A Few Thoughts By John Nalivka– On tariffs
Tariffs applied by the Trump Administration’s to Chinese raw material and finished goods entering the U.S. as a means to bring China into line with free and fair trade has caused a great deal of anger, anxiety, uncertainty, or a whole host of other descriptive words. How any American views those tariffs largely depends upon their situation. For farmers and ranchers, it is more direct as the role of global markets to U.S. agriculture has increased. Those markets lend significant support to U.S. agricultural commodity and product prices.
But, I think we still have to look at the bigger picture and our relationship with China as we discuss this complex topic of tariffs. Once again, my formal education as an economist would tell me that tariffs do not benefit anyone and therefore, strictly speaking, they should not be used – ever. As the news stories have indicated many, many times over the past year, this is nothing more than a tax on U.S. consumers purchasing goods that were made outside the U.S.
My first reaction to that statement is – does the average consumer reading that assessment know how many U.S. produced goods traded in global markets are assessed tariffs every day? Furthermore, those tariffs did not just occur. Countries around the world, including the U.S., have participated in a trading system with tariffs for the last 75 years. There is a great deal of disparity between countries with regard to the tariff rate applied. For example, China applies a 25 percent tariff rate on U.S. cars going into China while the U.S. applies a 2.5 percent tariff rate on Chinese cars and parts. This is only one example, but I do think this has something to do with our $500 billion trade deficit with China.
Trade is a complex topic that involves different governments, cultures, and economies. I understand the difficulty of negotiating toward an agreement that can even come close to satisfying both parties. They do not happen overnight and they do not necessarily lead to the perfect agreement. But, they can only approach that goal through trust and adherence to a widely accepted set of rules. China has ignored both – more often than not.
In May, I read an article about U.S. tariffs being applied to washing machines as a result of the trade war with China. The price of washing machines increased 12 percent with the conclusion that the price increase must have been due to tariffs and consequently, created undue hardship on consumers. So, here is the other part of the story. Tariffs were not applied to dryers. However, the price of dryers also went up 12 percent! Hmmm… go figure! I will leave the conclusion to the reader.