Ok was reading a post somewhere else and came across someone saying how trump likes tariffs too much, which is not the first time i have heard tariffs frowned upon. I have always been of the opposite opinion and I guess would also ‘like tariffs too much’ so please enlighten me as to why they are bad.
My view:
I like to visualize the flow of wealth and whether wealth is flowing in to or out of an area. When I researched Fredrick the Great, he had become ‘the great’ thru making Prussia wealthy, and he had done this by freeing up and empowering local producers while limiting… thru tariffs… goods externally produced. This makes total sense to me. Prussian producers then pull wealth in while foreign producers no longer pull wealth out.
Another parallel is when developing countries have farmers that cannot produce goods cheaply enough to compete with the oversubsidized foreign goods flooding their market and, because their government does not tariff up the prices of the foreign goods, the locals get thrown in to poverty. These two things have always, to me, implied the role of tariffs is to prevent wealth from being drained out of an area and, as a byproduct, divert business and thus success inward instead. Because this helps local prosperity, I, I guess similarly to Trump (?), have historically viewed tariffs as generally a ‘good’ tool.
So please, explain where I’m wrong, if I am, and why tariffs would be bad. thank you
From your model, tariffs would be a heightened barrier, like a levee, against the outflow of wealth from the US.
Trouble is, the river is strong, and there are no offshoots yet, so the flow will have to continue over the levee, at higher cost.
Basically, it takes time to build up domestic production to competitive prices. Raising tariffs drastically means those who cannot do without the products just pay more.
If you have targeted tariffs, some of that demand can be soaked up by substitutes (maybe instead of buying a European car, some people get an e-bike or Chinese car). Also, targeted tariffs allow for targeted increase of production, meaning you only have to establish new car-manufacturers, rather than every industry which strains both private capital and subsidies, not to mention negotiations as everyone is scrambling.
If you have a staggered introduction of tariffs, consumers and producers can more easily adapt. Maybe a bike shop can start making e-bike conversions, or used car lots refurbish cars as they get upgraded by those rushing to buy before the tariffs get too high.
Modern production chains are more complex than in Prussian times, but over about 3-15 years, domestic production might have caught up to the domestic demand, assuming they trust that the tariffs will remain.
You can look at the chip manufacturing in the US for example. I think it was almost 6 years ago it was found Chinese chips are compromised, and a first factory is just about opened, and still not nearly at the required volumes.
Also, modern trade is a great carrier of diplomacy and influence, tariffs and other isolationist measures means you’ll have less interaction, cultural exchange, and innovation. And as cultures drift apart, relations will be harder and harder.
See Japan, still a bit awkward internationally after their isolation, even though it’s been 140 years since they rejoined the international community.