Understanding Tariffs

Understanding the conversation around Tariffs and why some support them and others don’t

Tariffs are taxes the government charges buyers of foreign goods. So if a business that sells bikes buy their bikes from China for $100, the government will charge the buyer a 10% tax meaning the buyer pays the Chinese bike company $100, and then they also pay the Government $10 resulting in a total of $110. Why would people support this? It tends to boil down to values and the idea of Nationalism venues Globalism in economic policy. 

I am going to break it down so you can understand both arguments a lot more easily. 

The economic trade-offs between globalization and nationalism

The economic trade-offs between globalization and nationalism center around the balance between the benefits of international trade and the desire for economic self-sufficiency and protection of domestic industries. 

Globalization

Globalization promotes open trade between countries, where nations specialize in producing goods and services they are most efficient at producing (This is called comparative advantage).

Benefits

1. Lower Costs and Prices:

   • Specialization allows countries to produce at lower costs.

   • Consumers benefit from cheaper goods due to efficiency and economies of scale (e.g., electronics from China, coffee from Colombia).

2. Access to Resources and Markets:

   • Countries gain access to resources they lack domestically.

   • Businesses can sell to larger global markets, increasing profits.

3. Innovation and Competition:

   • Global competition drives innovation and technological advancement.

   • Firms are incentivized to improve efficiency to remain competitive.

4. Economic Growth:

   • Trade increases GDP by creating jobs in export-oriented industries.

   • Access to global investment boosts infrastructure and development.

Costs

1. Domestic Job Losses:

   • Some industries may decline as cheaper imports replace domestic production (e.g., manufacturing in developed countries).

2. Dependence on Foreign Nations:

   • Over-reliance on imports for essential goods can create vulnerabilities (e.g., supply chain disruptions during crises).

3. Environmental Impact:

   • Increased production and transportation contribute to pollution and resource depletion.

4. Economic Inequality:

   • Gains from trade are often uneven, benefiting corporations and skilled workers more than others.

Nationalism

Economic nationalism emphasizes protecting domestic industries and reducing reliance on foreign goods through tariffs, subsidies, and trade barriers.

Benefits

1. Job Protection:

   • Safeguarding domestic industries helps maintain local jobs and reduce unemployment.

2. Economic Resilience:

   • Less dependence on imports can shield the economy from global shocks (e.g., wars, pandemics).

3. National Security:

   • Ensures domestic control over essential industries (e.g., food, energy, technology).

4. Local Business Growth:

   • Tariffs and trade restrictions create space for domestic businesses to thrive.

Costs

1. Higher Prices for Consumers:

   • Without access to cheaper imports, consumers face higher prices for goods.

   • Lack of competition can lead to inefficiency.

2. Reduced Variety:

   • Limited trade restricts access to diverse goods and services.

3. Retaliation and Trade Wars:

   • Protectionist policies can lead to tit-for-tat tariffs, reducing overall trade.

4. Slower Economic Growth:

   • Countries lose out on the growth benefits of access to global markets.

The Trade-Off

• Globalization:

  • Cheaper goods, greater variety, and economic growth, but risks to domestic jobs and environmental concerns.

• Nationalism:

  • Greater control over the economy and protection of domestic jobs but at the cost of higher consumer prices and slower innovation.

By specializing and trading, countries exploit comparative advantage, reducing production costs globally and making goods cheaper for everyone. However, balancing globalization and nationalism involves navigating these trade-offs to achieve a mix of economic efficiency, security, and equity.

This is a Conversation of Values 

As stated above this boils down to if you believe we benefit more from more national control or a more free market to lower prices. Under tariffs prices go up, but currently as of November 2024, a lot of the talks from the election revolved around how things are already too expensive for most people and they feel they are drowning. Globalization makes things cheaper as it allows countries to flourish in areas that they specialize in. America is not set up to produce a lot of the raw materials we need to even make the things in America. Tariffs will also raise these prices. A shirt “made” in America with fabric imported from another country is still going to cost more. If you truly care about things being local and supporting local business, you have to accept the higher prices. 

Studies about Tariffs

Did Trump’s tariffs benefit American workers and national security?

Brookings Article Summary-

The Brookings article assesses whether tariffs imposed during the Trump administration benefited American workers and national security. It concludes that while the tariffs aimed to boost domestic industries and reduce dependency on foreign supply chains, their economic impact was mixed. Some industries gained temporary protection, but higher input costs and retaliation by trading partners hurt others, leading to job losses and price increases for consumers. The strategic benefits for national security were also limited.

Source Info:

Brookings Institution is a nonpartisan research organization focused on public policy analysis.

Read more: Brookings Article https://www.brookings.edu/articles/did-trumps-tariffs-benefit-american-workers-and-national-security/

IMF Blog Summary

The IMF blog examines the economic effects of the U.S.-China trade tensions, emphasizing the harm to consumers and producers in both countries. Tariffs increased prices, disrupted supply chains, and led to economic inefficiencies like trade diversion. U.S. importers and consumers largely absorbed the tariff costs. While the global economic impact was initially modest, prolonged tensions threatened to dent global GDP by 0.3%, slow technological progress, and harm low-income households disproportionately.

Source Info:
The International Monetary Fund (IMF) is a global organization promoting financial stability, economic growth, and cooperation.

