Weekly Opinion Editorial
SHORT TERM PAIN=LONG
TERM GAIN!
by Steve Fair
President Trump announced tariffs on Mexico, Canada and China starting
on February 1st. Products
imported from Canada and Mexico face a 25% tariff. All products coming from China face a 10%
tariff. Energy resources from Canada
will have a lower 10% tariff.
The White House says President Trump is taking the bold action to hold
Mexico, Canada, and China accountable to their promises of halting illegal
immigration and stopping poisonous fentanyl and other drugs from flowing into
our country.
Critics claim the move will hurt American consumers by driving prices
higher and slowing global economic growth.
President Trump said the tariffs could create ‘some pain’ for Americans
but ultimately will be ‘worth the price.’
Trump’s stated goals in imposing tariffs are to: (1) deter war by
imposing economic harm to aggressive countries and (2) boast domestic
manufacturing. Three observations:
First, countries don’t pay tariffs, consumers do. Every fee, tax, tariff, assessment, duty or
charge is ultimately paid by the person using the product. Whether it be gasoline, groceries, clothing, or
furniture, the end user pays the fee.
Tariffs are just added to the price on imports, so American consumers
pay it, but only if they buy it.
Second, supply and demand will work.
The principle of supply and demand states the price of a good or service
is determined by the interaction between the quantity of that good available
(supply) and the desire for it by consumers (demand). When demand is high and supply is low, prices
rise, and vice versa, leading to an "equilibrium" price where supply
matches demand. The cure for high prices is high prices. The price of imported tomatoes and avocados from
Mexico will temporally go up because of the tariff, impacting sales and
consumption. Short shelf-life products, like
fresh produce, will quickly adjust pricing.
Other products may not react as rapidly, but eventually pricing will hit
equilibrium.
Third, America has a trade deficit. It has an ‘unfavorable balance of trade.” The U.S. imports more than it exports. According The Kobeissi Letter (TKL), a weekly
commentary on the global capital markets, the U.S. trade deficit rose a
whopping +18% in December. TKL reports exports
declined by -4.5% and imports rose by +4%.
“The deficit was driven by weak economies overseas and a strong U.S.
dollar. The trade deficit has never been
larger,” TKL says.
On Sunday, President Trump tweeted: "The USA has major deficits
with Canada, Mexico, and China (and almost all countries!), owes 36 Trillion
Dollars, and we’re not going to be the 'Stupid Country' any longer,"
For decades, past administrations- both Democrat and Republican were
more economically accommodating and amenable to foreign governments and companies
than those countries were to America.
That acquiescence has created the trade deficit. Past economic policy has made it much easier for
foreign companies to do business in America(import) than for American companies
to do business in other countries(export).
Trump’s tariffs could flip the script if Americans are willing to endure
some short-term pain for long-term gain.
