Tariffs & Taxes

There has been much discussion recently about the potential impacts of President Trump’s retaliatory tariffs on international trade in general and various economies around the world in particular.

Our little venture here at C&S Tools relies entirely on exports, so of course some Beloved Customers have expressed concern regarding the effects of tariffs on our prices moving forward. At this point in time all I can really do is twirl my elegant white mustache and sagely mutter “Iduno,” but to keep things interesting, in this article I will be so bold as to share some hard-won insight on the subject that doubtless will be worth every penny it costs Gentle Reader.

The Quiver of Diplomacy

Tariffs and import taxes are ancient tools for profit and coercion, veritable arrows in the quiver of diplomacy, so Gentle Reader would be wise to understand that Trump is not the first nor will he be the last leader of a nation to string his bow and loose these darts.

But it’s also important to realize that in every case where tariffs have been manipulated for fun and profit, there have always been those who ran around screaming “the sky is falling!!”

Case in point, Japan’s economy relies heavily on exports of its products overseas, especially cars (21% of total exports), machinery (18% of total exports), and electronic equipment (14% of total exports). At one time, each of these industries was heavily subsidized by the Japanese government resulting in targeted putative tariffs by American politicians over many decades.

But your humble servant is old enough to recall how, instead of complaining, the Japanese government negotiated mutually-acceptable tariffs while Japanese manufacturers ignored the Chicken Little crowd and proactively worked to develop mutually-beneficial work-arounds. You see, unlike the feckless perverts that run the American television, movie, and news industries, the Japanese understood that pissed-off customers on the scale of nations are not good for long-term profitability.

My point is that taxes are never fair, today’s winners are tomorrow’s losers, and complaining solves nothing, but with good will and diligence most problems can be solved. Except for Ford and GM, that is, huge corporations that foolishly discarded both good will and diligence in favor of war and politics, flushing their market share down the tubes never to recover. Sadly, it’s far too late to cut the “stone of madness” from the brains of many American corporate executives.

Compared to Japan, the Europeans and Chinese, being especially adept at manipulating corrupt and shiftless American politicians, have had it easy and are spoiled, but amazingly they have the “stones” to call Trump “unpredictable” and “unreasonable” because he refuses to be bought, an unforgivable failing in a politician, it seems.

Much of the rattling we hear lately are the sounds of chickens coming home to roost, while the whining emanates from media bought and paid for by foreign entities, lobbyists in government jobs and short-sighted, and hypocritical executives of companies that brag of their righteousness in “supporting their community” and their “environmental awareness” while moving production to countries with cheaper labor, quite frequently child labor and sometimes even slave labor in fact, and no environmental regulations.

This talk of tariffs has put them all into a spastic panic fearing their carefully-laid plans for reaping humungous profits and big bonuses through betrayal of their customers will soon be knocked into an even bigger cocked hat. Oh dear….

The Power of Gubmint

If there is one thing I know for certain, people in government have two rock-solid powers: (1) to make things better for themselves and their buddies, and (2) to make things worse for everyone else. And that’s all they can do. Remember President Reagan’s famous but bitter joke “I’m from the government and I’m here to help.”

Will these tariffs be fair? Those silly enough to pose this question should never leave their mommy’s house.

Will these tariffs impact prices here at our humble little shop of horrors? Hmmm..

Most consumers never directly experience tariffs and import taxes, so the subject doesn’t quite come into focus for them.

In a previous life I spent a lot of time dealing with import taxes and tariffs in various countries related to procuring and shipping building materials and equipment to construction projects I was planning, so I learned the dirty truths of import taxes and tariffs long ago. But instead of boring Gentle Reader into a drooling coma with my war stories, allow me to share a true story many thousands of years old.

The Story of Butfuk and Bacon

Long ago and far away in a place Gentle Reader will never visit, there was a smelly fellow your humble servant will call Butfuk (names have been changed to protect the incontinent) who had a stony farm located next to a heavily-traveled dirt road winding over hills, across fords and through wolf-infested primeval forests. At one location this track passed through a narrow restriction, or pass, tight against a stony mountain.

One day, tired of eating beetles and worms delicately seasoned with mud for every meal, Butfuk put on his thunkin hat and got a great idea. Together with his cousin Bacon, who lived nearby and was hell and Jesus with a bow, they cut down a medium-sized birch tree laying it smack dab across this narrow spot in the road.

The way it worked was like this. Bacon would station himself to the side of the road next to a large rock where he had a good view and a clear shot. When travelers approached the downed tree blocking the road, cousin Butfuk would be found standing in the middle of the road in front of the obstruction, and bold as Obama, he would demand travelers pay either cash or a portion of their goods as a “gate tax.”

Those who refused this friendly invitation immediately found themselves feathered with arrows, for Bacon was not just accurate with a bow, he was quick as a duck on a june bug. Those who continued to argue had a mace-to-face meeting with Butfuk’s axe, whereupon the cousins dragged the corpses into their pig pen, confiscated all their possessions in the name of “fairness,” and sold any surviving women and children in the party as slaves. Business is business, after all, and pigs have to eat too.

Cooperative travelers, on the other hand, passed the impromptu gate safely, and while they disliked this new form of banditry, the cousins didn’t steal everything nor kill everyone, and the amount they demanded was not so much travelers couldn’t pay it without being ruined, so few bothered to resist too hard, kind of like the relationship between the European kingdoms and the Barbary pirates before the king of Tripoli pissed on President Jefferson’s shoes, so to speak.

Indeed knowing the amount they would need to pay in advance, travelers could even include these gate taxes in their budget. Yea verily, the golden goose principle was key to the sustainability of Butfuk’s cunning plan.

Over the years, B&B assembled a small army of guards from among the locals to support their “gate tax” business. A town with an inn, a stable, a small store, an alehouse, and a knocking shop sprouted up beside the mudhole in the narrow place by the mountain. Guess who was the mayor.

Over many generations, the cousin’s little venture metastasized into a country of sorts. Guess who was the king.

Thus was the first tariff imposed, the first customs house created and staffed, the concept of cash flow without risk, labor, or the bother of production was established, extortion, slavery, and murder were justified by, and codified in, law, and eventually a town, a nation, and royalty were born. Progress, right?

‘Tis a true story, one that has played out thousands of times over thousands of years in every corner of the world. If you doubt it, please check into the famous “robber barons” on the rivers Rhine and Danube with their long chains, or the bandits of Hakone mountain in Japan, or the Barbary Corsairs. Lots of documentation.

For a more recent example of the “old way,” look to the still-operating tax franchises of Spain and Thailand.

Tariffs, Taxes and Profits

Ever since this humble, bloody beginning, customs and tariffs have been the most profitable (measured by cost vs. income) source of revenue for all governments with very few exceptions. The only more profitable, more reliable, easier source of income for governments, short of pillaging their neighbors, is the old confidence game of minting/printing/circulating currency. Government fees and income taxes don’t even come close.

In modern times with the explosion of international trade, tariffs are exponentially more profitable for governments and their buddies, but what has changed is the scale of their use as a tool to coerce markets, to retaliate against entities with competing tax/subsidy schemes, and to placate the disgruntled rich.

Conclusion

Will the pending tariff war yield improvements or devastation? I dunno, but I’m confident of one thing. Being based on banditry, slavery and murder justified by unjust laws, it would be shortsighted for little people like me and thee to expect these new tariffs to expand our peace and prosperity.

I think I need an operation for this bump on my head.

YMHOS