Recently new stories have flooded our lives with headlines such as “US stocks plunge as fears grow over impact of tariffs” and “China’s retaliatory tariffs are a direct hit to U.S. farmers”. These headlines can look scary, and it seems that we are on the brink of a trade war with many other nations. But why do these tariffs cause such a panic on the world stage? What are they?
A tariff, in simple terms, is a tax on imported goods from another country. This can either be a percentage or a flat fee, and tariffs can also be tailored to particular types of goods (e.g. a tariff on imported shoes). Currently the US has imposed tariffs on goods imported from Canada, Mexico, and China. From the white house: “…President Donald J. Trump is implementing a 25% additional tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China. Energy resources from Canada will have a lower 10% tariff.”
Tariffs are not a new concept to America, however. They have been used throughout our history with varying degrees of success. Throughout history, tariffs have been used by countries to shield domestic industries from competition overseas. This seems to be one of the President’s main goals, along with his intent to intimidate countries with high immigration into the US to clamp down on their citizens. We have yet to see the effects of these tariffs, but what we do know is that the stock market is plunging rapidly.
The nature of tariffs may have some fault in this sudden drop in the market. It has been stated that tariffs are a tax on imported goods. This tax is paid by the company that imports the goods. For example, if a company in the US buys cloth from Canada, they are required to pay a 25% tax to the government. This is a significant amount of money, which I believe is the intention. If American companies are forced to pay these prices on goods (they just went from paying 100% of the cost to 125%), then they are essentially forced to move production into the US or increase prices. This has spooked investors, who believe these radical policies will lead to a downturn in the market. This has created a sell-off wiping out $4 trillion from the S&P 500’s peak last month.
This begs the question, are tariffs beneficial to our economy? The short answer is they might have been at a point, but have not proven to be necessary anymore. Absolutely, tariffs were instrumental in the 18th and 19th century for the US. They accounted for over 90% of government income, and were used to protect developing American companies. Notably William McKinley, whom President Trump admires, was famous for his “McKinley Tariff”. This tariff increased the average duty on imported goods to 50% in 1890. This act was intended to protect American interests, but it faced backlash from the people because of heavily inflated prices. In the end, this tariff was a factor that led to the house majority switching from republicans to democrats.
In large part, the demise of the tariff was brought about by the introduction of income taxes and the industrial expansion of the late 1800’s. These events undermined the historical justifications for tariffs, as the US no longer relied on them for funding or for protection of domestic interests. Despite these facts, President Hoover, in response to the stock market crash of 1928, signed the “Smoot-Hawley Act”. The goal was to raise import duties by an average of 20% and protect American farmers from backlash caused by the crash. European countries promptly retaliated with tariffs of their own, and trade between Europe and the US declined by two-thirds.
In the modern day, justifications for bringing back tariffs include bringing back jobs from overseas and protecting American industry. The main focus does not seem to be increasing government revenue.
We have to ask ourselves if tariffs are the correct course of action if we want to protect American jobs without causing an economic panic? Imposing these tariffs is essentially an economic act of violence. Looking at past history and our own human experiences, violence is not the answer. MLK famously said, “The old law of an eye for an eye leaves everybody blind. It is immoral because it seeks to humiliate the opponent rather than win his understanding; it seeks to annihilate rather than to convert. Violence is immoral because it thrives on hatred rather than love. It destroys community and makes brotherhood impossible. It leaves society in monologue rather than dialogue. Violence ends by destroying itself.” The context was for the civil rights movement, but I think this can be applied to a number of problems.
The US should absolutely insure that we are being treated fairly in trade, and should not give an inch to other countries. But tariffs historically have not been the answer, so I see no reason that they would work in our modern world. In the coming weeks, and years, I believe we will find out whether I am right or wrong.
