The renewed threat of trade tariffs by various presidential candidates is a clear and present danger to free trade and the world economy.
In today’s globalized world, trade is the lifeblood of economies; connecting nations and fostering prosperity. However, there is a contentious tool that is often used in international trade relations: tariffs.
Tariffs are taxes imposed on imported goods, ostensibly to protect domestic industries or gain a competitive edge. They are sometimes recommended and promoted by those who think they have identified an “unfair advantage” existing between trade partners.
Even though politicians say otherwise, tariffs are guaranteed to produce net negative results that are much worse than any short-term theoretical benefits.
One of the primary dangers of trade tariffs is the economic disruption they can cause.
When tariffs are imposed, they disrupt the equilibrium. Domestic industries might benefit in the short term, but at what cost?
Since the prices of imported goods rise due to tariffs, consumers end up paying more for the things they want to buy.
Trade tariffs often trigger a chain reaction, leading to retaliatory measures from affected countries. Full-blown trade wars can result…
“America’s last major trade war happened after imposition of the 1930 Smoot-Hawley Tariff, which increased 900 import tariffs from 40-48%. It was supposed to support U.S. farmers whose land had been devastated by the Dust Bowl, but it resulted in higher food prices for Americans who were already crippled by the Great Depression.
America’s trade partners at the time hit back with their own tariffs and global trade fell by 65%, worsened the depression, and contributed to the beginning of World War II.
After Smoot-Hawley, the country suffered tremendously. The general public had little understanding of tariffs or trade agreements.” Tariffs And Trade Wars… by Anna Kucirkova
NEGATIVE IMPACT ON SMALL BUSINESS
Small businesses bear the brunt of trade tariffs. Without the resources to absorb the increased costs imposed by tariffs, They struggle to compete with larger companies that have more significant financial reserves.
Moreover, the uncertainty created by trade tariffs can deter small businesses from growing and expanding, stifling growth and harming the overall economy in the long run.
INEFFICIENT RESOURCE ALLOCATION
Trade tariffs can distort the allocation of resources within an economy. When protectionist measures artificially support certain industries through tariffs, it can lead to inefficiencies.
Resources can flow to industries that are protected rather than those that are genuinely competitive.
This misallocation of resources hinders economic growth and productivity. It may also delay the necessary transitions to more sustainable industries, as resources are tied up in less efficient sectors.
Regardless of the intentions of the countries involved, and irrespective of who levies the first assessment (penalty), tariffs and other protectionist trade measures come with unintended consequences which outweigh exponentially any perceived benefits. In addition, they hinder cooperation on other global issues.
In short, they do not work. Historically, they have always failed – despite the near-sighted promises and illogic of the politicians.
It is no different this time. Beating up on China won’t solve any problems. As bad as things appear to be economically for both the United States and China, expect them to get worse if either country takes action.