Tariffs for Dummies

I’m not an economist but I’m not an idiot either. Or perhaps I repeat myself.

Tariffs are a tax on imports. The tax is paid by the business or entity importing the products into the destination country, not by the exporting country of origin. With me so far? Good.

And the importing business would not be an importing business for much longer if it didn’t pass the cost of the import tax on to the customer, right? Okay, fine!

Imports by Nick Youngson CC BY-SA 3.0 Pix4free

So, what’s wrong with this?

Well, nothing.

Tariffs have long been used as a way of protecting local producers from being undercut by cheap imports. We all support buying local whenever possible.

However…

The market has become so unbalanced that no reasonable amount of tariffs are going to change anything for the better.

For example…

The US market (and most of the first world) has decided they’d rather pay $5 at Wal Mart (or equivalent) for t-shirts made in China, than $50 for locally made t-shirts.

So even if you put 100% tariffs on those Chinese t-shirts, they would then cost $10, and the American made t-shirts will still cost $50. It doesn’t benefit the local producers because the imports are still way cheaper, and the people most affected are the ones who can least afford it – if that’s something you care about.

The only benefit is to federal tax revenue which, as the new administration has said, will only go towards tax cuts for those who least need it. Who benefits? Nobody you know.

In this example, there are only two ways to create a level playing field for American t-shirt manufacturers:

a: Raise import taxes to 1000%.

b: Pay US textile workers $2 a day to work 12-hour days with one day off per month.

I’m not sure any reasonable person would think either of those options is a good idea. Yet, this is the economy we have created. The market has decided.

And I’m all for walking back some of the market’s decisions and making things fairer for everyone. But if you think punitive tariffs are a magic cure-all, then I’ve got a large Arctic country to sell you at a knock-down price.