Image Source: New York Times
So, our Cheeto In Chief announced a plan to impose tariffs on imported steel. Aluminum imports also will see a duty by the President's Commerce Secretary. The stock market dropped about 500+ points after the news broke.
Good job, Donny Boy!
So, you may be wondering, what's the big deal with these tariffs anyway? Why should this matter to you and me? Let me explain.
A tariff is a tax on a group of goods coming from another country. Every country has tariffs on imported goods in one form or another. Duties help bring in tax revenue to nations from global trade.
People always suggest that "free trade" is a good thing. Tariffs prevent trade among countries from being free. Tariffs are also used to keep weak industries from going under from foreign trade. Countries use tariffs as a competitive advantage to help an industry.
Tariffs allow companies to grab as much trade revenue as possible. The big grab for market share comes at the expense of foreign competitors. A country will allow the industry to make a large number of goods to ship to other countries.
Those goods are then sold abroad at little cost to fend off competition from other countries. Industries who cannot compete with foreign competitors on price go down. When those industries go under, so too go the jobs and tax revenues with them. A country will slap tariffs on imported goods to prevent an industry from going under.
The only problem with this is countries don't like a tax on their exported goods. So, they set tariffs on our exported goods. A trade war breaks out when countries raise taxes on other countries' imported goods.
The cost of tariffs passes along to consumers by companies. These costs come along as higher prices on imported goods to consumers. A rise in the number of imported products can lead to inflation. Inflation helps no one if wages do not rise at the same rate as higher prices.
Thus, tariffs are a bad idea. Allowing the free market to set pricing of goods and services will solve the tariff problem. When taxes are low, costs of imported goods remain level as well. Low prices keep inflation in check. Lower inflation helps both consumers and manufacturers purchasing power.
I hope that this administration will come to its senses on tariffs. Don't hold your breath, though!
Thanks for reading @ellofinance today. Your time spent here is always appreciated.