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  • Yes, a Currency Devaluation Is Very Much Like a Tax

    Britax is a global corporation with a manufacturing hub in Fort Mill, South Carolina where it employs 300. It is there that the company creates car seats for children. Unknown is how long it will continue to.

    While it’s surely risky to draw immediate correlation, James Politi of the Financial Times recently reported that Britax is thinking about relocating. The impetus for relocation is the tariffs the Trump administration has levied on foreign goods.

    It seems the car seat business is a low margin affair, and beginning in 2018, Britax suddenly faced a 10 percent tariff on the textiles it imports to cover its seats. The tax moved up to 25 percent after a breakdown of trade talks this past May, and then this month a new, 15 percent tariff on metallic inputs such as harnesses and buckles was imposed. The taxes levied on imported inputs Britax relies on to complete its car seats has put it at a disadvantage vis-à-vis car-seat makers located outside the U.S. According to Politi, foreign producers of the seats enjoy a tariff exemption care of the “U.S. trade representative for some, but not all, safety products.”

    It’s all a reminder of the basic truth that tariffs are a tax, plain and simple. Not only do they harm the businesses they’re naively assumed to protect by shielding them from market realities, they’re paid for by other businesses reliant on imported inputs; meaning all businesses.T

    Figure that something as prosaic as the pencil is a consequence of global cooperation, so imagine by extension just how much a car seat is the end result of production taking place around the world. In this case, the Trump administration falsely “protects” textile and metal companies located in the U.S., and the bill for the protection is sent to companies like Britax. The tax paid by the latter has shrunk its already slim margins even more.

    Interesting about tariffs is that they bring about agreement among people with differing ideologies. President Trump’s NEC head Larry Kudlow strongly believes that tariffs are a tax, as does Democratic presidential hopeful, and frequent Trump critic, Pete Buttigieg. Tariffs raise the cost of doing business, which means they’re a tax on earnings. It’s all very simple.

    Which is why the quietude about President Trump’s dollar stance is so strange. As some know, Trump would like a weaker dollar. He incorrectly believes a debased greenback would make U.S. industry more competitive. Except that it wouldn’t, and one reason that a falling dollar wouldn’t enhance the health of U.S. corporations is because currency devaluation is 100 percent a tax.

    Tariffs raise the cost of importing simply because a 10, 15 or 25 percent tariff is a tax above and beyond the price of the imported good in question. When Trump imposes tariffs that are paid for by importers, the U.S. Treasury ultimately collects the proceeds of same.

    With devaluation, much the same is at work. In this case, devaluation of the dollar logically raises the cost of importing foreign goods. It also raises domestic prices, but that’s another piece of commentary for another day. For now, it should be said that money is an agreement about value. If the agreement is shrunk such that it means something different, or is exchangeable for less, it’s only logical that the cost of importing foreign inputs is going to rise unless foreign producers are willing to accept haircuts for what they send our way.

    And what about the U.S. Treasury. While it doesn’t collect the “proceeds” of dollar devaluation in the way that it does the false fruits of tariffs, the result is the same. A dollar is yet again an agreement about value. If the exchangeable value of the dollar is shrunk, so shrinks what Treasury owes.

    Devaluation is most certainly a tax, and it has a very similar impact on corporations as a tariff. Not only does it raise the cost of purchasing the inputs necessary to produce market goods, it at the same time shrinks company earnings. If the dollar is devalued, so must shrink the value of the dollars a corporation takes in.

    For those who think a dollar is a dollar is a dollar, think again. No one earns dollars, as much as they earn what dollars can be exchanged for. There’s a big difference. If the value of the dollar decreases, so must we decrease the value of a dollar earned by a business.

    The previous paragraph helps explain why periods of dollar devaluation (think the 1970s, think the 2000s) correlate with greatly subdued stock-market returns. If the market value of a company is a speculation by investors about all the dollars a company will earn in the future, it’s only logical that a devaluation of the currency unit that investors use to attach a value to corporations is going to negatively impact share prices.

    Taking the previous point further, companies logically grow via investment; be it in people, processes, and nearly always both. Investors, as readers of this column well know, are buying future dollar returns when they put money to work. Devaluation logically shrinks the exchangeable value of those returns. Again, it’s a tax.

