The Problem With Tariffs

Don’t be fooled by the idea that the other country will pay for the tariffs

Everything is about to cost you more! Don’t be fooled by the idea that the other country will pay for the tariffs and somehow the US will just collect new funds to benefit the national budget. No, you will pay for the tariffs.

We know because we were in the business of incorporating other countries’ products in the products we made. When those products increased in price for any reason, we would try to absorb the costs as long as possible, hoping they would go down eventually. But when they became permanently higher, it was kind of like a “Who goes first?” game where everyone in the industry would wait for the first competitor to raise their price to cover the increased cost, and then everyone else would do the same. That way the entire category would increase its price at the same time.

And who suffered?

Well, initially it was the American producer, but eventually, it was the American consumer. So now, what we used to buy for $5 costs $6. So now our money became less valuable. Now the people on fixed incomes have to do without. Inflation happens!

But wait! There’s more! Now the farmers who are targeted by retaliatory tariffs can’t compete and they must rely on the US government for more subsidies. Guess who pays for those subsidies. We do in the form of increased taxes. Ironically, the farmers don’t even want the subsidies; they want their export business back!

Ultimately both sides get hurt in a tariff war. And ultimately it negatively affects world commerce and finance. The idea that one side wins and the other side loses is ridiculous from a business standpoint. The concept of free trade benefits consumers because it drives down the cost of goods by allowing for the whole world to compete for the production. So the consumer pays the lowest price possible with a world-wide source.

Now some may argue, and rightly so, that certain foreign governments subsidize their producers to give them unfair advantage and thereby hurt American producers. They also argue that some countries flood the market and abuse the free trade systems by underpricing and monopolizing the US market to the point that US producers can no longer compete.

There are other issues with intellectual property and equitable market access that also need to be addressed. But tariffs tend to hurt the consumer and damage relationships. We’ve long believed that interdependence on trade promotes peace and security, whereas, isolationism and protectionism promote conflict.

The Best Price Wins in World Trade

One of the realities of world trade is that the countries that can produce the product at the best price will win the world market. Should all countries try to produce all products? Or can some countries produce some products better than others? Are there better ways to negotiate trade agreements bedside putting the burden on our consumers and our taxpayers? We think so.

Tariffs are a simple-minded approach to a more sophisticated problem. Tariffs hurt American business, consumers, and taxpayers. We need a scalpel, not a meat ax!