How Tariffs and Mass Deporations Will Increase the Cost of Living in the USA

I've already touched on how prices skyrocketed due to the Covid-induced shortages and massive govt. spending and money creation.  Now I'd like to discuss how I believe the tariffs and large-scale removal of illegal immigrants will affect the cost of living going forward. 

First let me state for the record that I generally support reciprocal tariffs on certain countries which have engaged in predatory and/or mercantilistic trade practices against the USA for decades, most notably China, the European Union, India, and others.  I also support *targeted* tariffs on certain products that we should be producing here in the USA for national and economic security reasons.  I do not support broad baseline tariffs imposed on all imports from all countries, as this practice violates the spirit of free and fair trade and amounts to a national sales tax on all imported goods.

Despite the denials on the part of the current Trump administration, there is no question that tariffs will generally increase the cost of goods for the American people.  Now, the price of some goods which are either exempt from tariffs or for which the producers agree to "eat" the tariffs in order to maintain their exports to the USA, will not increase and may even decline over time, but for the majority of goods I believe that costs will continue to increase more than the official inflation rate(which itself is inaccurate and heavily manipulated to minimize its true value).  For one thing, many goods made in the USA are actually made with a lot of imported, or "foreign-sourced", parts and materials, so even though the product is technically manufactured here, it is actually mostly imported, and since the manufacturer's input costs will go up due to tariffs, the price of the product must increase.  American manufacturer's are not going to absorb the tariffs as they must please their shareholders as well as pay very high wages and benefits to their already very expensive executives, managers, and workers.

The tariff rate on China currently stands at 47.5%, and if you've ever bothered to read the label on most of the stuff sold in U.S. stores, you'll know that most of it is made in China.  There is no way that Chinese companies can "eat" all of a 47.5% tariff and still remain profitable. This is why just about everything made in China or made with stuff imported from China, which is likely about half of the durable goods we buy, has gone up in price.  Add to this the 15-50% tariff rates on Southeast Asian countries where most of our clothes and shoes are made and the tariffs on other countries, and it is inevitable that prices on most goods will rise. 

To be fair, the Trump administration is correct that the price increase due to some tariffs will be a "one and done" type of increase, nevertheless it results in overall higher costs for Americans.  The fact is, most of this stuff will never be made in the USA in any great quantities as it is simply too expensive and impractical to do here, so the only purpose of the tariffs in most cases is to simply put more money into the U.S. Govt. coffers. To be fair again, the U.S. Govt. desperately needs more revenue to pay for all the largess, so the money has to come from somewhere, and it might as well be from imports.  

While I support the efforts to deport immigrants who commit crimes, I have noticed that the Trump administration's long-term intent seems to be to deport *all* illegal immigrants and ineligible asylum seekers allowed in under the previous administration.

While removing illegal immigrants may be a just, lawful action, after all, every country has immigration laws and people who violate them are subject to deportation and/or fines, it will result in a higher cost of living over time IMO, the reason being the cost of labor.

Undocumented immigrants make up about 50% of the agricultural workforce in the USA.  These workers are paid about half what a U.S. legal resident or citizen would be paid for the same work.  Moreover, the employers likely don't have to pay their expensive health insurance premiums like they would for a legal resident U.S. worker.  As more and more illegal immigrants are deported, or self-deport as millions have already done, the available labor for the farms, ranches, chicken and pork factories, etc. will decrease and have to be shifted to legal U.S. residents and citizens.  These new legal workers will cost the agricultural employers a heck of a lot more money and increase their costs, which you can be sure they will happily pass on to the captive food consumers of the USA.

The same logic regarding available immigrant labor applies to many other industries which heavily employ these folks like construction and hospitality, resulting in higher house prices and hotel room prices, for example. 

And don't forget that every good or service that goes up in price has a ripple effect throughout the entire economy as other businesses will raise their prices to keep up with their own increased costs, and workers will demand higher wages to keep up with all the increasing prices, and round and round we go. 

The Trump administration can mitigate some of this cost of living increase through decreased gasoline and diesel costs, but that has a limited and rather small effect on overall prices as anyone who shops at Walmart can tell you. 