    Which leads to the final question of this piece: why do honest members of left and right readily acknowledge the tax that is the tariff, all the while ignoring the tax that is devaluation? In each instance policymakers are shrinking the value of individual and corporate work, all the while shrinking what individuals and corporations can get in return for their work.

    Yet Trump’s tariffs bring forth all manner of reasonable (and sometimes unreasonable) hand wringing, while his calls for a shrunken dollar happen mostly without comment. This despite them being the same. Yes, a tariff is a tax. And so is devaluation. Why don’t policy types and candidates for public office speak up about the other devaluation?

    This article is republished with permission from Forbes. 

    John Tamny

    John Tamny is Director of the Center for Economic Freedom at FreedomWorks, a senior economic adviser to Toreador Research & Trading, and editor of RealClearMarkets.

    This article was originally published on FEE.org. Read the original article.

  • Electric Cars vs. Gas Cars: Is the Conventional Wisdom Wrong?

    Joe Biden, the current front-runner of the Democratic 2020 field, promises the return of electric vehicle (EV) tax credits. The presidential candidate says that “a key barrier to further deployment of these greenhouse-gas reducing vehicles is the lack of charging stations and coordination across all levels of government.” Biden wants 500,000 new charging stations by the end of 2030, thereby incentivizing the use of electric cars beyond the advantages given when buying them.

    As it stands—and depending on the state in which the car is bought and withholding the individual tax situation of the buyer—some people can save up to $10,000 on a new Tesla thanks to this tax incentive.

    This policy introduced under the Obama administration had the intention of promoting electric vehicles in order to reduce carbon emissions, but what happened in the countries that eliminated the tax credits tells a different story. When Denmark got rid of its tax credits for electric vehicles, Tesla’s sales dropped by 94 percent. In Hong Kong, the company saw a decline of 95 percent as the city got rid of comparable tax advantages for those buying electric cars.

    According to Biden, that is because the right user incentives aren’t there, notably charging stations. However, the countries involved have considerably more charging stations than the US: Denmark has 443 charging stations in its capital Copenhagen, as well as over 500 more across the rest of the country. As for Hong Kong, the South China Morning Post reports:

    The move [Tesla opening a super-charging car park in Hong Kong] followed the opening of Tesla’s first supercharger station – which can fully charge a Tesla in just 75 minutes […]. Currently there are 92 Tesla superchargers at 21 supercharger stations, with more than 400 public and shared charging points.

    Clearly, the question of EV is not one of convenience but of price.

    Norway has the largest fleet of electric vehicles in the world, making up 60 percent of all new sales this year. Reporting on the story, NPR writes that “10,732 [sold cars] were rated with zero emissions.”

    The Institute of Transport Economics at the Norwegian Center for Transport Research lays out the ambition of carbon dioxide reduction through electric mobility.

    For these vehicles a massive transition to electric engines can result in an up to a 97 per cent reduction in CO2 emissions and up to 76 per cent reduction in energy use per transport unit.

    Adding to that, over 95 percent of Norway’s electricity comes from hydropower, of which 90 percent is publicly owned. That does not come without its downsides. As electricity consumption increases in Norway, the sector is unable to keep up. Last year, lack of rainfall and low wind speed exploded Norwegian electricity prices to the level of Germany (which is still in the process of phasing out nuclear energy). Norway then resorted to coal power, and as fossil fuel power imports exceeded energy export, Norway has actually seen an increase in CO2 emissions.

    This is despite the fact that Norway’s climate and geography make it ideal for the production of renewables, which is not the case for every state in the US. However, electricity production is only half the story of EV.

    Electric vehicle batteries need a multitude of resources to be manufactured. In the case of cobalt, the World Economic Forum has called out the extraction conditions in the Democratic Republic of the Congo, where 20 percent of the world’s cobalt comes from. Miners as young as seven years are suffering from chronic lung disease from exposure to cobalt dust. Not only does battery manufacturing account for 60 percent of the world’s cobalt use, but there are also no good solutions to replace it, which is something Elon Musk is struggling with.

    This does not even address the extraction procedures, complications, ethical conditions, and emissions produced by the need for aluminum, manganese, nickel, graphite, and lithium carbonate.

    With a European market estimated to reach a total of 1,200 gigawatt-hours per year, which is enough for 80 gigafactories with an average capacity of 15 gigawatt-hours per year, that need is set to increase exponentially.

