Tariffs

Let’s clarify something we might be a bit muddy on: tariffs.

Tariffs are a tool that have been used by governments for a long time. I will sometimes see people’s better judgment blurred by cults of personality, us versus them thinking or misunderstanding what tariffs are. To make sure that we all understand something that can affect our pocket books let’s explore what tariffs are defined as and used for, how they are falsely perceived, and who is affected by a tariff.

So what are tariffs exactly? They are defined as a fee imposed on imported goods into a country. Tariffs are a tool that can be used as a form of economic equalization. Sometimes, a country can produce a product for far less than another. To make the market equal a government can impose a tariff to give their citizens a chance to sell to each other. It can also be used as leverage to get another country to do something. If  a country is censoring its people, another country could impose a tariff to persuade them to stop.

Here’s our scenario: a purple country imposes a tariff on a green country’s cotton candy. The people of the green country are outraged because the green leaders and media tell them the purple country has no right to impose things on them. So the green country’s leaders counter by imposing a tariff on the purple country’s peanuts. The green people are happy that their leaders fought back. This wording suggests that the leaders are imposing tariffs on each other, but this is almost the exact opposite of reality.

The wording surrounding tariffs is misleading, perhaps by design. Rather than the leaders of the purple country saying, “We are imposing a tariff on the green country”, a more accurate way would be to say, “We are taxing our own people if they buy cotton candy from the green country”.  So, the job of the purple government and its media is to present the tariff to their people so that it appears the green country is going to pay the tariff. In turn, the purple people support the government in taxing themselves, often unknowingly. The green people don’t pay the tariff, the purple do. Same goes for the green people who want the purple peanuts, they have to pay the green leaders a tariff for the purple peanuts. Leaders charge their own people when they impose a tariff.

Now that our perception, definition and result of tariffs are clear, we can discuss who benefits from them.  This is a complicated and nuanced subject, but we should try and simplify it so we don’t get fooled by us versus them messaging. When a government imposes a tariff on another country, they are taxing their own citizens, plain and simple. One of the intended results from this is that people will buy within their own country instead of buying from abroad. Although this can be the result, we must take care in analyzing what is being taxed. Tariffs on goods that are not produced inside one’s own country serve only to fund the government.