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Trump Solar, Other Tariffs Are Direct Tax on US Consumers

Trump Solar, Other Tariffs Are Direct Tax on US Consumers
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Tuesday, 23 January 2018 08:49 AM Current | Bio | Archive

Monday’s accomplishments of the day were that the U.S. government reopened and that President Donald Trump imposed tariffs on all imports of washing machines and solar panels.

Economically, economists would regard these new tariffs as a direct tax on U.S. consumers. This is because in fact, these tariffs are a direct tax on U.S. consumers.

Traditionally, tariffs were treated entirely as an aiding revenue device.

Now, we should keep in mind that the weighting of washing machines in the consumer price inflation basket is too low to make much of a difference to the inflation story.

The weighting of laundry equipment can be checked at the Bureau of Labor Statistics’ economic news release of December 2017 in “Table 2. Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, by detailed expenditure category.”

Yes, but it remains rather bad luck on any American who needs to purchase a washing machine any time soon.

About 80 percent of U.S. solar equipment components are foreign made, but solar panels are not in the consumer price inflation basket at all.

Besides this, coincidently and certainly interestingly, round 6 of the renegotiation of the North American Free Trade Agreement, or NAFTA, gets underway today in Montreal, Canada.

Maybe it’s good to recall that no major progress has been made on key issues through the first 5 rounds and only one more round after this week is scheduled.

Trump continues to repeat his threat that if he doesn't get the deal he wants, he'll withdraw.

In case the U.S. should withdraw from NAFTA, it’s a fact that this would impose a higher cost on low-income Americans specifically.

For the government shutdown, the actual situation starts actually to look more like the known European style solution of “kicking the can down the road” because the so-called “continuing resolution” keeps the U.S. government funded until February 8 in the hope that Congress can reach a longer-term budget agreement in the meantime.

Republican Senate leader Mitch McConnell said his party had “come to an arrangement” to negotiate on the Democrats' calls for an immigration deal while the Democrats want protections from deportation for the so-called Dreamers, which are the more than 700,000 young immigrants that came to the United States as children.

There is obviously some uncertainty associated with this strategy, but it’s not uncertainty that is likely to concern financial markets, at least not at this moment.

Even if the U.S. government is back up and running, today’s economic data calendar remains as light as yesterday’s.

Tonight, in Chicago, Illinois, Chicago Fed President Charles Evans will give introductory remarks at the introduction of Michael Moskow during the Chicago Council of Global Affairs conference on “The Future of Monetary Policy: Embracing the Unconventional.”

Also, today, Marvin Goodfriend, a widely respected monetary economist and sometimes critic of the Federal Reserve under Chair Janet Yellen, and who was nominated by President Trump to be a governor at the Federal Reserve has today a confirmation hearing before the Senate.

Over in Germany, the ZEW Indicator of Economic Sentiment for Germany, which is a survey of economists, rose by an impressive 3 points to 20.4 in January 2018, well above expectations of 17.8.

The assessment of the current economic situation in Germany also increased sharply by 5.9 points to a “record high of 95.2” in January. Consensus was 89.8. Private consumption is likely to continue to stimulate growth and the global economic environment in Europe and the U.S. is much more favorable than it was at the end of 2017, according to the survey participants.

Investors could do well keeping in mind that Germany, which is by far the biggest economy of the Euro area, does not represent the Eurozone as a whole.

Besides all that, financial markets are at least for the moment, fairly comfortable with the direction of Fed policy.

Meanwhile in Davos, Switzerland, at the 2018 World Economic Forum, we got yesterday from the IMF an upward revision of 0.2 percent of its World GDP growth forecast.

This would be wonderful were it not for the fact that the IMF is nearly always late to the forecasting party, and the rather more important fact remains that investors should better ignore figures after the decimal point when it comes to economic forecasts.

Economic forecasts are not that precise and the idea that global growth forecasts could be revised by 0.2 percent without any sense of accuracy is simply ridiculous.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Economists regard these new Trump tariffs on solar panels and washing machines as a direct tax on U.S. consumers. This is because in fact, these tariffs are a direct tax on U.S. consumers.
trump, solar, tariffs, tax, consumers
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2018-49-23
Tuesday, 23 January 2018 08:49 AM
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