Peter Schiff: Don’t Be Thankful for Tariffs

From all of us at SchiffGold, we hope you had a wonderful Thanksgiving with family and friends! During his holiday vacation last week, Peter offered his thoughts on the economic lessons to be learned from the first Thanksgiving holiday. He spends most of this episode discussing the misguided rhetoric surrounding tariffs and protectionist policies, explaining that trade wars are ultimately won by countries that allow their citizens to trade freely.

When the pilgrims started settling America centuries ago, they were plagued by low economic productivity, despite their commonalities:

Socialism didn’t work, or Marxism, with the pilgrims. How could it possibly work with any other group of people? This is a small group, right? All committed to the same goals, the same ideals, yet they nearly starved to death because nobody wanted to work when the benefit of their work was going to be shared equally by everybody. Everybody was greedy in that sense, right? And so the whole thing fell apart, and they almost starved to death. And what saved the colony is they learned from their mistakes.

The pilgrims are a great example of a more fundamental economic principle. Incentives matter:

The Marxist can never come to terms with human nature and incentives and how they work. And the government still doesn’t understand how they incentivize people not to work, not to be productive, through the regulations and the programs that they pass. They always come up with these ideas that they conceive and think are going to help people, and they forget to understand how people are going to take advantage of everything that they do.

Pivoting to President-elect Trump’s protectionist policy plans, Peter reiterates the plain truth that tariffs are taxes, and just like other taxes, they impoverish those they’re levied against:

They overlook the impact that tariffs are going to have on Americans because tariffs always hurt the most, the nations that impose them. … A trade war is lost by the nation that wages it. And that’s what’s going to happen. People just think that the tariffs are going to help. …  It’s not like the taxes don’t have a cost. And tariffs are taxes.

Even history is on the side of free trade. The tariffs from Trump’s first term are still in place, and they haven’t made any significant progress in reducing the trade deficit:

Let me talk about the idea that tariffs are going to shrink the trade deficit. Well, we already have an example from recent history where that did not happen. … Donald Trump enacted tariffs during his first term. In fact, most of those tariffs are still there, right? …Those China tariffs are still in effect today. They’re still there. … All those tariffs are still there.

Thankfully, any tariff-induced price increases are unlikely to provoke a Fed response:

The Fed is going to look through any impact that tariffs have on prices when it comes to inflation. Because what the Fed is concerned about is the annual rate of inflation going forward. The Fed will look through a one-time upward shift in prices that results from the tariff. They’re not going to say, ‘Prices were up 20% this year. We need to jack up interest rates because they’re going to be up 20% every year.’ … It’s not higher inflation. It’s going to be higher prices, but that’s not higher inflation.

Peter explains that the logic of tariffs is ultimately self-destructive, especially when entire countries are treated like groups of people with the exact same interests:

Even these politicians, when they say, ‘Oh, like Mexico and China are saying, well, if you put these tariffs on us, we’re going to put these tariffs on you,’ that’s not the right response. Again, it’s like, ‘If you jump off a bridge, well, I’m going to jump off too.’ … The best thing to do if a country wants to be dumb enough to try to limit the ability of its own citizens to trade freely is not to do the same thing to your citizens. Let your own citizens trade freely, and you’re going to win.

For more analysis of last week’s alarming retail sales figures and the Trump administration’s plans for the Department of Government Efficiency, check out last week’s episode of the Gold Wrap Podcast.