Minor Thoughts from me to you

The next round in the U.S.-China trade war could be the costliest one yet for American consumers.

The U.S. is said to be preparing to announce tariffs on all remaining Chinese imports by early December, and the impact at the checkout counter may be as much as 10 times higher than earlier rounds of levies, according to a report from Citigroup economists.

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The new penalties, which could take effect in early February, would encompass Chinese-made consumer goods like Apple iPhones and Nike shoes that the Trump administration has so far left untouched. The impact of a 10 percent tariff on the $267 billion of imports could be 10 times larger than the first $50 billion round and double that of the $200 billion tariffs in the second round, the analysts wrote.

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"Trade wars are good and easy to win."

BelGioioso Cheese Inc., a second-generation family company in Wisconsin, has seen sales to Mexico drop since officials there implemented tariffs of up to 15% in early June on most U.S. cheese. The levies were a response to tariffs the U.S. placed on Mexican steel and aluminum.

On Thursday, Mexico was slated to raise its levy on most U.S. cheese to as much as 25%, while China on Friday is implementing tariffs on $34 billion of U.S. goods, including cheese and whey, a dairy byproduct often fed to livestock.

"It’s a nightmare," said BelGioioso President Errico Auricchio.

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The Mexican tariffs affect as much as $578 million in U.S. dairy goods, while China’s duties could hit $408 million of cheese, whey and other products, according to U.S. Chamber of Commerce data.

July milk futures have dropped 12% since Mexico announced May 31 that it would strike back with tariffs. The price for a barrel, or 500 pounds, of white cheddar last week hit its lowest level since 2009. More cheese is in cold storage in the U.S. than any time since the U.S. Department of Agriculture began keeping track in 1917.

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U.S. dairy farmers have been caught up in a trade dispute with Mexico before. In 2009, Mexico imposed tariffs in response to a trucking disagreement that included levies as high as 25% on U.S. cheeses. U.S. shipments of cheese to Mexico fell by 26% during the 14-month dispute, according to the INTL FCStone Financial, a trading firm.

Since then, U.S. dairy exports have grown to account for about 12% of Mexican consumption last year, according to Rabobank.

More than 60 cheese and dairy producers wrote to the Trump administration last month, saying the trade war could cost them that foothold. "Our share of the Mexican market is in grave jeopardy," they wrote.

René Fonseca, general director of Mexico’s National Milk Industries’ Chamber, said Mexican processors are pushing U.S. producers to lower their prices to make up for the tariff.

Mexican dairies are also ramping up production and processors are looking for alternative suppliers for cheeses such as gouda in the European Union, Mr. Fonseca said. He said Mexican companies that find a new supplier likely won’t revert to their old U.S. trade partner if tariffs are removed.

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Don Boudreaux on one of my bête noires, the minimum wage.

Finally, when Ms. Kim writes that “The minimum wage isn’t a pathway to the middle class; it is a safety net to prevent destitution,” she reveals that she doesn’t understand the key problem with the minimum wage – namely, that it causes some workers’ earnings to fall to $0. However economically precarious one’s life might be when paid a positive market wage of less than $15 per hour, that life is far more precarious when paid $0 per hour.

Minimum-wage legislation isn’t a safety net; it’s a knife that shreds the safety net of employment opportunities in the market.

I think there are already people who want work and can't find it, at the current minimum wage. A policy that makes them more expensive to employ, a policy that increases the minimum wage, makes it harder for them to get a job. That seems counterproductive to me.

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Tyler Cowen shares this quote from Douglas Irwin’s book Clashing Over Commerce: A History of US Trade Policy.

The South’s enormous economic stake in slavery far outweighed the impact of protective tariffs on its income. In 1860, the aggregate value of slaves as property was $3 billion, nearly 20 percent of the nation’s wealth. The value of slaves was more than 50 percent greater than the capital invested in railroads and manufacturing combined, a calculation that excludes the value of land in southern plantations. Slavery generated a stream of income that enable overall white per capita income in the south to approximate that of northern whites. In the seven cotton states, nearly a third of white income came from slave labor.

That’s staggering. Growing up in the South, I had an inherent bias towards finding reasons for the Civil War that didn’t involve slavery. For instance, Southern anger over Northern tarrifs. And, sure, that was a factor. But these numbers are a convincing indication that slavery was the chief economic reason for the Civil War.

In terms of both capital investment and income, slavery was the foundation of the Southern economy. Ending slavery would have financially wiped out many of the Southern whites, especially the rich and the powerful. Moral arguments against slavery barely stood a chance — to paraphrase Upton Sinclair, “It’s difficult to get a man to agree to end slavery when his income depends on his maintaining it”.

Sheldon Richman, writing at Reason.com, shares some wisdom about trade.

think about the saving of labor. Normally we see this as a good thing. We buy electric toothbrushes, power lawnmowers, dishwashers, clothes washers and dryers, and self-cleaning ovens, among many other things, precisely to save labor. Why? Obviously because labor is work—exertion. Most of what we think of as work we would not do if we could have the expected fruits without it. (Of course we sometimes are paid to do things we'd do anyway, but then it is something more than mere work.) Saving labor through technology not only relieves us of particular exertion; it also frees us to obtain other things we want but would otherwise have to do without—including leisure. Thus labor-saving enables us to have more stuff for less exertion. Time and energy are scarce, but our ends are infinite. That's why no one in private life fails to see labor-saving as good.

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Trade is a labor-saving "device." We each have two legitimate ways to acquire any good: produce it ourselves or acquire it through trade (after producing something else). For most goods, trade will be the lower cost method. (See why "comparative advantage" is "The Most Elusive Proposition.") The day is simply too short to make everything we want. Thus trade makes us wealthy. When government interferes with trade, it makes us poorer.

Bastiat believed that people found the destruction of cross-border trade ("protectionism") attractive "because, as free trade enables them to attain the same result with less labor, this apparent diminution of labor terrifies them." (Read about the bias against saving labor in Bryan Caplan's The Myth of the Rational Voter.) Why do people who try to save labor every day believe this? Because they think a society's principles of well-being are different from those of an individual's. As long as they do, political candidates will feed the bias.

Donald Trump and Hillary Clinton may or may not know that trade unfettered at political boundaries makes people wealthier. We need not waste time (which of course could be put to better use) wondering if they are demagogues or just ignoramuses. Rather, we should devote our scarce energy to showing people that what is good for them individually—saving labor—is just as good when observed from a bird's-eye view.

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$29 in paperback

Tyler Cowen references an interesting sounding book, in his Equine Markets in Everything post.

Circa the late nineteenth century, in urban America:

Even the wastes of horses were commodified.  The collection of urban manure had old, even ancient roots.  Again, the process is most easily documented in New York City.  Before 1878, individuals roamed the street and picked up manure.  In that year the Common Council supposedly sold an exclusive license to a William Hitchcock, who sold the street sweepings to farmers for fertilizer.  Street sweepings varied in quality and were worth more if from an asphalt street than if from a gravel street or a dirty alley.  They were always worth less than stable manure, a purer product.  The older pattern of individuals collecting street manure for urban gardens never fully went away, and as late as the first half of the twentieth century neighborhood children in the Italian American neighborhood of East Harlem did a thriving business collecting horse manure from the streets for backyard gardens in the area.

That is from Clay McShane and Joel A. Tarr, The Horse in the City: Living Machines in the Nineteenth Century, an excellent book from 2007.  I am sorry it took me so long to discover this work.  It has wonderful sentences such as:

Stables rarely make it into the histories of the built environment, although they constituted a substantial part of that environment.

How can you go wrong with that?  There is a good economics on every page of this book.