Tariffs and Embargoes, Oh My

Now that we are into the Tariff Trade Game, let’s take a minute and see what it really means. From the U.S. side, the cost of a new home on the northwest coast has seen an average of $7,000 increase due to the increased cost of lumber due to the imposed tariff.

Those not buying a new home, really aren’t effected, or are they? For whatever reason home sales are now a tight market. Prices for used homes have outpaced wages. It really doesn’t matter, what happens to the price of new homes from this perspective, in the short term anyway.

In the Midwest, Farmers are feeling the brunt of losing their largest export consumer of soybeans. Almost one-third of the soybean crop is exported and now faces a Chinese tariff. So far the U.S. Government has put up eleven twelve billion dollars to offset those losses. The American Taxpayer will foot that eleven million dollar bill. Unfortunately there will be fallout among the Farmers who for whatever reason will not see a dime of the these monies for one reason or another. More small farms will cease to exist.

Coca-Cola has announced it is feeling the rise in the price of aluminum for cans. Of course this will only effect Coca-Cola in the short term. These increased costs will quickly be passed on to the consumer. The downside of this price adjustment for the added cost of aluminum is the American Taxpayer is also the consumer.

General Motors and one of the Home Appliance manufacturers announced the rise in the price of steel has arrived at their door. Some of this steel was ordered months past. Once again, American Taxpayers will foot the bill as this cost is passed on.

Tariffs are not effective, and never have been.

Passing on the cost is what big business does. Generally these costs increased are in excess of what the additional or new cost of aluminum and steel will be. If challenged big business will claim they are adjusting prices according to projected future costs. To get a better idea of this, think of how gas prices at the pumps increase well before the holidays, or summer. The upward price rise is much quicker than any downward price adjustment. Why reduce profit if the customer is already willing to pay a higher price….

The Soybean Tariff reminds me of the Russian Grain Embargo of years past. The U.S. placed an embargo of grain sales to Russia. The grain market was in dismay, as they like to export wheat, but enterprising business started raising wheat fed chickens for export to Russia, informally reducing or eliminating the effect of the famous grain embargo.

In the moment, America will experience a temporary soybean glut. This will last until the excess soy is converted to a food China wants that is not subject to a tariff. Business creativity is the work around of Tariffs, Sanctions and Embargoes. Perhaps U.S farmers will start exporting soy fed beef and chicken to China offsetting or bypassing the soybean surplus and tariff.

America may shift production into soy based housing material, soda and food containers, cars and home appliances made of a soy product instead of metal. Let’s not forget more soy meals instead of beef, chicken, and fish, and perhaps soy based gasoline.

This alternate soy fantasy would cost billions in investment dollars. Of course the American taxpayer is more than happy to foot the bill. Generally the common man suffers the biggest burden when these unworkable policies are put in place, paying more for living day to day, and seeing a bigger tax bill which like the increase in production cost prices, will not be reduced when no longer needed. Tariffs have not worked as planned since they were first tried.

Of course following the current fake news line, ‘If you see it, and you hear about it, don’t believe it, it’s not true’. You can take that thought to the bank….