Tariffs on China: Are They Doing Good, or Doing Bad?
Among Trump’s headlining decisions are the tariffs imposed on products the country imports from China. While his aggressive stance may be an attempt at strong-arming the powerful country, many argue he is hurting American citizens more than he is standing up for their best interest.
As with any political decision, there are always pros and cons (and many areas of gray that intersect them). So, before you make your decision on where you stand, let’s break down some of the highlights.
A Quick Recap
First, what are the purpose of tariffs? They are used by a country to increase its government revenue while providing a balance between providing necessary goods and materials to the country, while simultaneously protecting domestic industries from too much foreign competition. Traditionally, charging a tax on imports means the government allows companies on home-soil to sell their products at higher costs, providing support to vital aspects of the economy – most notably, employment.
Except tariffs are no longer seen as being the best method through which to support foreign trade, and until Trump’s recent decision, the U.S had one of the lowest tariff’s globally – something he viewed as being a problem. But by reducing or eliminating foreign competition through raising tariffs, you give home-based industries and businesses the ability to increase their prices. This is not a problem for the minority who can afford the increase in costs, but this is a big problem for the average citizen.
Making America Great Again?
Let’s consider this: how many “Made in China” labels do you see on your products? A lot, right? Most people are aware how much cheaper products from China are, but the extent to which American’s rely on these products is likely underappreciated, as the few times you recall seeing a label is only a small fraction of what is purchased. In fact, China is America’s biggest trade partner. Has anyone looked at the label of their “Make America Great Again” hats? Even the President relies on foreign industries in his touted support of his home country.
Trump and his government explain the goal behind the President’s decision is to weaken the power of Chinese manufacturers and China’s exporting power. It seeks to encourage heavier reliance on U.S producers and manufacturers – domestically and abroad – using the hit to China’s economy to bolster U.S strength. China may be coerced into making their prices more competitive, which would show in the cost of goods to consumers, but that is a big “may”, and when it would happen (if it does) is anyone’s guess.
The benefit of international trade is that it allows every country to rely on trade partners for certain products so that they can then specialize in the production or manufacture of other products. The problem in the case of the U.S is that there is a very heavy reliance on products from China because the industries on home soil are either not existent, or insufficient, at making certain items period, let alone at competitive prices.
It is easy to understand why there is support for decisions that encourage an increase in the quantities of goods produced locally and the variety of what is produced. However, it is not a transition that can just happen by throwing tariffs onto trade goods, nor is it one that is purely beneficial either. Much of the productive and manufacturing sector in the U.S are not able or prepared to make a large number of the products the country has been relying on China for. If the goal really is to strengthen local production, it would be a more stable plan, for example, to work on developing the necessary industries first, before slapping the hand that feeds them.
It is a cycle understood all too well: the rising cost of goods coming into the country is causing people to purchase fewer products, which, over time, will threaten to slow, halt, and potentially even reverse economic growth as it decreases employment. Higher prices for products and decreased employment means there are fewer people who can afford to pay for goods and services. And it affects more than just what the average citizen buys off shelves. The housing market – where construction products are largely imported from China – is also taking a hit. Not only is the cost of construction going up, but it has shifted the already weary market away from sellers, who are now trending toward withholding on selling their homes due to market value. Even the automobile industry is affected.
So, Is It Working?
And then there is the effect on the export business in the country as a result of China’s (predictable) retaliation. The agricultural sector has been hit particularly hard. Farmers, especially those who produce and export soybeans, lentils, flour, corn, beans, and oats, have seen a dramatic decrease in profits, as China was their second-largest buyer.
But China is feeling the strain, too, with factories decreasing in production and profits, and the country’s economic growth taking a hit. As a result, there have been minor concessions by China – most notably allowing for the import of GMO crops (which, for those who are environmentally conscientious will find this very disturbing), and agreeing to increase the quantities and selection of products they buy from the U.S. But they have yet to bend on some of the larger demands made by Trump.
Experts are predicting an all-out trade war won’t happen, but in the meantime, the US Treasury will reap the rewards of Trump’s decision. And it will do so at the expense of American citizens, who are at the mercy of a decision made by those who have the luxury of being able to afford to wait this out.