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There’s A Tariff War Brewing And American As Well As Foreign Consumers Are In The line Of Fire

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Tariffs aren’t new. Countries like to impose tariffs because the main objective is to produce more revenue. Before Americans paid income taxes, tariffs were the main source of revenue for the government. But the 1913 ratification of the 16th Amendment changed that scenario. The main purpose of tariffs in today’s global economy is protection. Countries want to protect industries that produce jobs and tax revenue. Foreign competition can destroy an international company’s bottom line, so tariffs give them leverage in certain product categories.

The fact that tariffs distort production and consumption decisions is well-known. Shoe tariffs on Chinese shoes didn’t help the American shoe industry in the 1970s. It hurt the industry because the tariffs on different shoe categories didn’t make sense. A shoe with a rubber sole had a larger tariff that a shoe with a leather sole. So foreign shoe designers got around the tariff by reading the fine print and putting another chemical in the rubber, or they inserted fabric in the rubber, and those slight changes lower the tariff and the classification of the shoe.

Tariffs are good when they are put on products that need protection. The American shoe industry needed protection in the 1970s because the industry was technologically behind other countries in terms of modern shoemaking. Plus, mainstream American consumers didn’t want to pay more than $40 for a disposable pair of shoes. American factories didn’t get the message that disposable footwear was the trend. But countries like China and Brazil did, and they took over the shoe market in the U.S. in spite of tariffs.

But the new tariffs that Trump is imposing on American allies are not about trends or consumer and manufacturing needs. The new tariffs are a way to get Trump’s message across that America is getting the short end of the stick when it comes to exporting more than it imports. So the Trump tariff plan is a threat, and it will hurt American as well as foreign consumers if Europe, Mexico, Canada and China decide to retaliate. Inflation is on the way up, and these new tariffs will exacerbate inflation according to several economists.

Establishing a tariff war is a senseless act, according to economists. The industries that tariffs allegedly protect don’t get the protection they need because there’s another reason for their pending demise, and that reason is the creative destruction caused by capitalism.

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