Ok was reading a post somewhere else and came across someone saying how trump likes tariffs too much, which is not the first time i have heard tariffs frowned upon. I have always been of the opposite opinion and I guess would also ‘like tariffs too much’ so please enlighten me as to why they are bad.
My view:
I like to visualize the flow of wealth and whether wealth is flowing in to or out of an area. When I researched Fredrick the Great, he had become ‘the great’ thru making Prussia wealthy, and he had done this by freeing up and empowering local producers while limiting… thru tariffs… goods externally produced. This makes total sense to me. Prussian producers then pull wealth in while foreign producers no longer pull wealth out.
Another parallel is when developing countries have farmers that cannot produce goods cheaply enough to compete with the oversubsidized foreign goods flooding their market and, because their government does not tariff up the prices of the foreign goods, the locals get thrown in to poverty. These two things have always, to me, implied the role of tariffs is to prevent wealth from being drained out of an area and, as a byproduct, divert business and thus success inward instead. Because this helps local prosperity, I, I guess similarly to Trump (?), have historically viewed tariffs as generally a ‘good’ tool.
So please, explain where I’m wrong, if I am, and why tariffs would be bad. thank you
There’s nothing particularly bad about tariffs but Trump isn’t using them to protect jobs, just to punish countries.
For instance, imposing a 25% tariff on Canada is meaningless when he is proposing 100% tariffs on the EU, Japan and South Korea. He seems to think its a form of punishment and that the countries have to pay the tariff.
Thanks nice infos everyone. i learned alot and I guess I played too much civilization, have a longterm view, and would be a harsh leader because I view that 18$ going back inside america instead of 10$ out to china as worth it even tho consumers suffer until competition can arise and drive the price down (tho im not against china nor other countries; i just want wherever i am to prosper). Tariff = -2 citizen unhappiness for x number of months for +3 wealth gain 2 years later. I’d take it. Hence the ‘playing too much civ’ since my perspective is ‘whats best long term for the country’ instead of as an individual within the country that has to deal with the short term consequences of the decisions. So I guess, after learning alot, I agree with my previous self and see that I do indeed favor the use of tariffs and that it has to do with my personality as a unique person (while others may, because of their own personalities, be ‘generally against’ tariffs). love the perspectives
(i also now am aware of additional potential downsides mentioned here such as foreign nation responses. thank you)
Tariff = -2 citizen unhappiness for x number of months for +3 wealth gain 2 years later.
Who is getting the wealth becomes the issue. The vague sense that “America” gets the wealth ignores what we’ve already seen companies do: instead of reinvesting in the company, instead of raising wages, the major corporations aim for things like stock buybacks that boost their share prices so the board of directors are happy, the CEO keeps their job, and the leaders of the company get greater compensation as their compensation is usually in the form of stocks.
Increasing salaries is an expenditure and is often seen as a last resort. You raise salaries when you need to in order to attract new talent, or in order to retain talent. In a lot of industry the workers are no more than “meat machines” and aren’t valued as a component that needs to be maintained, management would be just fine replacing them. It’s the same argument with productivity, more output because a machine outputs more does not equal a greater pay for the workers, “they didn’t do anything more to deserve it” so a tarrif that increases prices/profit doesn’t mean that wealth will reach the general population.
“America” as in the general population loses in this scenario. Things just become more expensive, that doesn’t mean that the money comes back to us. That’s “trickle down economics” and we have over 50 years of evidence showing that doesn’t work the way it was sold to us.
You are forgetting that other countries respond with tariffs of their own. Ultimately, the outcome balances out, just with higher prices for everyone. Local producers that rely on exports lose while those that sell locally win - as long as they don’t rely on imports for raw materials.
Consumers lose, especially on stuff that will never be produced locally, or rules on raw materials that can’t be sourced locally.
What Tariffs Do
Say we create a tariff for chicken. Locally, the chicken costs $1.50. For Germany to export chicken, it’s $2.25. The goal is to protect the local price, but it incents the local price rising to competition. Why? Because your competition cannot sell for less because of the tariff (otherwise it’s a business loss). So local chicken raises to $2.24. The government sets the market rate now. Local capitalist make bank for the market being set. The cost is passed to consumer.
Worse, countries can impose counter tariffs. That can penalize US economies, hence tariff “trade wars.”
The tariff is supposed to raise money for the government, which is turned into lower taxes for citizens (since the government is generating a revenue receipt from the tariff). But the cost to GDP is often worse, and there’s no guarantee the government passes the cost on to the citizen.
They also claim to raise jobs because local economies are more favored. Like, Samsung can export from South Korea or make a plant in America. However, that behavior doesn’t usually happen because the cost of labor & doing business in the US is more expensive than just exporting from elsewhere.
Tariffs aid local capital owners while intervening on the market and hurting consumers.
Source: I work on game economies for a living & enjoy reading about economies.
Good answers here, but another issue with generalized tarrifs is that if the business already exists in America the increased price of the foreign good gives the American business the means to raise their price to be closer to the now more expensive foreign good.
If China sells a shirt for $10 and now it’s $20, but US company sold their shirt at $14 they can now safely raise the price of their shirts to $18 and still be the “cheaper” option.
Exactly. EV tariffs give US EV manufacturers more room to raise prices. The same is true for subsidies.
That sounds good for US companies, but then other countries raise their tariffs on US goods to compensate, so consumers both inside and outside the US end up paying more.
