albertsperspective

The 2016 presidential campaign season is focusing on international #trade and #trade agreements as causes of job loss and larger scale economic problems. Politicians (at least one in particular) throw blame on the current U.S. Administration and other countries (notably Mexico and China). There is political talk of slapping tariffs on goods from countries (and U.S. offshore companies) accused of unfair trade practices, as if tariffs imposed by the U.S. on imported goods will bring jobs back to the U.S. and improve trade fairness without cost to the U.S. Unfortunately, tariffs are likely to have unintended – but easy to understand – consequences.

A #tariff is simply a tax that has to be paid by a producer or seller of a good – a product. A producer or seller typically sets the price of a good to cover its costs and make a profit, and any tax is typically passed along to the consumer, either as a specific added tax (like a state sales tax added at checkout) or as a cost buried in the price paid by the consumer. When taxes increase, consumers pay a higher price. When producer and seller costs increase, the sale price is typically increased to cover the added cost to the producer or seller. It’s the same with a tariff.

As consumers, we benefit from low prices paid for goods produced offshore – in China, for example, or in Mexico (technically not offshore). We buy incredibly inexpensive clothing. We get much more for much less – we can buy more goods without paying the comparatively higher prices we would have to pay for similar goods produced in the U.S. The comparatively low prices of offshore goods are a result of several factors in the producing country, including less costly labor (the biggest difference) and labor conditions and fewer or less stringent regulations governing production. If you just look at labels on hard goods and even some food products, it’s easy to see that a large percentage of the products we use and purchase regularly are now made in a different country, and they have been for many years. U.S. companies have built or acquired factories offshore in order to offer products at prices that are competitive with other products produced offshore. Labor cost is probably the biggest difference. Laborers in China, in Mexico, and in Third World countries typically work for a small fraction of the amount paid or expected to be paid to U.S. workers doing similar work. In order to compete and thrive in the U.S. or global marketplace, companies producing and selling comparable goods must consider the costs of labor, fringe benefits, and regulations related to working conditions and environmental impact. Although a growing but still relatively small fraction of U.S. consumers selectively shop for goods produced under fair labor standards and environmentally friendly conditions, they are consumers who can afford to be choosy; they are not bound by low prices.

If the U.S. imposes tariffs on goods imported from China or other non-U.S. locations, the prices of those goods would go up, and U.S. consumers would have to pay more for the same goods. The foreign workers who produce them would not benefit; their pay would not increase, and their working conditions would not improve. The U.S. imposed tariff would simply be a tax that foreign sellers would pass along to U.S. consumers as higher prices. We would lose. Yet the difference would not be enough to actually bring those jobs back to the U.S.; we no longer have the industrial infrastructure and sufficient skilled labor force to produce the vast variety and quantity of goods needed today.

Blame the corporations or the labor unions or environmental interests or government regulations, if you will. Tariffs on imported products will not solve the problem of our dependency on foreign products.