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.
Hi, Steve. Your post assumes your readers will buy into the premise that higher prices are actually a good thing. Let me briefly explain my contrary opinion.
ReplyDeleteFirst, yes, you are right that the trade deficit needs to be addressed. Trump has identified what economists arguably describe as a problem. Is this the way to fix it? No, this is not the way. Do it using a system that doesn't harm America's corporations, its stockholders, its middle class, and its working class.
This strategy of announcing new tariffs and reeling them back is not helping anyone on any level. Pick a plan and stick to it. Get it approved by Congress. Haphazardly issuing executive orders and tweeting/truthing your way back destabilizes the U.S. dollar, the stock market, and the bond market.
Second, how dare you blame American consumers for killing domestic manufacturing. That's like blaming toxic landfills on consumers for not recycling their water bottles instead of targeting Nestle for mass-producing single-use plastic containers that poison the environment. You're distorting the '90s Captain Planet message to fit the narrative you're pushing.
Of course Americans love lower prices. We're out here living paycheck to paycheck. We can't afford to choose between paying for heart medicine or rent when a flat tire suddenly throws a wrench into our budgets. It isn't the working class who set those low prices; it's the corporations. We aren't willing to pay higher prices because many of us are simply not able to.
Third, what are you getting at? The U.S. has the largest disposable income and consumer market in the world, and we are "the largest market in the world" according to you. At least, we were that up until recently. Trump and his tariffs create uncertainty and instability in the global market, and those characteristics are not hallmarks of a country doing well. Do we want to be more like Brazil, China, the EU, India, and Vietnam? Are those places thriving in ways we are not?
Do you envision a self-sufficient America with little to no imports and an unmatched portfolio of exports? Where will we grow all the bananas, Steve? Are we turning Hawaii into a banana republic? Who will stitch all of our clothes? Will it be children, as it is in India, Bangladesh, Jordan, and other nations we import from? Will we be importing fewer semiconductors from China and Taiwan while simultaneously cheering Trump for gutting the CHIPS Act? What is the goal here?