Graphic made by Evan Brooks
This article will be the first in a weekly column about business, economics and more, as we look into all things that encompass those areas of study. I decided to start this column to use my major of business management and minor of economics to provide opinions on related issues you might see in the news or encounter in your life.
This week, tariffs will be the discussed topic. Tariffs, in short, are taxes on anything imported or exported from one country to another. Tariffs are usually used, at least today, as a politically-based action. They can be a good tool to obtain some revenue (if used as a revenue tariff) for whichever government sets the tariffs.
So, why should you care about tariffs? It’s not like they affect you at all, right? Wrong. While they can be a good resource in helping to bring the opposing country to the negotiating table, the taxed items cost the companies importing them more. When companies pay more to offset the cost and maintain profit, the consumers of those companies pay more, too.
Tariffs are also used to protect domestic industry by raising the overall prices of the cheaper foreign products to the same cost level of the domestic products. By equalizing the prices, domestic companies are able to compete. Although the goal may be to protect domestic industry, again, tariffs penalize domestic firms that import tariffed foreign goods.
As an economic choice, tariffs are probably not the way to go. Time and time again, tariffs have been shown to slow economic growth and fail to bring in enough revenue to offset any negative economic side effects. If you want to keep the economy growing strong, probably stay away from tariffs. If you need some quick revenue to fund your government, they might be useful.
Tariffs can act as a negotiating tool between countries. If a country is having its exports tariffed, the companies that produce those goods may lose business. When a company loses business, they may have to lay off or fire employees, slowing the economic growth and raising unemployment in that country.
Both countries will be negatively economically impacted in the end, but the outcome could be a more profitable trade deal for one or both countries involved, boosting future economic growth.
Tariffs are just one part in the game of globalization. The more countries work together, the less tactics like tariffs have to be used, and the more prosperous all involved are. Unfortunately, politics can get in the way of global economic harmony and progress.
When a leader wishes to act strong, they can impose tariffs on countries where there may be a real underlying trade issue, but tariffs won’t solve the problem and will make the situation worse.
An example where tariffs will do little help is with trade deficits. An example of a trade deficit would be the United States importing more from China than it exports. It is not so much of a problem because the U.S. may export more to the United Kingdom than it imports from them. This means that those extra imports from China may lead to those extra exports to the U.K., making any tariffs against China have the possibility to hurt trade with the United Kingdom.
Overall, tariffs have the potential for being useful tools for generating some revenue and bringing countries to the negotiating table, but can in turn slow economic growth, increase the cost burden for consumers and have global, economic impacts.
Evan Brooks is a third-year Business Management major with minors in Economics and Civic and Professional Leadership EB0916132@wcupa.edu.