Reply #41: Tariffs, Schmariffs ...and the gold (Gold buggy, but interesting thoughts [View All]

[54anickel]

regarding protectionism.)

http://www.321gold.com/editorials/wallenwein/wallenwein041305.html

snip>

Since they will earn less dollars for their diminished US exports, their dollar-reserves will rise at a slower clip than before, which will put less upward pressure on the yuan, and that means they have less reason to sell yuan for even more dollars to keep their currency peg intact, so dollar-demand will be that much lower. (They will also have less appetite for US treasuries, putting further upward pressure on US interest rates).

Which will put more downward pressure on the dollar.

Which will make non-Chinese imports less affordable to Americans. And since American products - due to high labor costs etc., - are too expensive for over-leveraged Americans, they'll have to go to the only place where the buying is still cheap - China.

Instead of textiles (on which the tariff is imposed) they'll spend more money on other consumer goods.

Bottom line, economically speaking, its a wash.

American textile manufacturers may rejoice, but Congress' intended effect will have been nil - except that China will then be seriously ticked off at the US, the yuan will still be pegged, Americans will still be buying mainly Chinese goods, the dollar will still continue to drop, the trade deficit will still keep on climbing (loading another straw onto the dollar-camel's back), etc.

Not a very good picture.

The only real difference is that American textile manufacturers will be getting a government-instigated (but consumer, i.e., taxpayer-funded) subsidy from which no one else benefits.

more single sentence paragraphs....