Tariffs

TARIFFS.pngPresident Trump placed massive Tariffs on Chinese imports to the US last Friday.

As previously announced China immediately placed tariffs on US products that were being shipped to China.

Many Americans do not understand that Tariffs are taxes on goods imported into a country. The idea is to force the price of things imported into the USA higher so that goods made here in the US will have a price advantage when the consumer decides to buy the imported version of a product when he or she is at the store making a buying decision.

Initially, the American tariffs are paid by the importer at the “Point of Entry” to customs officials.  However, that tax is immediately passed on down the wholesale chain to, the manufacturer who uses the product, or by the retailer who plans on selling the finished goods, such as; perhaps, T-shirts for our children at a local store.

As for the American manufacturer, he pays the increased cost, let’s say, for aluminum to make pots and pans and that manufacturer has to consider his increased cost of raw materials when he calculates his price to the retailer who eventually tries to sell those pots and pans in his or her store.

My experience with costs is that with few exceptions, the manufacturer will pass the increased cost to the retailer and the retailer ( e.g. Walmart )  will adjust the final consumer selling price of most goods that come from other countries and are affected by the import taxes we call tariffs. That means that you and I will pay higher prices for anything that is subject in whole or in part to these American taxes on goods or raw materials imported from China or Canada.  Occasionally a retailer may decide to absorb the tax itself, but I wouldn’t count on it.

Traditionally Americans, especially Republicans, have always been for a “Free Trade” economy, which means against all tariffs, either on the goods we import or the products we make here and export to be sold elsewhere.  Equally unpopular, as a nation with a long history as a great manufacturer and exporter of finished goods to the world, are tariffs set by other nations on American goods imported into a foreign nation to be used by its citizens.

Once what tariffs are, and what they do, is understood it should not be shocking news that Trump’s import taxes, e.g. Tariffs, will raise the prices of things we routinely buy. As for, tariffs on products we do not use personally such as raw steel or aluminum, remember those products are being imported to be used to make products that are made here and often sold here, everything from large construction machines, to the new coffee maker we might want to purchase.

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Photo courtesy CBS News

There is another effect of import taxes, the response of other countries. The president apparently is quite proud of the tariffs placed on Chines goods we import, but immediately China introduced what is called, “retaliatory tariffs” on a wild array of American products sold to and usually imported into China.

This means that the things made in US factories or grown on US farms will be taxed in China making them more expensive to the Chinese consumer in comparison to similar goods made in other countries and not subject to Chinese import tariffs, One of the first and most obvious to be affected is the American corn, wheat, and soybean farmer because, quite simply, to the Chinese importer our products become more costly than those produced by farmers in other nations.

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The American auto manufacturers, Ford, GM, and Chrysler are hit in two ways, first the steel they buy to make autos to sell to Americans costs more and so the autos will cost more, plus the autos we make and put on a ship to deliver to a Chinese importer will cost even more when those Chinese tariffs are added, giving a price advantage to autos produced in, for instance, Japan and now India.

If the farmer here loses sales he may be forced to lay off workers he hires and put off replacing some farm equipment he might have needed. That, of course, affects the farm worker in our mid-west, the seed producer and the banker who holds farmers mortgages. Also, the production worker who makes equipment here, e.g. John Deere, or the tire companies whose product is needed to go on farm equipment.

We have seen how quickly manufacturers like Harley Davidson have responded by moving production overseas so that the motorbikes sold there will be made there where neither set of tariffs will apply to their sales.

And who benefits? The Dutch or Belgian worker who gets a job that would have gone to an American worker, the foreign construction company that builds the new factory and the local banker who makes the construction loan. The American worker who got laid off or never hired in the first place may also have to avoid purchasing one of the many foreign vehicles made or assembled right here in the USA.

Meanwhile, if American auto manufacturers, both of American brands and foreign brands made here, lose sales, who is affected, the auto worker and the workers in the associated industries whose orders for goods are lessened or services, all the way down to the Joe Six-pack mechanic working in an auto dealership.

Companies like Boeing need aluminum and other finished goods to go into their multimillion-dollar products so they will have to raise prices.  Sales of 737s to expanding nations such as China will go to companies like Airbus, Boeing’s European competitor who are affected neither by Trump’s import Tariffs nor Chinese retaliatory tariffs.

All in all, the bottom line loser will be the American workers and farmers, and those who initially think that they will not be affected since they do not trade directly with China. Mexico or Canada, but when workers are laid off our economy will be damaged. That means we all will suffer.

Lest someone believe that these things are exaggerated, just look at history and see what happened in the past when tariffs were placed on goods entering the country.

“We have met the enemy and it is us.”

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