more than we could consume at home and the world found itself with an abundance of surplus cargo ships.  

At first lots of our "stuff" went over there (thanks in large part to a Europe rebuilt by the Marshall Plan), and a few early VW Beetles and assorted cheap junk began coming back over here.  By-and-large, though, we were the big international trade winners.  Payback has been hell ever since.  

The irreversible tipping point came in the 1990's when the world's telecommunications companies grossly over-estimated the future demand for new world-wide fiber-optic cables.  Rates charged due to the glut of new capacity fell through the floor.  Now it wasn't just merchandise that was flowing back and forth across oceans, but ideas, aided by the fledgling internet, too.

Supporters of globalization say it's been a good thing because the choice of goods available to us here has multiplied exponentially, while costs have come way down.  Others say prices had to come down in order for us to afford them as the purchasing power of American middle class consumers has been essentially stagnant for the past 20 years.  

I personally don't see globalization as having been particularly kind to the American middle class, all things considered.  Sure, we have more "stuff", but at what price?  (Globalization isn't just about ideas and goods, but the flow of capital and jobs, too.)

I suppose whether globalization has overall been a good or bad thing (for Americans) will ultimately have to be reviewed over a number of decades by future historians, but from where I'm sitting today I see it as a prime example of unintended consequences run amok.

Regardless of what historians determine, all I know is the Globalization Genie isn't going back into the bottle. 

More on this subject tomorrow.  (Another snoozer, right?)

S