Weekly Opinion Editorial
TARIFFS
by Steve Fair
A tariff is a tax placed on goods when they cross national borders,
typically when being imported into a country.
The fee is ultimately passed down to the consumer in the form of a price
increase. Tariffs are paid for by the
end user. For example, a widget tariff on
imported widgets will likely raise the price of all widgets, even those made in
the U.S. Domestic manufacturers often capitalize on the sell environment and
raise their prices to maximize profit.
This week, President Donald Trump imposed a 10% tariff on all imports on
all countries effective at midnight April 5th. Trump said the International Emergency
Economic Powers Act of 1977 (IEEPA) provides him the authority to address the
large and persistent U.S. trade deficit.
Trump also says he will impose individualized reciprocal higher tariffs
on countries with which the U.S. has the largest trade deficits. Three observations:
First, the U.S. trade deficit needs to be addressed. In 2024, the United States had a
$1.2 trillion trade deficit, with significant deficits with China, Mexico,
Vietnam, Ireland, and Germany. The United States has one of the lowest
simple average most-favored-nation (MFN) tariff rates in the world at 3.3%,
while many of our key trading partners like Brazil (11.2%), China (7.5%), the
European Union (5%), India (17%), and Vietnam (9.4%) have simple average MFN
tariff rates that are significantly higher.
Americans have the most disposal income of any country in the world and
the U.S. is the largest consumer market in the world. Trump’s imposing of reciprocal tariffs simply
helps to level the playing field.
Second, American consumers killed manufacturing. Past administrations (Republicans and
Democrats) willingness to open the American market to the world resulted in a flood
of lower priced goods Americans loved. Low import tariffs for foreign manufacturers
resulted in a competitive advantage over domestic manufacturers. Corporate America responded by closing
domestic manufacturing facilities and moving production facilities to low labor
countries. President Trump campaigned on
bringing manufacturing back home, which he believes is critical to U.S.
national security. But until patriotic
America consumers are willing to pay a higher price for goods made in America,
manufacturers remain on a race to the bottom.
Third, access to the U.S. is a privilege. Because of the low threshold (tariffs) to
enter the largest market in the world, foreign manufacturers have thrived and
hurt domestic manufacturers. Trump says
he wants to impose the ‘Golden Rule’ on other countries: treat us like we treat
them. According to a press release from
the White House: “The United States will not longer put itself last on
matters of international trade in exchange for empty promises.” Tariffs are necessary to ensure fair
trade, protect American workers, and reduce the trade deficit.
Some theorical economists have little faith in the law of supply and demand. They believe imposing high tariffs result in a “deadweight loss,” which is a loss of economic efficiency when a good is not produced. Deadweight loss is an oversimplified, impractical model that is not real world. Supply and demand work. Higher prices result in lower demand. Lower demand results in lower prices, which spurs higher demand. The cure for higher prices is higher prices. Trump’s tariffs will work- if Americans will be patient.
