A topic that is often talk about today, both in the home and at the office, is tariffs. Tariffs are a certain type of tax that is applied to products made from other countries that is applied when the items are brought into the United Sates. There are many reasons for tariffs and the idea of using them to help promote America’s national economy is not a new concept. Below you will find some talking points about tariffs and the benefits and downsides to applying them. Please note this article is not affiliated with any political agenda and is not meant to aid in the argument for or against them being applied.
What is a Tariff
Tariffs can confuse many people who are not familiar with them, what they are, and what their purpose is. The simple definition of a tariff is a tax put on items imported into a country. The reason a government would use tariffs is to reduce dependency on foreign products and to bolster American production. Today, labor laws in America have raised the cost of production of most products due to wage laws, benefit laws, safety laws, and so on. To offset this increase in cost of producing items domestically most businesses began producing products elsewhere where labor is cheaper. In order to combat this, a government can choose to put a tariff on products, the goal of which is to increase the price of these foreign made products. This, in concept, will help American manufacturers compete in a bidding war. American factories do not have to pay the tariffs which in turn allows them to be competitive with foreign producers who do not have to follow American Labor Laws.
The biggest benefit of placing a Tariff on any item is it allows domestic companies to compete with foreign industry. However, simply putting a broad range tariff on every import typically proves to be very ineffective. The reason why is simple, some products are not meant to be produced in the United States. A great example of this is in the farming industry. Cocoa plants are not native to the climate of the United States and cannot be produced in large quantities domestically. Placing a tariff on them, or any product with a similar issue, would only raise the price of them with no benefit to domestic companies. In contrast, American companies specialize in production of complex manufacturing machine. Many foreign companies might produce the machines with the same purpose. Putting a tariff on these types of products gives the American company a distinct benefit while selling domestically. So in conclusion, tariffs can be extremely helpful to an economy if they are leveraged in the proper way.
The Down Sides
The biggest down side to tariffs is that they can drastically increase the price of many products. Tariffs are often leveraged on ingredients and raw materials from other countries and this causes cost to increase on these products when produced domestically. A great example of this is the recent tariff put in place on foreign steel. As a result, many companies have either shut down American production or had to raise prices. It is too early to tell if these tariffs will be effective. Time will tell and we will see if American companies begin to produce steel domestically to offset this tariff. A great example of a tariff that has had some success with a cost is the tax put on imported sugar. This tax has resulted in the rise of the use of corn syrup as an alternative. Some people believe corn syrup is a processed food and has some down sides to it. That is a debate for another day. So the tax on sugar can be counted as a good thing and a bad thing at the same time.
Company Size Matters
A factor that is not often thought about when discussing tariffs is what type of companies they benefit and what type of companies do they harm. In politics, the term small business is often used to describe who they are trying to benefit. What is a small business? Is it a company with 5 employees or a company with 100 employees? The effect tariffs have can vary drastically based on the answer to this question. A small manufacturing plant with 100 employees might be given an advantage when trying to sell their product when a tariff is imposed on foreign producers of the same item; however, this same manufacturing company could also be harmed by a tariff imposed on supplies needed to produce their end product. It is easier for a larger company to absorb the cost of a tariff compared to smaller companies. What you are doing as a business and the supplies you use have a great impact on how much of a burden or relief a tariff might be. One thing is for sure. There will always be an American business that benefits from a specific tariff and there will also be an American company who struggles because of it. Finding the balance between the two is difficult to achieve.
Tariffs are a complicated thing. They can benefit and harm and economy at the same time. It is how tariffs are leveraged that matter. Large number of indiscriminate tariffs can cause a lot of damage to the economy; however, well placed tariffs can be greatly beneficial to an economy. Unfortunately, the results of tariffs take time to determine. Are the current tariffs put in place in the last year helpful to the American economy or harmful? It depends who you ask. History will determine this in due time. For now we can only react to whatever tariffs are in place and lobby for more or less based on our individual interests. Finally, tariffs are a powerful economic tool, how they are used can make a huge impact on the American economy and the world economy as a whole. So let us hope that they end up being beneficial to us all in the end.