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Wednesday, February 14, 2018

Tariffs Good or Bad Idea?

Much has been discussed in the news concerning tariffs in the U.S. and the desire to implement new tariffs on aluminum and steel to balance the trade deficit. While these ideas can be beneficial under certain circumstances they may not have beneficial long-term effects unless a few adjustments and changes to the policy make it plausible to implement. One of the biggest concerns is whether or not such policies will help or hinder the American economy.

Building it Here

Tariffs can sometimes encourage foreign companies to circumvent the new costs by setting up operations here and hire employees. The problem is that there must be an easy method for foreign entities to invest and set up operations for this to be a successful strategy. China has been using this approach successfully for some time and end up adding to their own knowledge base.

Higher Supply Costs and Prices

It is important to remember that a change in the price of commodities works it way through the economic system and eventually raises costs for everyone. To avoid this, or at least limit it to a short period of time, domestic companies need to quickly reach capacity at the prices needed to effectively compete domestically and internationally.

Help or Hurt Domestic Companies

While it can help domestic by protecting them from cheaper imports it can also damage them if they don't capitalize on this opportunity to become competitive quickly. Large protected industries often fall competitively behind other industries. Once the tariffs are eventually lifted they collapse leaving the sector even weaker than what it was before.

Fair Trade Culture & Retaliation

The U.S has been an open economy for decades and has promoted these policies from other nations. Reversing this could cause problems with our trading partners who may feel that they are unfairly disadvantaged. Tariffs will need to be restricted to those countries that abuse the Free Trade Policies inadvertently creating new military and economic partnerships that may or may not be advantageous to U.S. interests.

When it Works

Small tariffs that target products from the most abusive countries can be helpful in fighting dumping policies. Countries that abuse Fair Trade don't have as much regulation, lower manufacturing costs, and don't care as much about the environment as the U.S.. Inherently, they have advantages that we don't have but they are also not as technologically savvy or stable as the U.S.. Tariffs must be followed by a plan for significant investment and development to maximize benefits. There should be enough protection to let budding industries grow, become profitable, and create economies of scale. Once they are in a position to compete, the tariffs should be reduced. No one can tell you there is not significant risks to trade, retaliation, consumers and economic retractions. Tariffs can be a helpful strategy for a limited time as long as the geo-political and economic problems of the day don't create unexpected difficulties.

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