Introduction
Tariffs seem to have taken center stage in most economic and financial conversations. I wrote about tariffs a couple of weeks ago in a publication that included the following topics. In order to not repeat myself I have provided you with a link to the previous post at the bottom of this publication.
· Tariffs=Taxation
· Consumers Pay All Taxes
· Taxes Misallocate Resources
· Politicians Mislead Consumers/Voters
Before I begin, I should state my bias about tariffs: A tariff amounts to a tax, and all taxes cause a misallocation of economic resources. However, I live in a country that has a tax system, so the only thing I can do consists of giving you some concepts to consider when you hear about tariffs.
Consumer Sovereignty
Although even Murray Rothbard objected to the term "Consumer Sovereignty," Mises had the correct idea. The only purpose for an economy (or market) consists of providing for the desires of consumers. That does not, by default, disregard producers (workers). To satisfy the needs of consumers, someone must produce. What many refer to as "Say's Law" (named after Jean Baptiste Say) says that production creates its own demand. Markets create a circular system in which producers produce goods to satisfy an existing need.
You can study this concept on your own, but keep in mind that a person can only judge the impact of any tax (tariffs included) based on what it does to consumers.
Business Planning
In order to satisfy the needs of consumers, businesses must plan weeks, months, and years in advance. Business leaders can only plan effectively in a reasonably certain and stable environment. Changes to market interventions cause disruptions of varying magnitudes to business planning.
If business leaders do not know whether tariffs will last briefly or a long time, they will inevitably waste resources, either planning for tariffs that do not last or not planning adequately for long-lasting tariffs.
Using tariffs as a negotiating tool amounts to saying, "The government threatens to punish its own consumers if you do not cooperate." What non-sense.
Reciprocal
What makes tariffs reciprocal? I cannot tell you.
If a country exports cars to a country from which it imports lumber, and they have equal dollar-denominated tariffs, does that make the tariffs reciprocal? How many tons of lumber equal 1,000 cars?
Tariffs of 25% from each country sound equal, but does that really make them reciprocal?
I cannot attempt to make sense of a concept I do not understand.
Conclusion
Politicians use tariffs to argue with each other, but I would subject that proposition to the ultimate test.
What do those tariffs do to/for consumers?
References
Substack: Let's Discuss Tariffs
Wordpress: Let's Discuss Tariffs