TRADE TARIFFS
As rhetoric regarding trade tariffs increased prior to the election and, with that same rhetoric continuing post-election, the danger to free trade and a strong economy is heightened.
In my article, The Danger Of Trade Tariffs, I said…
“Tariffs are taxes imposed on imported goods, ostensibly to protect domestic industries or gain a competitive edge. They are sometimes recommended and promoted by those who think they have identified an “unfair advantage” existing between trade partners.”
Special emphasis is applicable to the first three words: tariffs are taxes.
That alone should be justification for rejecting tariffs outright; however, some think there is reason to consider them in the name of “fairness”. Politicians are notorious for using the doctrine of “fair trade” to justify their threats and the imposition of tariffs (taxes) on trade partners.
The appeal to and appeasement of voters is uppermost in a politician’s mind when the “fair trade” issue is raised. For example, there are certain U.S. industries that are currently not as competitive and profitable as might be preferred. If the imported good is cheaper, then it is often claimed that the competitor uses “cheap labor”; or is “dumping their goods at cheap(er) prices”.
There might also be tariffs already imposed on domestic goods exported to another country, or countries. If a company or industry has done everything they possibly can to be competitive and profitable, the conditions can give rise to claims of unfair trade practices.
The mistake politicians and others make in calling for tariffs on imported goods is that, whether they are imposed in retaliation, or to “protect” a domestic industry and its workers, the net effect is overwhelmingly negative. Here’s why…
We said earlier that tariffs are taxes. A tariff is a tax on goods imported into a country.Currently, new tariffs are being proposed on imported goods coming from other countries. A tariff on something I buy that is made in China, or food I consume that is harvested in Mexico, means it will cost me more than I had been paying for those products.
I might choose to buy the same products after the increase in price; or, I might buy a substitute good of lesser quality. I will end up paying more for what I want, or be forced to compromise. Others will make similar choices; and neither choice leaves me, or anyone else (consumers) better off.
THE WORST THAT COULD HAPPEN
Trade tariffs often trigger a chain reaction and full-blown trade wars can result…
“America’s last major trade war happened after imposition of the 1930 Smoot-Hawley Tariff, which increased 900 import tariffs from 40-48%. It was supposed to support U.S. farmers whose land had been devastated by the Dust Bowl, but it resulted in higher food prices for Americans who were already crippled by the Great Depression.
America’s trade partners at the time hit back with their own tariffs and global trade fell by 65%, worsened the depression, and contributed to the beginning of World War II.
After Smoot-Hawley, the country suffered tremendously. The general public had little understanding of tariffs or trade agreements.” Tariffs And Trade Wars… by Anna Kucirkova
CONCLUSION
Tariffs are taxes imposed on imported goods, ostensibly to protect domestic industries or gain a competitive edge. They are usually recommended and promoted by those who think they have identified an “unfair advantage” existing between trade partners.
Trade tariffs harm small businesses and result in inefficient allocation of resources. Trade tariffs hinder productivity and economic growth; and, they can lead to trade wars. The end result is always higher costs for consumers.
President-elect Trump’s suggestion that selectively placed super-high tariffs could replace the income tax is just plain stupid. The results and the mathematics are impossibly workable and the attempt would be disastrous for international trade and the world economy. Besides, a tax is still a tax.
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED