Tariffs are taxes, tariffs are taxes

Tariffs are taxes, tariffs are taxes.

The dismal August jobs report of only 22,000 jobs created continued the downward spiral of job creation during President Trump’s time in office. Since the initial reports always overstate reality, it is likely that job growth in August was negative. So is Trump going to fire the new head of BLS? I have a friend who says no, that Trump welcomes the poor jobs report so he can blame the Fed. 

The prognosticators are predicting a 100% chance that the Open Market Committee will cut the Fed funds rate by at least 25 basis points and maybe as large as 50 basis points. No matter. Trump will yell that Powell is “too late” again and its all his fault. It can’t be the uncertainty due to the tariffs. The new jobs added were not in industries directly impacted by the tariffs. They were in social assistance and healthcare. However, manufacturing, wholesale trade and equipment all shed jobs. Of course, that is all the Fed’s fault as well. Right? John Deere and Caterpillar, users of imported steel and aluminum and dependent upon foreign sales are reporting losses from the costs of the tariffs. Ford and General Motors are also reporting huge losses as the high tariffs on Canada and Mexico remain. But again it’s the Fed’s fault. Right? The interesting thing is that if the public were told that Trump had imposed the largest increase in taxes in history, many if not most would realize that the impact would be deflationary. If consumers have less to spend and expect taxes to go up even more then they will spend even less. Business in turn would decrease investments and shed jobs. Would this too be the Fed’s fault? 

The Fed will likely cut the Fed funds rate even in the face of rising prices due to the tariffs. Currently, the Fed’s preferred index (the personal consumption expenditure index) is up to 3.3% and predicted to be as high as 4.75% in the first quarter of next year. Then if the economy gets hit with an inflationary recession, the Fed will still be blamed. Yet interest rates have always been a poor indicator of the economy. Very low interest rates exist in a slumping economy as businesses cut back investment spending and hiring if there is not adequate demand for their products. Cutting interest rates will not spur either more investment or hiring in that situation. This is the old “you can lead a horse to water” saying. Both increased investments and increased hiring increase costs and if the demand isn’t there, then there will only be greater losses. Didn’t we learn anything during the period of zero Fed funds rates and negative real interest rates? Apparently not. 

But the Fed got itself into this mess by acting as if the current employment numbers were driving monetary policy. Monetary economists know – as should the Fed – that monetary policy operates with a lag, as long as twelve to 18 months. Yes it is true that when the Fed acts, that there will be short term effects on the market but the measurable impact on unemployment and prices manifest themselves over the longer term. As a consequence, the Fed will always be acting “too late” if it lets today’s numbers determine monetary policy.

Somehow we have lost sight on why jobs are disappearing. Yes the tariffs are a big factor but so is Trump’s slashing of the federal workforce. Black unemployment has jumped up to 7.2 percent while overall unemployment has gone from 4.2 percent to 4.3 percent. Disturbingly, much of the unemployment has been among college educated blacks. The reason has been the impact of the federal jobs cuts. Forbes estimates that 350,000 educated black women have lost their jobs under Trump. Labor force participation of educated black women has fallen 2 percent, meaning that these are not counted as unemployed since they are no longer looking for a job. It is likely that the concentration of black women in DEI programs both federal and corporate play a part in the job losses. It is also possible that when all the probationary employees (like my cousin) were fired, that a disproportionate number were blacks as well.

But didn’t Trump and JD Vance say that enforcing the immigration laws and deporting the illegals would increase native worker employment? Vance said that jobs vacated by deported migrants would be filled instead by some of the 7 million Americans who are either unemployed or out of the labor force. Illegals, Vance said, that illegals taking jobs are “one of the biggest reasons why we have millions of people who’ve dropped out of the labor force.”  Vance, like his boss, is prone to pop off without checking the facts. Maybe we haven’t seen this surge in native American employment because there hasn’t been enough time yet. But in the face of increased taxes, businesses curtail investment and hiring. The unemployment rate is going up not down. Someone needs to tell the vice president that there are currently 7.2 million job openings in the country. Why haven’t they been filled by the natives who are out of work? Sorry, but illegals seem to be a convenient scapegoat taking the blame for whatever ails the economy. But hey, who believes these statistics anyway? I am certain when the president’s man gets installed as the head of the Bureau of Labor Statistics that we will once see statistics showing full employment of native Americans without inflation.

The idea of JD Vance as president is frightening. If he has said anything that makes sense, it has escaped me.

Lest we forget that inflation remains high and may go even higher with the rate cuts. In order for the economy to rebound what is needed is an increase in consumer confidence and in business confidence. As to consumer confidence, the University of Michigan’s Index of Consumer Sentiment has been falling, the reasons being concerns about job loss and inflation. Since this is a consumer driven economy, decreases in consumer confidence do not inspire increased spending on the part of businesses regardless of low are interest rates.

I know how to rekindle consumer confidence: cut all tariffs to zero. Subsidize those items that are truly vital to national security. Rein in government spending. Trump once boasted during his first term about his tax cuts. Now repeat after me: tariffs are taxes, tariffs are taxes, tariffs are taxes.