President Trump just announced a new round of tariffs on another $200 billion in Chinese imports — with the promise of another $276 billion in additional tariffs if the Asian superpower fights back with its own retaliatory tariffs on U.S. goods.
And let’s face it, that outcome is all but forgone conclusion at this point!
The talk of tariffs is the biggest story in financial markets the world over. As a dyed in the wool advocate of free trade, I have a different perspective I’d like to share with you.
Tariffs will distort our economy
I am unalterably an ardent free trader, and that’s a stance that is not popular right now in United States. But I have always believed companies and countries should produce what they are best at.
The president is using tariffs against trading partners, not because they’ve played unfairly, but because we have not been as efficient as the rest of the world in producing, say, steel and aluminum, which is where his first round of tariffs hit.
Now, let me just say this: We do other things exceedingly well — think of the manufacturing of aircraft and automobiles. Think of the agricultural practices we have that produce food with an efficiency that’s marveled at all over the world — not to mention that we remain virtually unchallenged in anything to do with IT, computers and the Internet!
If you need proof of that last part, just look at the fact that the most valuable companies in the world — like Apple, Facebook and Google — are all American companies.
The danger in saying “We’re not efficient in making XYZ, so we’ll punish others who are…” is that you never know the response you’ll get from those others, which could lead to the increase in consumer prices we’ll see across a variety of industries.
Furthermore, the controversy around tariffs and trade wars is dividing us. Unfortunately, we as a nation get divided easily these days. Too often the arguments that divide us are not based on fact, but on half-truth.
The idea of government choosing the winners and the losers in trade distorts an economy and makes us all poorer for it.
Ultimately, the greatest danger we’ll face from tariffs is not just the additional cost we’ll have on various goods. That goes without saying. But the true danger is that our allies are more likely to become adversaries as we start to put up roadblocks to them selling things to us under a free-trade system.
That could mean a trade war where other countries retaliate against other industries in an escalating battle of tit-for-tat to punish us for being afraid to compete fair and square. And that never ends well.
Will your wallet feel an impact this Christmas?
We’re now closing in on the Christmas shopping season and there’s some confusion and fear that the tariffs will put a lump of coal in your stocking this year — in the form of higher prices when you’re out there shopping and playing Santa Claus.
That’s simply not the case. What has happened so far won’t dramatically impact your life as a consumer. That is, outside of some well-publicized situations involving farmers and some manufacturing workers.
But after Christmas, if we still don’t get along with the Chinese, I expect you will start to see higher prices on clothing, electronics and components that go into automobiles, which could drive up the purchase price for vehicles.
Of course, that’s an if/then scenario where you can’t connect the dots yet because we know if economic relations between the United States and China will normalize sooner rather than later.
Economics is the ‘dismal science’
The counter-argument to everything I’m saying here is that some people look at employment through the prism of trade. But what’s overlooked in that argument is how much stuff we sell to other people around the world.
That’s why economics is called the dismal science. Free trade is not a “they win, we lose” scenario. What happens in capitalism is that the most efficient provider of any goods or services eventually emerges.
For example: Why is it that a Sears is failing at retail, or that somebody like Toys R Us recently went completely bust? It’s because others in retail provide a more efficient environment.
Think about Amazon. The e-commerce giant is challenging not just retail but so many fields. So companies either adapt to Amazon or they go extinct. That’s how business works. The companies that innovate and get that blend of quality, price and service in the correct balance win!
The tariffs issue is not going the way that a free-trader like me wants. But from my perspective, I still believe we all benefit when we trade with other nations in a free-trade environment.
If you want to tell me I’m crazy and out of my mind, be sure to post at Clark Stinks and let me know!