WILL TARIFF DOOM THE UNITED STATES?
No. Tarriffs will not doom the United States nor will damage the international commerce as we know it.
Brazil, Colombia, Germany, Canada, Mexico, China, Spain, France…. All these have some steep tariffs slapped on goods imported. Britain has a low tariff policy as well as Paraguay.
Most countries have tariffs on imported goods and it does not doom the international commerce. If American tariffs hurt international commerce is because there is an imbalance in the international commerce and one must investigate why there is imbalance and how it “hurts” international commerce.
Most countries have tariffs on imports. The USA had a low tariff on imports until now and this was good for the Americans as well as good for the rest of the world. The USA is the greater consumer of goods and services in the world and it makes sense to have it this way, for the GNP is greater with lower cost for all Americans.
Until the trade becomes lopsided. China has become the greatest exporter of goods in the world and imports only food and raw materials, having tariff barriers and non tariff barriers to block importation of goods. Moreover, China does not respect Intelectual Property and abused the WTO rules with impunity.
It was pardonable while China was poor. Now China is the second largest economy in the world and must take on the responsibilities that this privileged position entails: respect the world trade.
The situation for the United States become a crisis when the logistics chain disrupted in 2020, due to the Wuhan virus crisis. Suddenly there were goods produced in other countries that were not able to be purchased anymore.
The Suez Canal accident of the Evergiven blocked commerce for weeks an disrupted supply chains again.
And now, with the tariffs on Chinese goods, the Ji Jim Ping blocked supply of rare earths exports to the USA, trying to choke the production of electric cars in the United States.
Clearly the World Trade Organization failed miserably and a new order is needed, where industrial production is distributed all around the world and not concentrated in China, that will block exportation of goods to other countries in order to impose their will on them. China just proved the world, by blocking exports, that it is a non reliable partner.
TRADE, MARKETS AND COMMERCE
Commerce is good when done in bona fide – good faith – and voluntarily.
The greatest example of how to make commerce in bad faith and forcibly is the Opium War. Great Britain had a deficit for importing goods from China and had an opportunity to balance that deficit by selling opium they produced in the north India to China.
The problem is that opium is a drug that impairs damage to the people who are addicted to it and affects the whole of society with negative effects like rise in idleness of workers and criminality.
The Chinese Quing dynasty outlawed the trade of opium, sparking conflict that ended up with the traffickers – Great Britain – winning the war and getting Hong-Kong as a free port and the rights to sell opium to the Chinese population.
Opium was not illegal at the time. As per many users descriptions, it is harmless to society for only the free willing individual have to deal with its consequences. This is partially true as it is partially true to many users of other drugs, including alcohol. The drugs can be used by a large percentage of individuals with no detrimental effects to their situation in society. There are individuals that will have serious negative effects and will be a serious burden to society.
The view of the Chinese government was that the widespread use of opium reduced productivity of the country and it was made illegal. The British waged a war and forced them to open the trade.
The individuals wanted opium, the government was against. The government lost the war. Interestingly, there was indigenous cultivation of the poppy variety to produce opium in China which surpassed the imports and made opium trade from India less important. By the turn of the XXth century, the British ceased the opium trade.
Waging a war for resources and trade is common and happened throughout history with examples ranging from the Series of Anglo-Dutch War starting in1652 where the British attacked the Dutch merchant ships with acts of piracy.
Short of waging war, there are involuntary commerce inflicted upon nations by other nations, like the colonial ties that forced Brazil to only trade with Portugal, the American colonies of Spain doing the same.
African colonies does this colonized trade even today, with the former French colonies in Africa being forced to use African Francs to trade, paying royalties to France.
This is such to understand that free trade is done in good faith and voluntarily.
WHAT IS MERCANTILISM AND HOW IT DID PLAY
Mercantilism is the administration of international commerce by a country or group of countries that arrange commerce between them and between themselves and the rest of the world, favoring a their own in detriment of the others.
As per what free trade was not in the previous section, one can see how military might and sovereign ties cripple the free trade.
Mercantilism, most of the time, is short from using military violence to achieve its goals. Mercantilism uses barriers to avoid trade deficits.
There are several types of barriers.
TARIFF BARRIERS
The country engaged in mercantilism rises barriers to imports, making them more expensive to the customers and collecting fees from the sellers.
This hurts the consumers in the mercantilist country, but it is an effective deterrent of importation of goods, sometimes forcing the establishment of national producers of the goods tariffed.
This is the case of the automobile industry, when there is a market to consume the goods and it makes sense for the companies to produce cars in the country that have import tariffs. All of a sudden, these cars manufacturers are national producers and want the tariff barriers to remain in place to protect their own interests.
The same happened to the electronics industry and even food industries.
NON TARIFF BARRIERS
Some countries created non tariffary barriers to stop importation of goods.
One example is the creation of regulations for automobiles that requires modifications for the imported automobiles that makes them more expensive. This happened in the American market, where in California there were regulations requiring the car bumpers to be resistant to a crash at 5 miles per hour without damaging the lights, car engine and safety equipment. This ensued that all imports had big unattractive appendices that reduced their covetness.
Another example is a weird regulation that restricted American meat in Japan. Japanese officials claimed Japanese people intestines were not fit for American meat. The restrictions fell in 2019, after being eroded since the early 1990s, with treaties after treaties reducing barriers from both parties.
Another non tariff barrier is the claim of “national security” threats if goods are imported. This claim is accompanied by the choice of some oligarch that will be appointed to be the “national champion” of that particular industry. This creates a corrupt industry in the country, most of the time in detriment of the population and the security of the country.
The creation of a national champion involves corruption. It may not transfer money or economic power to those in charge of decision, it may not involve a benefit at all, either direct or indirect, but the meddling onto the relationships in the market requires resources like investment, energy and time that would very likely support the wrong choice, while the failure of some agents would clearly teach those observing what not to repeat, what to avoid and eventually how to succeed.
Other nation’s champions are of course present. There will be a different perceptions regarding the success of some other companies, some of these state owned entreprises (SOEs) that are partially owned by their respective government and receiving subsidies by means of government investment. This is true for a state owned Alitalia and Iberia and Air France as well as Peugeot, Renault, Volkswagen which are few of the many companies with a significative equity participation from government.
TARIFFS ARE BAD – ALL COUNTRIES MUST REDUCE TARIFFS
The rise of tariffs are bad, we can all agree to that but it is worse to have some countries charging high tariffs and some other charging low tariffs and not getting reciprocity.
There are plenty of other advantages that countries do explore, like the presence of natural resources like petroleum, gold, iron ore, aluminum ore or centrality in ocean routes or even cheap labor. All these are conditions that are consequences of the nature of the country.
It is time to recognize that tariffs that protected post World War II Germany and Japan are not required anymore. Most of the countries in need of protection are actually protected by grants and special treaties that allow them to export to Europe or America with no tariffs, like Rwanda.
China must join the new trade. It is time for all to recognize China as the second largest economy in the world and congratulate China while not allowing China to cheat.