Pros and Cons of Tariffs

Patrick Donoughe, Author

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When it comes to the issue of tariffs, Americans’ opinions are divided. There are pros and cons to every issue, but it is important to have a discussion and come to a decision without bias. Some say tariffs are needed to protect young industries, encourage consumers to buy U.S. products because it’s patriotic, protect jobs and wages, and to achieve a favorable balance of trade and balance of payments. I will evaluate each point to determine the validity of each statement.

Protect our young industries

According to forbes.com, those in favor of the tariffs argue that younger industries need protection until they have developed the necessary knowledge and skills to compete against mature businesses. But economists have determined the tariffs made to help young businesses are unnecessary. For example, a mature business could possibly have trade techniques that get them high quality goods. Infant businesses complain that they have no way to compete against this; that they are trapped in a conundrum. They need the money to buy research that would result in more money. They say they need tariffs to develop their own trade techniques to earn a profit. There is a solution to this problem that already exists: business loans. If the trade techniques are worth it, it would be beneficial to the business owner to just apply for a business loan even if the interest is high.

Encourage consumers to buy U.S. products because it’s patriotic

Buying products made in the U. S.  increases the company’s incentive to build factories in the U.S. Although this may be true, it hinders American innovation. For example, in the automobile market, other countries are building cars that get better gas mileage, but American factories are making cars with low gas mileage because they have no choice but to satisfy the demands of consumers. This makes American companies fall behind in industries due to a lack of innovation.

Protect jobs and wages

This argument is not valid and to justify it’s invalidity, I will reference a study conducted by the Peterson Institute for International Economics, found on the U.S. Chamber of Commerce’s website. This study deals with safeguard tariffs imposed by the Obama administration in September 2009 on tire imports from China. According to the study, this tariff “saved a maximum of 1,200 jobs,” but the “cost per job saved was at least $900,000 in that year.” The “total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011.” The “additional money that U.S. consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment”. It costed the U.S. economy “2,531 jobs.” This means that the so called “solution” to protect American jobs is actually not helping at all. To reference an analogy made on the U.S. Chamber of Commerce’s website, the “prescriptions are far worse than the disease.”

Achieve a favorable balance of trade and balance of payments

According to an article entitled, “Balance of Trade: Favorable vs Unfavorable”, the balance of trade, subtracting imports of a country from its exports, is one component of the balance of payments. The balance of payments also measures international investments and net income made on those investments. A short term solution to achieving a balance is protecting domestic industries by levying tariffs on imports. This is not permanent because other countries will answer the import tariffs with their own measures of protecting their domestic industries. Sometimes a country needs a trade deficit, when a country imports more goods than exports, in order to achieve a favorable balance of trade. Getting more goods than giving can be a positive thing for a country’s economy. To make it even better, when a country has a trade deficit, the country with a surplus that is giving the other country goods finances the country’s deficit. This means foreign countries can actually fund the Untied States economy while we spend less for their goods, creating a more favorable balance.

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