The Perils of Protectionism
- SidLinx
- Apr 8
- 4 min read
"Protectionism will do little to create jobs, and if foreigners retaliate, we will surely lose jobs." Alan Greenspan.
Assessing the Impact of Trump's Tariffs
Open rules-based trade between countries is better for everyone. Consumers appreciate competitive prices and a wider range of goods to choose from. Protectionism reduces competition and innovation, always resulting in higher prices consumers must pay, often for a limited range of products.
Risks associated with protectionism:
Reduced Economic Growth: Many economists argue that protectionist policies, such as tariffs and quotas, can stifle economic growth by limiting trade and reducing market efficiency.
Higher Consumer Prices: Protectionism often leads to higher prices for goods and services, as domestic consumers bear the cost of tariffs on imports.
Retaliation and Trade Wars: Protectionist measures can provoke retaliatory actions from other countries, escalating into trade wars that harm global trade.
Inefficiency and Lack of Innovation: By shielding domestic industries from foreign competition, protectionism can reduce the incentive for innovation and efficiency, potentially leading to stagnation.
Impact on Exporters: Protectionist policies can hurt domestic exporters if other countries impose retaliatory tariffs, reducing demand for exports.
While some proponents argue that protectionism can protect jobs and industries in the short term, the consensus among economists is that its long-term effects are often detrimental to economic welfare.
UK’s response to Donald Trump’s tariffs.
Trump embracing reciprocal tariffs has sent ripples of anxiety through the global economy, with markets experiencing significant turbulence. UK Prime Minister Sir Keir Starmer responded to Trump's tariffs with a measured approach, emphasizing the importance of acting in Britain's national interest. He acknowledged the economic impact of the 10% tariff on UK goods entering the US but stressed the need for pragmatism and calm decision-making. Starmer has been working on negotiating an economic deal with the US to mitigate the effects of these tariffs.
Delayed retaliation.
He also highlighted that retaliatory measures are being considered, but no immediate action has been taken. However, Darren Jones, the Chief Secretary to the UK Treasury, said globalisation had 'come to an end'.
Donald Trump’s objective.
While the stated aim is to protect American industries and bring jobs back home, a chorus of economists and industry leaders warn that these measures are not only misguided but potentially disastrous, sowing uncertainty, stunting growth, and ultimately harming the very consumers they are intended to benefit.
Bad for business
One of the most vocal critics is economist Paul Krugman, who has likened Trump's tariff policy to the Smoot-Hawley Tariff Act of 1930, a protectionist measure widely blamed for exacerbating the Great Depression. Krugman argues that the unpredictable and unstable nature of these tariffs, with their varying rates for different countries, creates an environment of uncertainty that is "really bad for business." This uncertainty, coupled with other policy instability, makes a recession "a whole lot more likely" by deterring investment and disrupting global supply chains. The former New York Times columnist also raises concerns about the long-term impact on the U.S. dollar's role as a reserve currency, arguing that the erratic policies of the Trump administration could undermine confidence in the dollar and weaken its position in the global financial system.
Absurd
Beyond the economic implications, Trump's pronouncements on trade have often veered into the realm of the absurd. His suggestion that tariffs could be imposed on smuggled fentanyl drew widespread ridicule, with critics pointing out the impossibility of taxing illegal drugs at the border. As U.S. Rep. Sean Casten noted, "It takes a very dumb man to think drug traffickers are filing import paperwork & tax forms at the border." This episode highlights a fundamental misunderstanding of how trade and economics function, raising questions about the competence and rationality of the administration's trade policy.
Impact on Nike
The impact of Trump's tariffs is already being felt by specific industries, as demonstrated by the case of Nike. The sportswear giant saw its share price plummet after Trump announced tariffs on Vietnam, Indonesia, and China, where the vast majority of Nike shoes are manufactured. Analysts warn that these tariffs could lead to higher prices for consumers and a decline in sales, particularly as the U.S. faces a recession. The potential for "disastrous" consequences for the footwear industry is evident, with limited prospects for reshoring manufacturing to the United States.
Trump's tariffs have significantly impacted the prices of Nike sports shoes and iPhones:
Nike Sports Shoes: The tariffs imposed on Vietnam, where a large portion of Nike's footwear is manufactured, are expected to increase prices by 10-12%. For example, a pair of Nike Air Force 1 Low shoes, currently priced at $115, could rise to $126.50 or $129.
iPhones: The tariffs on Chinese imports, where most iPhones are assembled, could lead to a 43% price increase. For instance, the iPhone 16 Pro Max, currently priced at $1,599, might rise to $2,300.
These price hikes reflect the broader economic impact of the tariffs on consumer goods. What do you think about these changes?
Trump’s Tariffs Just Dumb
Ultimately, Trump's tariffs represent a dangerous gamble with the global economy. While the short-term effects may be localized, the long-term consequences of protectionism could be far-reaching, leading to slower growth, higher prices, and increased uncertainty for businesses and consumers around the world. As the global community grapples with these challenges, it is crucial to remember the lessons of history and resist the siren call of protectionism in favor of open, rules-based trade that benefits all nations.
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