My solution would be to apply tariffs to only specific goods that we need to manufacture here in our own country and leave the others alone.  I would also only deport immigrants who commit crimes and allow the others to stay if they 1)pay a fine to cover the administrative costs for their immigration and as a punishment, 2)prove their identity and undergo a background check, and 3)prohibit them from receiving any govt. benefits until they become legal residents.  

 

What's Going On? - Part 2, Inflation

We all feel the bite of inflation when we buy anything nowadays.  It's pretty obvious that prices have risen rapidly over the past couple of years, but why?  There are several reasons, but first let's define what Inflation actually is.

In economic terms, inflation is defined as an increase in the supply of money.  When the Federal Reserve Bank, hereafter referred to as "the Fed", creates or "prints" money, it "inflates" the money supply.  The Fed also artificially sets interest rates, or the cost of money, very low and sometimes to zero in order to stimulate borrowing and spending.  The Fed does this when the economy dips into a deep recession in order to provide easy money to the government, banks, businesses, and individuals.  This easy money keeps everyone spending in order to support the economy and prevent it from falling further.

Some will remember the housing market crash, and subsequent financial crisis of 2008-2009.  This was directly caused by reckless Fed policies, namely low interest rates for too long, and reckless govt. policies, such as securitizing and backstopping billions in mortgage loans through the government subsidized financial corporations Fannie Mae and Freddie Mac.  In fact, both Republican and Democratic govts. coerced these institutions to provide mortgage loans to low and middle income families(remember the "ownership society"?), thereby forcing them to come up with a way to cover up the risk inherent in the loans they'd have to provide.  The politicians, with the help of the Fed, interfered in the market, and then it ultimately, and inevitably, fell apart - because it was all propped up by artificially low rates and govt. manipulation. Yes, the banks were at fault, too, because they made billions in risky loans due to greed(remember NINJA(No Income No Job) loans?).  The banks believed that they could get away with making lots of loans, including very risky ones, and then packaging them all up into supposed AAA-rated securities and selling them to investors, but the scheme only lasted until investors caught on to it, and then the collapse happened rather quickly, almost taking down the entire banking sector.

I only point out the 2008-2009 crisis to illustrate the problems that bad monetary and govt. economic policy can cause.  Case in point: the recent price inflation we're all experiencing.

The recent price inflation is due to 2 factors: 1)a shortage of supply, and 2)massive govt. borrowing and spending.

The supply shortage was caused by the shutdown and reduced activity of many businesses resulting in layoffs and less production.  When there is less "stuff" to buy, but the same amount of demand by consumers, prices of that stuff generally rise.  This was evident when one went to the store only to find they were out of many items, toilet paper being a prime, and somewhat bizarre, example.  People panicked due to the pandemic scare and went nuts buying everything they could get their hands on, and since not enough things were being produced, the prices went up.

If our govt. had stayed out of this mess, what would have happened is that an equilibrium would have eventually been reached wherein over time, about a year or so, demand would have fallen due to layoffs and people pulling back on spending, demand would have dropped, and prices would have fallen back to normal levels. There would have been some pain for a lot of folks, but it would have been temporary, plus unemployment and other benefits would have prevented folks from falling into poverty. Once the pandemic emergency ended, people would have gradually went back to work, production would have increased back to normal levels, and demand would have risen back to normal levels.  Prices therefore would not have risen much, if at all. 

Unfortunately, the govt. panicked as well, fearing a deep recession, so the politicians and President decided to stimulate the economy.  Of course, like they always do if there is even the slightest chance of a recession, the Fed lowered interest rates to near zero, which stimulated more borrowing and spending.  Then, the govt. borrowed unprecedented amounts of money and not only spent it, but also provided direct stimulus money to individuals and businesses to keep everything propped up.  I won't even go into the massive amounts of fraud in the stimulus programs which created a whole other mess of problems and distortions.

All this additional spending created excess demand, and with the already short supply of goods and services, prices went up. 

Unfortunately, in a market economy, unless there is another recession where demand falls and the govt. wisely gets out of the way and lets it play out, prices never go back down.  There is also a greed factor with prices, whereby once merchants have increased them, they really don't care to lower them even though production has returned to normal, as they enjoy the increased profits.