Read more: https://www.imf.org/en/Blogs/Articles/2019/05/23/blog-the-impact-of-us-china-trade-tensions 

The study "The Impact of the 2018 Tariffs on Prices and Welfare" by Mary Amiti, Stephen J. Redding, and David E. Weinstein, published in the Journal of Economic Perspectives, analyzed the consequences of tariffs imposed during 2018 under the Trump administration. Here are the key findings:

1. Increased Consumer Prices: The research found that U.S. consumers bore the majority of the tariff costs. Importers passed most of the tariff expenses directly to domestic prices, resulting in higher costs for goods affected by the tariffs. This outcome refuted the claim that foreign producers were significantly absorbing the tariff costs.

2. Reduced Welfare: The overall economic welfare of U.S. households was negatively impacted. Tariffs effectively acted as a tax on consumers, reducing their purchasing power without significant gains in other areas to offset the loss.

3. Limited Impact on Trade Balance: While tariffs aimed to reduce the trade deficit by discouraging imports, the effect on the trade balance was minimal. The disruption in trade patterns led to inefficiencies and reallocations rather than outright reductions in deficits.

4. Higher Input Costs for Firms: U.S. manufacturers relying on imported raw materials or intermediate goods faced increased production costs. This burden challenged the competitiveness of these firms, leading to potential job losses or lower economic output in some sectors.

The paper concluded that while tariffs are designed to protect domestic industries, they come with substantial economic trade-offs that often undermine their intended benefits. This includes higher costs for consumers and negative effects on firms reliant on global supply chains.

The study is part of the Journal of Economic Perspectives, a publication by the American Economic Association (AEA), which provides accessible economic analyses and insights into public policy issues. You can find the study here​

AEA Publications

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AEA Publications

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Questions to understand your values with this Matter 

Understanding Economic Priorities

1. Consumer Costs:

   • "How do you weigh the benefits of protecting domestic industries against the increased costs consumers face due to tariffs?"

   • "What are your thoughts on reports showing that tariffs often lead to higher prices for American consumers?"

2. Impact on Domestic Jobs:

   • "Many manufacturers rely on imported materials that tariffs make more expensive. How do you think tariffs affect jobs in these industries?"

   • "Are there specific examples of industries where tariffs have significantly improved job security?"

3. Trade Balances:

   • "How important is reducing the trade deficit compared to fostering global trade relationships?"

   • "What do you think about research indicating that tariffs have minimal effects on the overall trade balance?"

Exploring Strategic and Ethical Perspectives

4. National Security:

   • "How do you view tariffs as a tool for improving national security? Are there better alternatives?"

   • "Do you think economic self-sufficiency outweighs the risks of higher costs and reduced innovation?"

5. Global Competition and Innovation:

   • "Do you believe tariffs foster or hinder innovation in domestic industries? Why?"

   • "How do you see tariffs impacting America's global competitiveness in the long term?"

Environmental and Social Implications

6. Environmental Impact:

   • "Some argue that tariffs encourage domestic production but may increase environmental harm locally. How do you reconcile this with broader sustainability goals?"

   • "Do you see tariffs as a way to promote environmentally friendly policies, or do they focus solely on economic factors?"

7. Economic Equity:

   • "Low-income households are disproportionately affected by higher prices due to tariffs. How should policies address these inequities?"

   • "Do you believe tariffs align with social justice and equitable economic policies?"

Evaluating Alternatives

8. Policy Effectiveness:

   • "If tariffs have mixed or negative outcomes in practice, what other tools might achieve similar goals without the downsides?"

   • "Would you support subsidies or investments in domestic industries as an alternative to tariffs?"

Understanding Economic Priorities- Questions to ask

1. Consumer Costs:

   • "How do you weigh the benefits of protecting domestic industries against the increased costs consumers face due to tariffs?"

   • "What are your thoughts on reports showing that tariffs often lead to higher prices for American consumers?"

2. Impact on Domestic Jobs:

   • "Many manufacturers rely on imported materials that tariffs make more expensive. How do you think tariffs affect jobs in these industries?"

   • "Are there specific examples of industries where tariffs have significantly improved job security?"

3. Trade Balances:

   • "How important is reducing the trade deficit compared to fostering global trade relationships?"

   • "What do you think about research indicating that tariffs have minimal effects on the overall trade balance?"

Exploring Strategic and Ethical Perspectives

4. National Security:

   • "How do you view tariffs as a tool for improving national security? Are there better alternatives?"

   • "Do you think economic self-sufficiency outweighs the risks of higher costs and reduced innovation?"

5. Global Competition and Innovation:

   • "Do you believe tariffs foster or hinder innovation in domestic industries? Why?"

   • "How do you see tariffs impacting America's global competitiveness in the long term?"

Environmental and Social Implications

6. Environmental Impact:

   • "Some argue that tariffs encourage domestic production but may increase environmental harm locally. How do you reconcile this with broader sustainability goals?"

   • "Do you see tariffs as a way to promote environmentally friendly policies, or do they focus solely on economic factors?"

7. Economic Equity:

   • "Low-income households are disproportionately affected by higher prices due to tariffs. How should policies address these inequities?"

   • "Do you believe tariffs align with social justice and equitable economic policies?"

Evaluating Alternatives

8. Policy Effectiveness:

   • "If tariffs have mixed or negative outcomes in practice, what other tools might achieve similar goals without the downsides?"

   • "Would you support subsidies or investments in domestic industries as an alternative to tariffs?"