The president seems to want a trade war with China.
The president also seems to want a war with Jeff Bezos and Amazon.com (AMZN). Â
A broader way to say this is that the president seems to want to wage war on you and me.
I say this, regrettably, because what I see coming out of Washington (and, astonishingly, from a Republican administration) is an attack on American consumers, American capitalism and the freedom to choose where we buy goods and from whom we buy those goods.
Now, I would expect a war on capitalism and consumer choice from the left; thatâ??s consistent with their creed. Yet to me, that attack is even more egregious when it comes from the right, and particularly from a president who spent his entire life in the private sector before being elected.
Just take the latest ramp up of the trade war. It first started with steel and aluminum tariffs, which at the time I argued wouldÂ lead to trouble. When we saw the Chinese retaliate with a rather muted set of theirÂ own tariffsÂ on U.S. goods, there was a second round of proposed tariffs from the Trump administration on someÂ 1,300 Chinese goods.
So, what happened next? Well, predictably, China retaliated this morning by announcing a proposedÂ 25% tariff on $50 billion worth of U.S. exports, including some 106 products, such as soybeans, chemicals, automobiles and planes.
Now, administration officials such as newly appointed National Economic Council Director Larry Kudlow, a free trader in his previous life, were quick to come out today and say that this is all a negotiating ploy to get a better trade deal with China.
Kudlow told Fox Business host Stewart VarneyÂ that there was â??absolutely notâ?ť a trade war between the United States and China.
Well, you could have fooled me. One place that is equally un-fooled is Wall Street.
Itâ??s not a coincidence that markets opened Wednesdayâ??s trading session down nearly 500 Dow points. And though stocks rallied back toward the end of the session as the headline fear subsided, there is no doubt that markets know how pernicious a trade war would be. Indeed, even the threat of big tariff impositions from both sides sends a big â??risk-offâ?ť signal to markets.
Yet the more important, and the more principled, concept to understand here — a concept that seems to have escaped the Trump administration — is that tariffs, regardless of their intended purpose, raise prices on consumers. They do so via direct taxation on imported goods or indirectly on imports of production goods.
And, I know this is a simple concept, but who pays those taxes? The answer is you and me.
And that brings us to the second front here, the presidentâ??sÂ recent storm of tweet attacksÂ on one of the greatest companies in history, online retailer Amazon.com.
Amazon is one of the greatest companies ever because it creates immense value for consumers and for shareholders. The ability to purchase just about anything you can think of, from books to clothes to household goods, including groceries and even web data services, at a competitive price and with ultra-fast, cost-efficient delivery has indeed changed the retail landscape.
Now, some would say Amazon has displaced many industries, the latest being delivery companies, large grocers and, of course, so-called â??mom-and-popâ?ť retailers.
Hey, I agree. And you know what I call that? Capitalism.
More specifically, it is what the great Austrian economist Joseph Schumpeter called capitalismâ??s â??gale of creative destruction.â?ť
Of course, those who defend the presidentâ??s singling out of Amazon have argued that the company is getting unfair advantages in the marketplace by receiving a bulk rate for package deliveries from the U.S. Postal Service.
Yet Amazon is paying the discountedÂ bulk rateÂ that it qualifies for due to the volume of packages it sends each year. Should Amazon be forced to pay more for this just because the president thinks itâ??s unfair? I think not.
Finally, ask yourself how Amazon got to be the dominant force in the online retail space. Did they do it at the point of a gun? How did Jeff Bezos become theÂ richest person on earth, according toÂ Forbes?
He did so because of you and me. He did it because consumers freely chose to embrace his company via buying and selling goods on Amazon and because investors freely chose to buy Amazon.com (NASDAQ: AMZN) shares.
I think that anyone who wants to stand in the way of that freedom might rightly be questioned about having a problem with freedom itself.
I hope I am wrong.
On Entrepreneurial Profit
â??Entrepreneurial profit is the expression of the value of what the entrepreneur contributes to production.â?ť
— Joseph A. Schumpeter
Profits of the sort made by Jeff Bezos, and every other businessperson, reflect the input that businessperson brings to the table. They are an achievement to be proud of and celebrated. Thatâ??s why I hate to see this value vilified in any way by those in political power.
Wisdom about money, investing and life can be found anywhere. If you have a good quote youâ??d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else.Â Click hereÂ to ask Jim.
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