Do Tariffs Work?
We’ve heard about tariffs in the news recently, but what exactly are they? A tariff is a tax put on an item being imported to another country. Sometimes, they are even put on exports. A tariff can be used for many different reasons. A country may try to encourage its people to buy domestic goods, protect a new business, or to avoid trading with a particular country.
Now more than ever, we can trade with other countries. Importing and exporting goods is a lot easier and faster that it has ever been. When you see something labeled ‘made in China,’ it is an import. Sometimes, these goods had a tariff on them, and most of the time, the import came through free trade.
Free trade, simply trading without any tariffs, quotas, or rules is a much more popular option than tariffs. Why? Tariffs do not have a good reputation, and democrats and republicans alike oppose them.
One problem with tariffs is that other countries tend to impose tariffs on us when we charge them tariffs. This makes it difficult for us to sell our products to other countries, making us have less money. Most economics believe that tariffs worsened the Great Depression in the 1930’s.
The Smoot-Hawley Tariff, imposed in June of 1930, raised tariffs on agricultural products. It was believed that it would help the farmers who suffered during the dust bowl. However, it raised the prices of food, and hurt the Americans who were already suffering through the Great Depression. Not only did it affect Americans, it caused problems overseas as well. Other nations set high tariffs on the United States, greatly decreasing the US’s income and trade. Trade dropped by 65%, and ever since, countries no longer like tariffs.
One of the first times the US tried tariffs was the Tariff of Abominations, also known as the Tariff of 1828. It was a tariff imposed on agricultural goods from the northern United States. John Quincy Adams passed this believing that the tariff would protect the North’s agriculture industry from foreign competition. However, the tariff made living costs in the South harder and it also harmed the industrialists in New England.
Despite these failed tariffs, why do some people still support them? There are a few reasons why people still support them today. Sometimes, tariffs are imposed on imports from foreign countries, making foreign products more expensive. If foreign products are more expensive, people would want to buy the American products, thus protecting American industry.
However, there is a problem. Let’s say that there are two different pen manufacturers. One is an American industry, and one is from China. Under normal circumstances, the package of pens these two different businesses produce cost about the same. Let’s also say that a new tariff was put on foreign pens. Now that the Chinese pens are more expensive due to the tariff, and now people are buying the American pens. However, nobody likes the pens; they dry up after a week. Despite this problem, most people continue buying the American pens because they are cheaper, thus giving the weaker business an unfair advantage.
Tariffs hurt competition and prevent the people from getting the best products. Now that there is a tariff on the pens from China, people are buying low quality pens for the same price the better pens would have been without a tariff. When we put a tariff on a product, there are two things that a manufacturer would do. They would either stop exporting their product to our country or they will raise the price of their product just so they don’t lose money.
It not only hurts foreign competition, it hurts the American industry as well. If the American pen company was in danger of going out of business because of their awful pens, the business owner might have tried to improve the recipe for the pen they made, or if they didn’t, the faulty business would simply close down. Now that people are buying the cheaper pen, the business owner will continue producing the low quality pen, because it is making them money.
People who support tariffs also believe it will reduce unemployment. Imagine all those poor people who worked for that pen manufacturer. If the pen company shuts down, all of them will lose their job. If we impose a tariff on the foreign pens, it will create more American jobs.
This is also a faulty argument. The people who use this argument are not looking at the full picture. Imagine the pen company again. Imagine that there is a gumball factory down the street. This gumball factory is quite successful, but they currently have a shortage in employees. If the pen manufacturer closed down, there would be a lot of people looking for a new job. Some of these people might even go to the gumball factory, a business that produces things that are good quality, and start working for a better business.
If the pen factory stays open, the employees working there would never be hired by the gumball factory. The gumball factory will suffer due to the shortage of employees. With less employees, they will produce less gumballs, making them scarcer, which will make them more expensive. The factory that produces pretty tasty gumballs would suffer at the cost of keeping a bad business alive. Not only would the people lose their nice pens, they will also lose their cheap and delicious gum because of the tariffs.
Not only would we lose these products, we also waste resources. When we keep buying trashy pens, we waste the plastic, the metal, and the ink that could have been used in a higher quality product. Employees are also resources, and if a bunch of workers are wasted on producing pens that nobody wants, they can’t produce anything else. If only the pen manufacturer would close down, they can get a more useful job. Being fired is stressful, so these now unemployed people will search far and wide for a new job. These people will eventually find a place to work, and these companies now have resources they couldn’t have before the pen company closed.
Businesses will benefit in other ways as well. The company that produces plastic jugs can buy the plastic that the pen company originally bought, and the plastic will be put to good use. If this business is successful, people will happily buy the jugs to store their water, milk, or juice in. Plastic is a limited resource, so if we want to use it, it should be used for things that people would want to buy.
Another reason why someone would support tariffs is because the government can make more money from it. Tariffs are a tax, and that is how the government makes money. If the government makes more money, it could possibly reduce the nation’s debt.
This, once again, is not a good argument for tariffs. Tariffs discourage other countries from even wanting to trade with us. Also, countries generally retaliate and charge tariffs on American exports, discouraging us from wanting to sell to other countries.
Let’s say that China decides to impose tariffs on all American products because we put a tariff on their pens. The gumball factory sold lots of gumballs to stores in China, but now, it is more expensive to do so because of the new tariffs. The gumball factory doesn’t want to lose money, but they also don’t want to increase the price of the gumball. So, the gumball factory will stop selling to China.
Now, the Chinese stores will stop paying money to the gumball factory. Also, the people in China are stuck buying the gumballs produced in China, and they lose their flavor after a few minutes. So, because of the tariff, America is left with less money, and China is left with gross gumballs. In a situation with tariffs, nobody wins.
One reason why a person would support tariffs is they protect local businesses. This is true, however, are these businesses worth protecting? Often the answer is no. If a business can’t survive on its own, it shouldn’t survive. If it cannot make enough money to sustain itself, its product is not good enough for the public.
President Donald Trump imposed tariffs on steel and aluminum imports on March 1, 2018. He added a 25% tariff on foreign steel and a 10% tariff on foreign aluminum. These tariffs apply to all countries, with the exception of Canada and Mexico.
President trump said, “Without steel, you don’t have a country.” I would say that this is an accurate thing to say, but the context doesn’t make any sense. For one thing, how would making imported steel more expensive bring more steel to the country? Also, even if it did somehow bring us more steel imports, the United States still produces the majority of its own steel.
The only thing that steel and aluminum tariffs will bring is retaliation from other countries and more tariffs for America to pay, and discourage other countries from selling us steel in the first place. American steel will still be produced regardless of the tariffs put in place, but we would have less steel over all. Do tariffs work? The simple answer is no. Tariffs are not helpful to the country, and they bring unnecessary conflict.
Do Tariffs Work?