Import taxes of any kind are a stupid idea, we will succinctly explain why. Until this idea, Trump has had a fairly good track record if judged only by the correlation to the stock market. The import tax is the first major mistake, and shows that he really doesn’t understand international finance and has not been able to hire a decent advisor to explain him that the world has changed in the last 50 years. We explain this and more in our ground breaking work Splitting Pennies.
Trade Wars are not a new thing in fact they’ve been a tool of state sponsored mercantilism since the beginning of time; tax or ban foreign goods in order to spur the domestic economy. There’s a small problem though. The world is today completely intertwined, interconnected, and intermingled.
Did you know, that Budweiser, a company which is more American than apple pie, is owned by InBev, a Belgian company? Did you also know that of the 15 Budweiser breweries outside of the United States, 14 of them are in China? So what does that make Budweiser – American, Chinese, or European?
Regarding the car industry, nearly every Asian manufacturer makes cars right here in USA. Kia, Hyundai, Toyota, the list goes on and on. So we all know that Toyota is Japanese. Or is it? Land Rover is British, but it was bought by Ford, a US publicly traded company (F). Ford’s most complex robotic factory is in Brazil. Ford operates in nearly every country in the world, and their business is sustained by a sophisticated foreign exchange operation managed on their treasury desk. Ford notoriously hired Muslims, Blacks, and other workers that had trouble finding jobs at other companies. Who owns ford now is a global mix of citizens from every country in the world, foreign governments, and you can rest assured municipal pension funds, state pension funds, all own a piece of this American icon (F). So what is American, anyway?
Trump’s heart is in the right place, the idea of rebuilding USA’s manufacturing base, creating jobs at home, reducing ‘offshoring’ – should be a priority of America first and it makes economic sense. But the way to accomplish it is not through import taxes or to start a trade war. Companies like Apple (AAPL) need to be incentivized in other ways to move their factories from China to Kansas. Grants, tax incentives, government if then contracts (for example if Apple moved its phone manufacturing to USA the government could require USG employees to use iPhone for Security reasons.) Or another solution, we can cut the military budget in half, and instead of building missiles and bombs, we can build technology parks in places like Kansas where there is plenty of cheap land. We can build factories and retask soldiers to do non-military functions like planting trees or building the useless wall with Mexico. We should invest in robotic factories and state of the art design organizations, like they have in Europe and Korea. Farming can be hydroponic and automated. There are thousands of ideas, and thousands of people who have thousands of ideas and who are capable of implementing them. But we are not listening to those people, or supporting them. USA has plenty of natural resources, real estate, and most importantly business innovation motivation to act as a natural global incubator for global business.
Instead of import taxes we should incentivize more foreign businesses to move here, such as by creating foreign ‘tax havens’ like Delaware, and providing privacy to foreign entities who would otherwise go to Switzerland or the Cayman islands.
The tax reduction plan was a huge win for Wall St. and Main St. The idea of import taxes is the opposite. We should encourage business growth not stifle it. There are other more intelligent ways to spur the domestic economy. We explain this and more in our ground breaking work Splitting Pennies.