A Tariff is a Tax
A tariff takes money from a profitable business and gives it to a wasteful government. What could go wrong there? What’s more, a tariff reduces the need for local businesses to compete on an international playing field. In the short run, this allows local businesses to charge more for their goods and services without the threat of competition. In the long run, it weakens the local businesses and makes them less able to compete internationally. In short, they become dependent on their protected status. I might also mention that tariffs cost local consumers and producers more for the “protected” goods and services.
Last I knew, higher prices made it more difficult to make ends meet. Tariffs have the same effect as money printing; i.e. price inflation.
Some people might argue that tariffs encourage foreign businesses to relocate to a local venue to avoid the tariffs. That assumes several things:
- That they have enough money to either relocate or build a new factory locally,
- That they will be able to find adequate and competent help locally, and
- That the local market will stay good enough to justify such an investment long enough to earn a return.
None of these conditions is a sure thing in the United States.
- At the rate the U.S. government is printing/spending money, the value of the U.S. dollar is diminishing at an ever faster rate making it more difficult to build a new factory, not to mention hire and train employees and then sell their products at a competitive price.
- U.S. employees are being dumbed down with public education and more recently no education because of the Covid scare.
- There’s no guarantee that the U.S. won’t get another anti-capitalistic administration in another four years making it undesirable to do business there.
- And then there’s the possibility that other countries will reciprocate with tariffs of their own, making it more difficult for the newly relocated business to sell its goods to other countries.
Consider a mining company that produces aluminum, for example. It can’t just move to the U.S. and start mining aluminum. Is there any aluminum to be mined there? Can it get permission to dig it up? The U.S. hasn’t been training engineers in adequate numbers for years. And there’s no guarantee that the U.S. government will remain friendly toward business…consider the Biden administration. Furthermore, some businesses take more than four years to build a factory, staff up, and start selling their goods. In short, tariffs are not the answer to the United States’ problems.
The answer is to invest more capital per head of the population to increase everyone’s productivity. This requires that the government waste less, that it stabilizes the value of its currency by balancing the budget, and encourage business to be productive by reducing taxes (and tariffs) and regulations. Of course, this is the opposite of what has been happening in the U.S. during the last hundred + years. It will be a tough change to make…to change from consuming capital to accumulating it. I don’t see it happening during a tariff war.
Robert F. Sennholz