Blog #673 Tariffs

Tariffs – and what means for us as consumers
https://www.investopedia.com/terms/t/tariff.asp

In the news lately are tariffs – so let’s explore tariffs

From the article we have this:

“A tariff is a tax imposed by one country on the goods and services imported from another country. Tariffs are used to restrict imports by increasing the price of goods and services purchased from another country, making them less attractive to domestic consumers.”

So, an example. I grew up in the ’50s and 60’s when most fabric and clothes sold in the United States were made in the United States. There was a big push to protect fabric workers with the slogan “Look for the Union label”. The implication was that buying clothes made in the United States would help American citizens that worked in the clothing trade. If you bought a shirt for $10, that money would pay for: 
-1 the clerk and store that sold the shirt (American Citizens)
-2 the farmers who grew the cotton, or raised the wool, or that made the synthetic fibers (nylon, rayon, and others) – also American Citizens
-3 the companies and employees of the textile factories that took the raw materials from the farmers and wove it into the shirt (also American Citizens)

None of you $10 was going to China, Singapore, or any other country that grew the products and made the shirt.

But, ultimately, free trade won out and Americans bought shirts (and more) from China and other places (generally in Southeast Asia). The shirts were cheaper (mostly from labor costs) and even when shipped across the ocean were still a bargain for American consumers. And, ultimately the American textile factories shut down and American laborers in those factories lost their jobs. I could (maybe) buy two or three shirts that were made abroad as compared to one shirt made in the United States. And, some of those laborers went on unemployment, or other government programs since they had lost their jobs.

The government could have protected the American textile industry by putting tariffs on the non-American goods that were shipping to the United States and sold here.

So, back to the example: Let’s say the government put a 100% tariff on imported shirts. So, the shirt that cost $2 to make in China now cost American consumers $4. The may (or may not) have balanced the equation and keep the American textile industry afloat. When I bought a shirt for $10, it could have been made in the US or abroad but now the shirts were all selling at $10.

Now China (in particular) has billions of people and needs to keep them employed. If their people are not making shirts (or not making as many shirts) they might have the unemployment problems if there was a tariff.

Also – beyond the scope of today’s blog, some companies wanted to cut the cost of making their products so hired children and others at very low wages in almost ‘slave labor’ conditions.

If Americans are buying too many products from China (because they are cheaper because of cheaper labor), then China companies get wealthy. Eventually, China could have more American dollars than America!!! We (US) could become an economic puppet to China. We (US) gets the products we want and China gets our dollars. Many properties in the United States are now owned by Chinese investors.

Right now, the United States government is putting tariffs on many Chinese products and China is doing the same by putting tariffs on American products.

So, as I go to buy a shirt – my choice is a shirt made in China selling for $10 and a shirt made in America for $10. No longer can I get three shirts for $10.

Let’s say I am an American farmer and raise soybeans. For years, China has bought a lot of soybeans from America. But, China may retaliate to American tariffs by putting tariffs on American agricultural products (like soybeans). So, Chinese companies (food processors who use soybeans) might buy the soybeans from Brazil.

The end result is that the cost of about everything will go up. We (Americans) will still buy products from China – but those products will cost more as our government put tariffs on those products.

The article says:
“Tariffs can have unintended side effects, however. They can make domestic industries less efficient and innovative by reducing competition. They can hurt domestic consumers since a lack of competition tends to push up prices. They can generate tensions by favoring certain industries, or geographic regions, over others. For example, tariffs designed to help manufacturers in cities may hurt consumers in rural areas who do not benefit from the policy and are likely to pay more for manufactured goods. Finally, an attempt to pressure a rival country by using tariffs can devolve into an unproductive cycle of retaliation, commonly known as trade wars.”

What will happen? No one knows at this time, but it is leading to a ‘trade war’.

Stay tuned – we will return to this topic down the line.

Karen

Posted by Bruce White

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