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
In general, incentivizing local production is good for many reasons, like jobs and the environment. It’s also one of the (not the only!) reason Switzerland is so wealthy.
I think the problem is that you have to transition and not just impose it immediately. US produced goods often aren’t currently affordable to the average American. Make foreign goods unaffordable through tariffs too, and many people will be between a rock and a hard place.
It’s also terrible for international relationships to basically cut economic ties at such short notice.
An alternative would be subsidies for small businesses rather than huge global ones, and for sustainable local farming.
Just my two cents as a European who tried to keep up.
Instead, america gives multiple massive subsidies to industrial farmers growing corn for oil additives and cow feed and gives next to nothing to small famers growing food for human consumption.
And they give business relief and tax breaks to multi billion dollar mega corporations and proportionally much much less to small businesses.
many people will be between a rock and a hard place.
And incomes tend to lag price increases by quite a bit, so the average consumer gets screwed in the meantime. Assuming tariffs are offset by increased pay (due to increased revenue), it shouldn’t matter a ton longer term, but the initial price shock will have a ripple effect across the economy as people struggle to keep up.
The US imports everything. Food, clothes, all kinds of basic goods. We shifted from a manufacturing economy a long time ago.
Tariffs come into play when goods enter the country. They don’t exist until then. So if you put a tariff in place, it’s the local consumers who pay them. This drives prices up.
Nobody wants tariffs imposed on them, because it means their exports won’t be bought as much. But what happens when there’s essentially no competition from the importing country? The people suffer. That’s it.
Tariffs are a brute force tool to attempt to bully another country into doing what you want, but they cut off your nose to spite your face.
You’re correct, tariffs can protect (as in protectionism) the local economy. The only downside is to consumers, as they no longer have the possibility to buy cheaper foreign goods.
But what if there is no local production for the goods being tariffed (not sure that’s a word)? The government collects a bit of money and the price rises for two reasons: to pass the tariff to the consumer and because of the increased rarity/scarcity, as foreign traders will tend to sell their goods elsewhere.
Now I’m no expert, but I’m pretty sure that a lot of stuff is no longer locally produced in the US. Tariffs could lead (in the long term) to a re-industrialisation of the country, creating jobs, reducing pollution (reduced cargo transport, better regulations if Trump doesn’t gut them), etc. But in the short term, it will be price rise galore.
It’s a regressive tax on goods that’s ultimately levied against your own citizens. The tarrifed country doesn’t pay the tarrifed, the business that’s importing the goods does and they aren’t going to take a hit on their net profit they’re going to raise prices and pass the cost on to their customers.
From your model, tariffs would be a heightened barrier, like a levee, against the outflow of wealth from the US.
Trouble is, the river is strong, and there are no offshoots yet, so the flow will have to continue over the levee, at higher cost.
Basically, it takes time to build up domestic production to competitive prices. Raising tariffs drastically means those who cannot do without the products just pay more.
If you have targeted tariffs, some of that demand can be soaked up by substitutes (maybe instead of buying a European car, some people get an e-bike or Chinese car). Also, targeted tariffs allow for targeted increase of production, meaning you only have to establish new car-manufacturers, rather than every industry which strains both private capital and subsidies, not to mention negotiations as everyone is scrambling.
If you have a staggered introduction of tariffs, consumers and producers can more easily adapt. Maybe a bike shop can start making e-bike conversions, or used car lots refurbish cars as they get upgraded by those rushing to buy before the tariffs get too high.
Modern production chains are more complex than in Prussian times, but over about 3-15 years, domestic production might have caught up to the domestic demand, assuming they trust that the tariffs will remain.
You can look at the chip manufacturing in the US for example. I think it was almost 6 years ago it was found Chinese chips are compromised, and a first factory is just about opened, and still not nearly at the required volumes.
Also, modern trade is a great carrier of diplomacy and influence, tariffs and other isolationist measures means you’ll have less interaction, cultural exchange, and innovation. And as cultures drift apart, relations will be harder and harder.
See Japan, still a bit awkward internationally after their isolation, even though it’s been 140 years since they rejoined the international community.
