Today, I saw an interview with the guy that I don't want to name but that everybody knows, talking about Tariffs... He said more or less the following thing:
Thanks to the Tariffs we will make so much money that we won't know how to use it...
What are tariffs ?
Tariffs is a very old tool to put taxes on an imported product. I believe that some forms of tariffs existed even in ancient Rome and during the middle ages. It was a way to tax merchants and commerce all through history. When entering the city walls, merchants had to pay a tax according to what they were carrying. In a time where there were no census and income tax was not really a thing, it was a good way to get income for nobles or cities.
Tariffs in our times
During the second part of the 20th century a lot of efforts were done to abolish tariffs and to create free commercial zones. A lot of measures were established in this way for the needs of globalisation and world trade.
However, tariffs still exist and the main purpose of these tariffs is to protect strategic sectors of an economy. In Switzerland for example, there are tariffs on imported agricultural goods. The reason for that makes sense because in mountainous Switzerland, farmers can't compete with the prices offered by farmers from flat landed countries like France. However, we need farmers to make sure that we have a certain level of self sufficiency and also to make sure that the landscape is looked after.
When there are tariffs on agricultural goods, on milk for example, the milk in Switzerland is actually more expensive than in the rest of Europe. We basically pay the price of milk that farmers are able to offer in Switzerland. In a way, we pay more than would be possible because of the tariffs. This is a political decision that we Swiss are willing to support because we know that we need to help our farmers.
Where tariffs don't make any sense
If you start to put tariffs on all the products that go over a border, this makes not much sense because most of the complicated production lines cross country borders several times before there is a finished product. Look at the Mexican – American border for example. There are auto factories on both sides of the border. There are thousands of pieces that go into a car and each time one of these parts cross the border, the tariff is added to it. This makes it much more expensive to build a car than for example a car that is build in Germany and the tariff is paid only once when it comes to the USA.
In a nutshell, the tariffs are undermining the companies that are in the USA and Mexico in defavor of all the other companies that work outside of these borders. These tariffs are not protecting the local companies, they are defavorising them and in the medium term this will lead to companies closing and people losing their jobs.
Tariffs are paid by the consumers
When I look at the quote above, the tariffs won't make the country rich because the tariffs are actually paid by the consumers through higher prices on goods and indirectly through the resulting inflation. If you add tariffs on most goods, the price of these goods will simply go up. Even if a product is built 100% in the country, the producer will see its international competition disappear from the market and he will increase his prices. All the goods will go up in price, however jobs will be lost because some companies won't be able to deal with the changed markets.
This is poison for the economy and I don't think that anybody will be richer because of it.
One guy doesn't get it and everybody is affected
Now instead of a good situation of economical growth, we have one guy that puts everything into peril because he doesn't get how markets work... Well I hope there are still some capable people around him that will make sure that a change of direction is taken early enough...
With @ph1102, I'm running the @liotes project.
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