Thursday, May 03, 2018

What's the big deal with tariffs?


Tariffs are used to restrict imports by increasing the price of goods and services purchased from overseas and making them less attractive to consumers. A specific tariff is levied as a fixed fee based on the type of item, for example, $1,000 on any car.

Concerning raising tariffs on China and the trade deficit, we are about to see some changes in how far our money will go and a lot of us are going to be very mad, but let me tell you why it is a good thing.  The historic imbalance the US has over importing much more than we export, is changing right now and what it will mean, at least for a few years, is the rising cost of goods, especially those manufactured by new American companies. When the pendulum swings back and healthy Capitalistic market place competition finally arrives, the price of goods will once again be driven down.

Remember years ago when hamburgers were roughly the same price as they are now? Its because of competition. If this town of (who knows how many are here every day) many people only had one burger joint, the business could get whatever people are willing to pay.

Look for a lot of griping and finger-pointing as the cost of correcting the trade deficit consumes our funds. If the Republicans are still in the majority, they will be demonized by the Democrats and if the Democrats are now in power, they will blame Trump. Any thing but the truth will be offered to explain why it is happening. If eye-gouging were legal, our politicians would all be wearing full-face helmets.

It is vital to understand why prices are historically low, but if you consider the near pass our government has made to other countries via generous tarrif, then you can see why raising the tariff, will retard the profits of a distant enterprise. At the same time, it gives a US venture the time and profitably to start that identical business here, whereby putting people to work, and those people paying taxes. Who will pay for these new ventures? We will, by paying higher prices. The Chinese and other countries will be forced to also raise prices to remain profitable.

Think about this when you see the American version of a Chinese offering on the store shelves. Initially it will cost twice as much for nearly the same thing. I say nearly because Chinese knockoffs on many products are inferior in design and materials. Americans in 2018 are very cognizant not to offer or purchase junk. Its no longer profitable for a company to get bad feedback. The American version will most likely be more expensive, but better quality. As "cheap" Chinese goods disappear off the shelves, the new American made item will be there to replace it. This will take a few years and in the meantime the finger pointing will escalate.

"I have sat in the airport in Anchorage, AK many times and watched one gigantic Chinese jet full of goods land - one right after another, all day, every day. It is astounding and disturbing. No jets leaving going from AK to China that I ever saw." My Air Force veteran sister wrote me this concerning her numerous years working there. I agree with the decision to try to balance the trade deficit and I don't care which party is in control (it doesn't appear to make a difference).

"A sign of the huge trade imbalance for global commodities: 45% of ships travel empty. Furniture, toys and footwear were the top three items transported by container last year to the United States from China, according to Piers, a U.S.-based research company. In the other direction, waste paper and other paper products were by far the largest commodity shipped from the United States to China, followed by scrap metal and raw cotton. In other words, the United States received millions of new manufactured goods and sent back tons of trash and raw materials." According to Quartz.com

Navy veteran Joseph Dykehouse told me, "I made the same argument with some people last week. Let capitalistic competition right here in the US do what it is supposed to do and everyone will benefit. This whole globalization concept has raised everyone else's standard of living and lowered ours. We shouldn't have a trade deficit with every country in the world, especially when we feed, educate, and take in the rest of the world."

Most Americans already have 2 of everything and we are accumulating more everyday in our pursuit of the Capitalistic dream. Evidence of this is when you try to give stuff away and have no takers. Take a peek in your neighbor's garage for a good example. Personally I want to see quality replace cheapness and the first step is to raise tariffs and bring back American ingenuity in available products.

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2 comments:

Anonymous said...

Amber Rosta: I think you would enjoy a series on Netflix called "Rotten". The first episode: "Lawyers, Guns, and Honey", is particularly applicable to your article.

Larry Houston said...

Larry Houston: The Chinese have been particularly rigid when it comes to foreign companies "getting a foot in the door" to do business in China. They require any chinese subsidiary of US companies to be 51% Chinese owned and for them to turn over all patents and trade secrets to the parent Chinese company. That may have been OK when the Chinese economy was 1/20 of the US economy, but not any more. Theft of trade secrets, currency manipulation and product dumping are all solid grounds for tariffs. Imposing tariffs on other honest trade partners, like Canada, just so you can say you're doing something to fight the trade deficit is self-defeating for both countries. Read up on the passage of the Smoot-Hawley act of 1930 as a response to the beginnings of the Great Depression and see how well that worked.

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