Economic doom: tariffs and trade wars
Protectionist policy hurts the people
The best shirt I’ve ever purchased reads, “Tariffs not only impose immense economic costs but also fail to achieve their primary policy aims and foster political dysfunction along the way”.
For anyone who’s ever taken an introductory macroeconomics class, the word “tariff” is a nightmare. Not only was it about halfway through the semester — right in the middle of “party szn” — but tariffs are the worst fiscal policy every conceived.
Tariffs, essentially import taxes placed on foreign goods, are an immoral, misguided attempt at protecting American businesses and industries from foreign competition. Tariffs are one of the few issues that the vast majority of people agree on: tariffs are bad for economic growth.
As political advisor Mark McKinnon says, “As history has repeatedly proven, one trade tariff begets another, then another — until you’ve got a full-blown trade war. No one ever wins, and consumers always get screwed.”
For starters, foreign competition is a great thing. If foreign businesses can provide goods and services at cheaper prices, then take my money. Our trade deficit with China represents a great thing; it demonstrates that China has produced goods that we value and pay money for, including the infamous MAGA hats.
As most economists can tell you, we all have trade deficits on our everyday lives.
I have a trade deficit with Moe’s. Moe’s has never once bought anything from me. Every time I go to Moe’s, I pay them money and they give me a burrito, chips, salsa, and a drink.
Most of us have trade deficits with FGCU. Unless you have a secret trick (in which case, my DMs are open), FGCU has probably never paid you to be a student. You pay them tuition and they give you education.
Every country has trade deficits with other countries. It’s part of what makes global trade so wonderful: specialization. Every country has a comparative advantage over other countries on the production of certain goods and services.
The problem arises when some people decide that the good ol’ U-S-of-A has to be number one in manufacturing. In order to incentivize the production and consumption of American-made goods, those people want tariffs to be placed on foreign competition.
There’s a reason the U.S. isn’t a leading manufacturer anymore. It’s the same reason we aren’t a nation of farmers anymore. We’ve grown as a country. We’ve changed our preferences. There are other countries with the skillset and in the best position to manufacture goods and grow crops.
Those who worked in steel mills or grew up on a farm are hell-bent on keeping their jobs, and for good reason. Losing their jobs means losing their livelihood and being unable to support their families.
That’s all good and well, but jobs are naturally lost all the time. No one thinks it’s an issue when taxi drivers lose their jobs to Uber drivers or candle makers lose their jobs to light bulbs.
It’s called progress. We do it all the time.
Tariffs fight progress.
As an economics major, it wouldn’t be fair for me to talk about tariffs without bringing a graph for support. If you look to the provided graph, you can follow along with the way tariffs work.
We start with a global supply of a product — labeled Pworld — that is relatively low. When this line intercepts the red domestic demand line, we have our equilibrium. At this point, we are buying a large quantity for a low price.
The government then tacks on a tariff, with the new price labeled Ptariff. At the intersection of this line and domestic demand, we are now consuming less of the good for a higher price.
If we went to the extreme of banning foreign products, we would have an intersection of the blue domestic supply line and the domestic demand line. This point has even less consumption for a higher price.
The government enjoys tariffs because they bring in more revenue, and we know the government loves having money to spend.
Domestic businesses love tariffs because they can charge higher prices for their products due to the lack of cheaper foreign competition. Most businesses are naturally short-sighted, so they fail to see the decline in customers as a result of these higher prices.
Unless you’re a government official or domestic industry — like sugar, steel, or coal — you are being harmed by tariffs. Consumers, both foreign and domestic, bear the burden for tariffs at every level.
We pay more for direct purchases of these goods. We pay more for goods that use things like sugar, steel, or coal for their production. Indirectly, almost everything in the market becomes more expensive.
We also pay when foreign governments reciprocate the trade war with their own tariffs on American goods. We may put a tariff on foreign steel, but other countries put tariffs on American agriculture products. Ironically, the farmers that once supported tariffs are crying out about the fact that foreign consumers aren’t purchasing their crops.
Tariffs are a destructive economic policy. To use them as a political tool is nonsense. They are an economic weapon that inflicts damage on the entire world economy.
Trade wars are perhaps more dangerous than real ones. With real wars, at least the fighting is done out in the open. Trade wars are fought in the back rooms of political offices and in the private servers of lobbyists.
No one with a true grasp of economics will ever argue that tariffs are helpful to any economic activity.