Tariffs an Explanation

“Explain what a tariff is and who pays for the tariff. Use Trump and his tariff policy as an example.” SidLinx.

Tariffs increase the cost of living for all consumers

I’ve learnt much about tariffs since Trump declared a trade war with Canada and Mexico, two of the USA’s traditional trading partners. The impact of which has spread to the European Union and affected our tiny country Aotearoa, New Zealand. The explanation below is a Google AI response to the question above. It’s comprehensive without being overly long. At the end of it read Mike Pence’s comment on the effect of Trump’s tariff-initiated trade war.

Okay, let's break down tariffs and how they work, using Trump's policies as an example.

What is a Tariff?

A tariff is a tax or duty imposed by a government on goods or services imported from another country. Think of it as a border tax. Tariffs are typically levied as a percentage of the value of the imported goods (ad valorem tariff), a fixed charge per unit (specific tariff), or a combination of both.

Why Governments Impose Tariffs:

• Protect Domestic Industries: Tariffs can make imported goods more expensive, thus making domestically produced goods more competitive. This is intended to protect jobs, wages, and production within the home country.

• Generate Revenue: Tariffs can be a source of revenue for the government, although this is usually a secondary goal.

• National Security: Tariffs may be imposed on goods from countries that are considered strategic rivals or potential threats.

• Retaliation: Tariffs can be used as a retaliatory measure against another country that has imposed tariffs or engaged in unfair trade practices.

• Bargaining Chip: Tariffs can be used as a negotiating tool to pressure another country to change its trade policies.

Who Pays for the Tariff?

This is a complex question, and the economic burden of a tariff can fall on different parties, often a combination of the following:

• Domestic Consumers: When a tariff is imposed, the price of the imported good usually increases. This means that domestic consumers who buy the imported good will pay more. Even if domestic producers don't raise their prices as much as the tariff, consumers may still end up paying more overall due to reduced competition and choice.

• Importing Companies: Importing companies initially pay the tariff to the government when the goods enter the country. However, they will likely try to pass on this cost to consumers by raising prices. If they can't raise prices enough to cover the tariff, their profits will be reduced.

• Foreign Exporters: In some cases, foreign exporters may lower their prices to offset the tariff and remain competitive in the importing country's market. This would reduce their profits. However, there's a limit to how much they can lower prices before it becomes unprofitable for them to export.

• The Economy as a Whole: Tariffs can disrupt supply chains, increase production costs for domestic companies that rely on imported inputs, and lead to retaliatory tariffs from other countries. This can harm the overall economy.

Trump's Tariff Policy: An Example

During his presidency, Donald Trump implemented tariffs on a wide range of imported goods, primarily targeting China, but also affecting goods from other countries like Canada, Mexico, and the European Union.

• Main Targets: Steel, aluminum, solar panels, washing machines, and various Chinese goods (electronics, machinery, etc.).

• Rationale: Trump argued that these tariffs were necessary to protect American jobs, reduce the trade deficit, and address unfair trade practices by other countries, particularly China. He aimed to revitalize American manufacturing.

• Impact:

  • Increased Costs for Consumers: U.S. consumers paid higher prices for goods affected by the tariffs, such as washing machines and imported food.

  • Affected Businesses: Some American businesses that relied on imported steel or aluminum faced higher costs and reduced competitiveness. Some farmers were negatively impacted by retaliatory tariffs imposed by China on U.S. agricultural products.

  • Retaliation: China and other countries retaliated with tariffs on U.S. exports, hurting American farmers and manufacturers.

  • Trade War: The U.S.-China trade dispute escalated into a trade war, creating uncertainty and volatility in the global economy.

  • Limited Impact on Trade Deficit: While Trump aimed to reduce the trade deficit, the overall impact of his tariffs on the trade deficit was limited.

  • Job Creation: Some jobs were created in protected industries (like steel), but economists generally agree that the tariffs led to a net loss of jobs in the U.S. economy due to higher costs and reduced trade.

• Example: Steel Tariffs: The U.S. imposed a 25% tariff on steel imports. This led to higher steel prices in the U.S. While it may have benefited some U.S. steel producers, it also increased costs for U.S. manufacturers that used steel, making them less competitive in global markets. Consumers ultimately paid more for products containing steel.

Overall Assessment (Based on Economic Analyses):

Most economists agree that Trump's tariff policies, on balance, harmed relationships with traditional allies and had negative economic consequences. While some domestic industries may have benefited from protection, the overall impact on the U.S. economy was negative due to higher prices for consumers, reduced competitiveness for businesses, and retaliatory measures from other countries. The tariffs also created uncertainty and undermined the rules-based international trading system.

Summary:

Tariffs are taxes on imported goods. While they are intended to protect domestic industries and generate revenue, they can also lead to higher prices for consumers, reduced competitiveness for businesses, and retaliatory measures from other countries. The economic impact of tariffs is complex and can be difficult to predict. The Trump administration's tariff policies provide a real-world example of the potential benefits and drawbacks of using tariffs as a trade policy tool.

Mike Pence

“Tariffs, will ultimately work against American jobs, American families and American business.”

My Comment

There are enough examples in American history to show that it is American families who suffer the most when a trade war via tariffs happens. Trump is the only person responsible for this trade war, no one else. His goal is to be the first emperor of the USA. Tariffs have been weaponized against the USA’s closest allies and is just another step in his path to dictatorship. By deliberately making the lives of Americans miserable through division, conflict and any other tool that can destabilize American society, he will not care what happens to anyone. The only person he gives attention to is Putin, a fellow dictator.