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Trade War III

08 Feb 2023 | News Roundup

This strangely popular notion we’ve focused on recently that politicians can easily redesign modern economies and make them work much better suggests that modernity has achieved a degree of gullibility that would astound our ancestors. Including The Economist, which chirps “Joe Biden’s effort to remake the economy is ambitious, risky – and selfish/ But America’s plan to spend $2trn could help save the planet”. Yeah. Or sink the economy and not fix the weather. But why “selfish”? Well, among the less appreciated and apparently unanticipated attributes of America’s misleadingly named “Inflation Reduction Act” is that the flood of subsidies into unproven technology has created pressure for many other governments to leap into the sorts of “beggar thy neighbour” trade policies that, in the 1930s, also managed to “beggar thy citizens” and “cause wars.” So who could resist?

Not U.S. states, who are already luring firms from Europe with promises of taxpayers’ money in vast amounts to make things that nobody wanted to buy before the subsidies started flowing. Or European governments, who see no plausible response but to put even more public cash on the table for people to produce things that may very well not help the economy or the environment. Nor media outlets like the New York Times, which is now peddling government subsidies instead of questioning them, the days of speaking truth to power (or about it) evidently being long gone. Thus:

“How to get government aid to ditch fossil fuels/ Ready for the climate version of HGTV? At the moment, you can start making plans for climate-friendly home makeovers, with some help from your tax dollars. That’s one of the goals of the $370 billion Inflation Reduction Act. It offers oodles of money to get rid of fossil fuels from your everyday life, by electrifying your home and making it more energy efficient. There’s also money to help you upgrade your wheels to electric. (Is there a TV channel for that?)”

Also absent from the list are Canadian politicians. In the National Post Carson Jerema fumed that:

“As soon as the Americans passed the ludicrously named Inflation Reduction Act, the shameless begging in Canada for the Liberals to bring in their own plan would make the most seasoned con artists wince. Everyone has their hand out, demanding their cut. Carmakers, universities, unions, oil and gas companies, renewable energy companies and anyone who believes lobbying Liberals is preferable to satisfying customers has dollar signs in their eyes. The Liberals are embracing the idea with equal parts enthusiasm and panic. A wiser government would recognize that just because the Americans want to spend enormous amounts of public money for little benefit, we are not obliged to follow.”

As he adds, “Innovation follows when the government steps back, not the other way around.” Which brings us to McGill economist William Watson’s critique of our government’s focus in the Financial Post. He asks why our government seems bent and determined on matching any subsidy from south of the border but not tax cuts even though “Subsidies are just negative taxes. Taxes are negative subsidies. It’s all merely a question of whether the sign is positive or negative.” So if subsidies promote jobs, so do tax cuts. Alas:

“the Liberal view seems to be that the world is asymmetric: positive subsidies do have to be matched; reductions in negative subsidies (i.e., taxes) don’t. More precisely, Democrats increasing spending or taxes must be matched; Republicans cutting spending or taxes does not. When Republicans do things, we express our national distinctiveness by doing the opposite. When Democrats do things, we somehow express our national distinctiveness by copying them exactly.”

The result is already not looking pretty, including friction arising in Europe. Politico observes that:

“The EU Commission president will this week lay out her ideas for an industrial policy designed to help major manufacturers and other businesses remain competitive in the face of two existential threats: high energy bills and American domestic subsidies for their rivals. Central to her blueprint is loosening restrictions on how much money governments – or the EU centrally – can pump in as subsidies known as ‘state aid’ to prop up struggling businesses. The risk is that if subsidy limits are lifted, the EU’s richest economies like Germany and France will be free to outgun the bloc’s weakest minnows, and that would wreck the principle of fairness underpinning the European single market.”

Awkward. And we must have fairness. So “Council President Charles Michel has also pitched the idea of establishing a fund financed by joint EU loans that would allow EU countries to subsidize industry on equal terms.” But that proposal didn’t go over well. Instead:

“A wide range of EU ambassadors hit out at those draft conclusions in a meeting last week, four EU diplomats told POLITICO. In the meeting, Dutch Ambassador Robert De Groot slammed Michel’s pitch as ‘Karl Marx’ on steroids, according to three of the diplomats.”

And when European politicians are calling you a gol-durn Commie you know things are bad.

2 comments on “Trade War III”

  1. The bankrupt western welfare/warfare states are all now in desperation mode as we approach reckonings that will be very ugly.

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