Tuesday, January 31, 2017

Navarro Seems to Want a "Bought In America" Tax But Also Wants a Weak Dollar

Peter Navarro today accused Germany of tacitly manipulating the Euro to its recent lows,  This is a head scratcher, but worrisome.  Some of the remarks of Trump officials have already induced the beginnings of a trade war with Mexico.  That's bad, guys.

The same article says Navarro wants the Brady Plan implemented.  The Brady Plan which will cause the dollar to rise by 25% purportedly.

These two objectives, if that's what we must call them, are opposites.  You can't work toward a higher dollar (which will supposedly rescue me and fund my new giganto tax bill) and accuse other countries of manipulating their currencies down.

Peter, which do you want, dollar up or dollar down?

If another currency goes down against the dollar, (get ready for the big insight here) our currency goes up.  Theirs down, ours up.  AND if ours goes up . . . theirs goes down.  That's how these markets work.  Sorry.

The proponents of the Brady Plan say importers will not incur any extra expense because of the magic of dollar appreciation.  This assertion has been much scorned in this space.  Navarro demonstrates another reason to have NO faith in Holtz-Eakin or sidekick Auerbach.  If that plan is enacted and the dollar dares to move up, Navarro is fully committed to talking it back down, no matter the diplomatic cost to our country and its long term interests. Or your bankruptcy . . . or our inflationary firestorm.

I have pondered this and cannot identify any scenario where this ends up good for me, or good for anyone.  It has the makings of disaster, plain and simple.

If we really don't like a higher dollar, then why are we knowingly pursuing a policy that we predict will cause the dollar to rise from already historic levels?  Navarro is unhappy because other countries become more competitive when the dollar rises and their currencies fall.  That's his objection to the weak Yuan (of years past).  Yet he wants to implement a tax policy that will drive the dollar higher.  If he gets a lower dollar, then there is no realistic way for us to pay the new FIXED tax bill without raising prices on you. That's the justification offered for the crazy Brady Plan.

It is a rich irony that Navarro is swinging wildly at our largest trading partners, apparently motivated by the fact that we trade with them.  This is driven not by "currency bargains" but by the fact that we want to buy their products.  Navarro seems against giving you the choice to buy what you want and where you want it.  He is a conservative who wants a controlled economy.

Or he's a fantasist who imagines worlds comprised of incompatible elements simultaneously. A world with sugar plum fairies and closed borders, and super strong gravity but also the ability to float into the air at will.  He wants to compel you to buy American, and will tax the so-and-so out of you if you don't.  Hence, the Bought in America Tax (a more appropriate name for the BAT). It's an echo of the Communist era where someone like Peter Navarro gets to decide what is best for you, an idea oddly being sold to us by this era's version of conservatives.

Are we really prepared to accept this as the thinking behind a once-in-a-generation reworking of the Federal tax system?  Does this thinking in ANY WAY suggest coherence or discipline? Planning and foresight?  Good planning for all contingencies and strong accountability?  As to the latter, since Navarro has taken all possible positions, he can certainly claim to be right no matter what happens . . .

Gang, the Bought in America Tax is going to become reality if you let folks like Navarro and Brady bulldoze you.  They are swinging wildly at every target and spouting nonsense at every opportunity. Don't dismiss them or their positions as preposterous.  As I have shown, repetition of nonsense can convince many people of its veracity.  Yes, repetition of ANYTHING tends to build recognition and hence acceptance of the message's truth.  Even if it's not true.  The Big Lie.  You could end up financing the tax system through high tax bills and inflation if you don't start writing and calling your Congressman.

What are you waiting for?

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