• Dr. Anna

Are Tariffs Terrifying?

Sifting through the contradictory news reporting on the impact of increased US tariffs on imported goods from China, consumers might be confused while attempting to understand the effect of tariffs on their daily lives. In the opinion of this writer, tariffs are a tool for leveling the playing field when your trading partners do not appear to be playing a fair game.

Products that we consume (headphones, coffee, bananas, automobiles) can be produced globally and subsequently shipped to markets where demand exists. Sellers ship these products to places where pricing ensures a profit. If it is not profitable to ship and sell the product in another market, it will not happen. In some cases, local governments at the place of origin might subsidize production, or partially pay the product’s cost, so that the product’s end cost is lower than what economics dictate. In this instance, an unfair trade event occurred, leading to an artificially low cost and ultimately a below-market price for the product.

In contrast to free markets (countries such as the United States), governments in centrally planned economies like China subsidize businesses to create an unfair advantage on a global basis. Incentives supersede simple macroeconomic principles. Consequently, unfair pricing then catapults the country’s products into global markets where true pricing might not make sense from an economic standpoint, and competition disappears. Likewise, a disregard for intellectual property laws benefits the countries in which the innovations did not originate. Fairness is good for the consumer in the long run as markets should reflect natural flows of capital and ingenuity.

Tariffs level the playing field by increasing imported product’s price to reflect its true economic (and unsubsidized) cost to the consumer. If non-essential imported products become too expensive, the consumer can refuse to purchase the product or can seek a less expensive, homegrown, alternative. The importer’s options might not be as rosy. Other views on tariffs appear here.