Tariffs

When I studied this topic 60 years ago in college, it wasn’t difficult to understand. But then political talking points entered the picture and totally distorted the meaning of tariffs. Here’s the true story.

During America’s early years, nearly every little thing needed in the colonies was imported from England and France. The colonies grew their own food stuffs, but not everything. So, some foodstuffs were imported as well.

Tools needed to settle our new nation were imported until we learned how to make rudimentary tools locally. It soon became apparent that colonists needed to make their own products instead of importing them. Why? Because local goods were cheaper, avoided all shipping costs, and were available nearly instantly in local markets if supplies were sufficient. Avoiding importation instructed the colonies that producing their own goods would lead to more independence from other nations, especially England.

So, tariffs were used to discourage imports by making them so expensive that local goods became much more desirable from a price point alone. Eventually, industries appeared and local American inventions, too. Soon (decades) the American economy took shape and was larger, more profitable and stable than relying on distant exporters.

Discouraging consumption by price meant that imported goods were more costly because a tariff had to be paid on such goods. Those tariffs were paid by the customers who purchased such goods. That would be the American consumer. They paid the tariff. The exporter suffered lower sales, adjusted their prices accordingly, but couldn’t match the tariff price. The consumer paid the tariff, the exporter suffered lower sales. The final result: American production and ingenuity, built manufacturing and expanded agricultural crops.

The sole purpose of tariffs is to strengthen the local economy by reducing international competition. That’s it. Dislocation of supply and demand made imported goods more expensive while the economy changed to produce goods that were formerly sourced by imports.

In the modern economy, tariffs would keep jobs in our nation and discourage shifting those jobs to foreign markets. Effective tariffs hopefully would cause shifting international jobs back to America. That would reduce employment overseas, and a reduction of foreign owned sales and economic activity. American economic activity would benefit. However, if homegrown labor is more costly than foreign labor, the cost of producing the same goods would rise and the consumer would pay the price of that. Before the local jobs are built, however, the consumer would pay the higher product cost due to tariffs.

If local labor markets are insufficient to fill jobs, especially in agricultural and menial jobs, immigration would be needed to balance labor demand. Thus, immigration becomes a necessary feature of our national economy.

The mechanics of tariffs is simple if politics are removed from the discussions.

December 16, 2024