    The renowned German research institute IFO declared the eco-balance of diesel-powered vehicles to be superior to electric vehicles in a study released in April.

    We know from the US Department of Energy that the average fuel economy of cars more than doubled from 1975 to 2018. Fuel economy is increasing while horsepower has also increased exponentially, making cars both cleaner and faster. In 2017, the average estimated real-world CO2 emission rate for all new vehicles fell by 3 grams per mile (g/mi) to 357 g/mi, the lowest level ever measured.

    It doesn’t even matter which car brand you feel loyal to since all brands have made comparable improvements.

    No wonder: As much as consumers might care about CO2 emissions, they are even more price-sensitive. Even those consumers who aren’t will eventually be swayed when they find out their car brand is costing them comparably excruciating amounts in fuel.

    Electric cars won’t be the one-size-fits-all solution to our current transportation challenges—at least not for the foreseeable future. As both technologies have up-and downsides, we need to consider what innovation can realistically achieve before we make calls for bans or rushed replacements.

    Bill Wirtz

    Bill Wirtz is a Eugene S. Thorpe Fellow at FEE and Young Voices Advocate. His work has been featured in several outlets, including Newsweek, Rare, RealClear, CityAM, Le Monde and Le Figaro. He also works as a Policy Analyst for the Consumer Choice Center.

    Learn more about him at his website.

    This article was originally published on FEE.org. Read the original article.

  • Why Medicare for All Is Already Looking More Expensive

    After my study of the costs of Medicare for All (M4A) was published last July, a fierce debate erupted over whether M4A, while dramatically increasing the costs borne by federal taxpayers, might nevertheless reduce total U.S. health expenditures. Now, just one year after my findings, we have substantial additional evidence that M4A would further increase, not reduce, national health spending.

    To be clear, no one on either side of this debate questioned my central finding that M4A would increase federal costs by an unprecedented amount, likely between $32.6 trillion and $38.8 trillion over ten years—a federal tab so large that even doubling all projected federal individual and corporate income taxes couldn’t finance it. Yet M4A advocates continued to believe that it could bring national health spending down. That’s become substantially more difficult to argue in light of subsequent events.

    To understand how the picture has clarified, let’s review some of the specifics of my cost estimates as well as those of other experts. Prior to the introduction of Sen. Bernie Sanders’s M4A bill in 2017, various experts—including a team from the Urban Institute, Emory professor Ken Thorpe, and others­—attempted to score the costs of M4A. These studies concluded that M4A would not only dramatically increase federal spending, but increase total national health spending as well.

    Subsequent to these studies, but prior to mine, Sen. Sanders introduced his M4A bill. That bill specified that health provider payment rates under M4A would be determined by the same methods used to set Medicare payment rates, which would average about 40 percent less than private insurance rates over the first 10 years of M4A.

    Obviously, if one assumes that payments for all health treatments now covered by private insurance are reduced by about 40 percent, such a dramatic cost-reduction assumption would likely lead to the conclusion that total health spending would decline. My study duly reported the numbers that would derive from this cost-saving assumption but at the same time noted that “it is likely that the actual cost of M4A would be substantially greater than these estimates,” and that they should be regarded as a “lower bound.”

    For one thing, federal lawmakers have historically balked at implementing provider payment reductions much smaller and less sudden than those. For another, dramatically reducing provider payments (and thus health care supply) at the same time that M4A markedly increases the demand for health services would almost certainly disrupt Americans’ timely access to quality health care, precipitating unpredictable political fallout.

    Although my study was clear that the actual costs of M4A would likely be substantially higher than they would be under the aggressive assumption that all provider payments are suddenly cut to Medicare rates, mischaracterizations of my conclusions proliferated. Some M4A advocates wrote (and continue to write) that my study concluded that M4A would reduce national health spending, even though my study did not say this, and despite various Fact Checkers calling out this claim as a distortion.

    It was certainly fair for M4A advocates to express their belief M4A could and would reduce all provider payment rates to Medicare levels, thereby lowering national health spending. At the same time, it was never accurate to misattribute this finding to my study, which had found that such severe cuts were unlikely to be implemented. But now we know more about these dynamics than when my study was published. Based on events over the last year, even M4A’s strongest advocates can’t expect that such dramatic provider payment cuts wou