{"id":23723,"date":"2019-10-03T13:25:00","date_gmt":"2019-10-03T17:25:00","guid":{"rendered":"http:\/\/www.megalextoria.com\/wordpress\/?p=23723"},"modified":"2019-10-03T13:25:00","modified_gmt":"2019-10-03T17:25:00","slug":"yes-a-currency-devaluation-is-very-much-like-a-tax","status":"publish","type":"post","link":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/2019\/10\/03\/yes-a-currency-devaluation-is-very-much-like-a-tax\/","title":{"rendered":"Yes, a Currency Devaluation Is Very Much Like a Tax"},"content":{"rendered":"<p><script async type=text\/javascript src=https:\/\/www.dclick.io\/static\/js\/ad.min.js><\/script><br \/>\n<a class=\"attachment wp-att-23724\" href=\"https:\/\/www.megalextoria.com\/wordpress\/?attachment_id=23724\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large wp-image-23724\" src=\"https:\/\/www.megalextoria.com\/wordpress\/wp-content\/uploads\/2019\/10\/money-1024x683-1.jpg\" alt=\"\" width=\"802\" height=\"535\" \/><\/a><\/p>\n<p class=\"speakable-paragraph\">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.<\/p>\n<p>While it\u2019s surely risky to draw immediate correlation, James Politi of the <em>Financial Times <\/em>recently reported that Britax is thinking about relocating. The impetus for relocation is the tariffs the Trump administration has levied on foreign goods.<\/p>\n<h2 id=\"link-0\">Tariffs Are Taxes<\/h2>\n<p>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-\u00e0-vis car-seat makers located outside the U.S. According to Politi, foreign producers of the seats enjoy a tariff exemption care of the \u201cU.S. trade representative for some, but not all, safety products.\u201d<\/p>\n<p>It\u2019s all a reminder of the basic truth that tariffs are a tax, plain and simple. Not only do they harm the businesses they\u2019re naively assumed to protect by shielding them from market realities, they\u2019re paid for by other businesses reliant on imported inputs; meaning <em>all<\/em> businesses.<span class=\"rte-quote\">T<\/span><\/p>\n<p>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 \u201cprotects\u201d 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.<\/p>\n<p>Interesting about tariffs is that they bring about agreement among people with differing ideologies. President Trump\u2019s NEC head Larry Kudlow strongly <a class=\"steem-keychain-checked\" href=\"https:\/\/www.realclearmarkets.com\/articles\/2018\/03\/05\/trump_doesnt_realize_that_tariffs_are_taxes_103171.html\" target=\"_blank\" rel=\"nofollow noopener noreferrer\" data-ga-track=\"ExternalLink:https:\/\/www.realclearmarkets.com\/articles\/2018\/03\/05\/trump_doesnt_realize_that_tariffs_are_taxes_103171.html\">believes<\/a> 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\u2019re a tax on earnings. It\u2019s all very simple.<\/p>\n<h2 id=\"link-1\">Currency Devaluation Is a Tax<\/h2>\n<p>Which is why the quietude about President Trump\u2019s 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\u2019t, and one reason that a falling dollar wouldn\u2019t enhance the health of U.S. corporations is because currency devaluation is 100 percent a tax.<\/p>\n<p>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.<\/p>\n<p>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\u2019s 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\u2019s 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.<\/p>\n<p>And what about the U.S. Treasury. While it doesn\u2019t collect the \u201cproceeds\u201d 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.<\/p>\n<p>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.<\/p>\n<h2 id=\"link-2\">The Value of the Dollar Can Change<\/h2>\n<p>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\u2019s a big difference. If the value of the dollar decreases, so must we decrease the value of a dollar earned by a business.<\/p>\n<p>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\u2019s 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.<\/p>\n<p>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\u2019s a tax.<\/p>\n<p>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.<\/p>\n<p>Yet Trump\u2019s 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\u2019t policy types and candidates for public office speak up about the other devaluation?<\/p>\n<p style=\"text-align: right;\"><a class=\"steem-keychain-checked\" href=\"https:\/\/www.forbes.com\/sites\/johntamny\/2019\/09\/29\/make-no-mistake-about-it-a-currency-devaluation-is-a-tax\/#5e0bc16225f2\" data-anchor=\"#5e0bc16225f2\"><em>This article is republished with permission from Forbes.\u00a0<\/em><\/a><\/p>\n<p><center><\/p>\n<div class=\"dclickad\" data-client=\"darth-azrael\" data-slot=\"1570123460667\">\n<\/div>\n<p><\/center><\/p>\n<div>\n<\/div>\n<div>\n<h5><a class=\"steem-keychain-checked\" href=\"http:\/\/fee.org\/people\/john-tamny\/\"><br \/>\nJohn Tamny<br \/>\n<\/a><\/h5>\n<div>\n<div id=\"m_-1820137988775684493divtagdefaultwrapper\">\n<p>John Tamny is Director of the Center for Economic Freedom at FreedomWorks, a senior economic adviser to Toreador Research &amp; Trading, and\u00a0editor of RealClearMarkets.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<p style=\"font-style: italic;\">This article was originally published on FEE.org. Read the <a href=\"https:\/\/fee.org\/articles\/yes-a-currency-devaluation-is-very-much-like-a-tax\/\">original article<\/a>.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/fee.org\/counter\/185952\" alt=\"\" width=\"1\" height=\"1\" \/><script src=\"https:\/\/fee.org\/Scripts\/fee-repub.js\" async=\"async\"><\/script>\n","protected":false},"excerpt":{"rendered":"<p>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\u2019s 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. Tariffs Are Taxes 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-\u00e0-vis car-seat makers located outside the U.S. According to Politi, foreign producers of the seats enjoy a tariff exemption care of the \u201cU.S. trade representative for some, but not all, safety products.\u201d It\u2019s all a reminder of [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[3538,622,1176,2580,1701],"class_list":["post-23723","post","type-post","status-publish","format-standard","hentry","category-news-and-politics","tag-devaluation","tag-economics","tag-money","tag-tariffs","tag-taxes"],"_links":{"self":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/23723","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/comments?post=23723"}],"version-history":[{"count":0,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/23723\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/media?parent=23723"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/categories?post=23723"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/tags?post=23723"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}