International Trade and Global Business

 

Truths About Tariffs: Tariffs Are Wonderful Things If They Are Low

The prevailing myth about tariffs is if placed on imported goods, such as those from China, they benefit consumers. The reality is they don’t. Instead, tariffs act as a tax on the consumer, who must pay more, up to 25 percent on many goods imported by the US from China after March 1, unless a solution is found for the ongoing trade dispute. The amount collected at the port of entry does go to the treasury, but it’s not the producer’s money; it’s the importers, then the consumer’s in the form of higher prices.
 
Tariffs don’t figure into the trade deficit other than their presence may lead to a reduction in imports, which will reduce the deficit.  But it causes other kinds of harm such as higher prices for consumers, inflation, less choice and lower quality of life, especially for low-income people, and job losses in businesses that resell the imported goods.
 
The US did a good thing when it increased the value amount of imported goods at which point tariffs kick in.  It went from $200 to $800.  This has been beneficial to cross border e-Commerce and to companies that cater to this sector such as logistics firms. Now, the current administration has shown an interest in going back to the $200 threshold unless Canada and Mexico, America’s biggest trading partner raise theirs.  The issue was discussed during negotiations to update NAFTA.  The two countries agreed to raise the value, known as de minimus, but only to a level less than $200, where the US was until it went to $800.
 
Free trade agreements are also a means to lower tariffs and have in many cases eliminated them altogether, as in NAFTA, CAFTA, and others.  This is a general benefit of free trade agreements that their critics don't understand or won't admit.
 
The US conceived the Trans-Pacific Partnership Agreement with 11 other countries including Japan, getting the others to make major concessions including lowering tariffs on many goods including agricultural products where US producers enjoy an advantage.  Then the US did an about-face, leaving the pact in the early days of the present administration.  Since then, Japan has stepped up to the plate to lead the other participants, and the deal should go into effect later this year, with the US self-sidelined. 
 
The deal is open to others. The price of admission is to liberalize trade policies, meaning treat foreign companies like domestic ones, lower tariffs, protect IP and follow other rules imposed by the group. Rules China has been avoiding on its own but now would have to agree to in exchange for an entry ticket.
 
Businesspeople need to do what they can to support the low and no tariff movement.  Look for countries to trade with having the lowest tariffs.  It will reduce the cost of imported and exported goods, helping create more demand and higher trade volumes. This dynamic has helped pull millions of people out of poverty since World War II. We can't afford to go backward now.
 
 

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