Tariffs

The word of the week is, apparently, tariff. During his campaign, Trump boasted of a plan to implement a 60% tariff on Chinese goods, and a 20% tariff on virtually all other imported goods, and that was just to start. Calling himself Tariff Man, he claimed that these large sweeping tariffs would lower food prices. But tariffs don't lower food prices, they raise them.

Let's say I own a bakery in Illinois and I want to purchase some bananas which can only be grown in the US in Hawaii and southern Florida. Those small areas are not able to keep up with nationwide demand, so I would place an order with a Mexican business selling bananas, or more likely a distribution company which is already purchasing bananas from Mexico. Then, I pay the US government for the tariff on those foreign goods (or the distribution company does, and passes the cost along to me). Because of that extra cost, I am likely to increase the price of those bananas or the muffins I make with them. Doesn't sound like the story Trump is telling, does it? It's not that he isn't aware of the impacts of these policies; he has discussed his plans with economists who have warned how damaging they can be. His response to these economists was to insult their education, and suggest they're flat out wrong simply because he says so. This is why it's dangerous to ignore experts just because their analysis doesn't satisfy your ego. 

I've heard commentary that tariffs would only impact exotic goods, and that most things Americans buy with regularity are domestic products. This is easily disproven. Coffee is an imported product and millions of Americans buy and consume coffee with extreme regularity. More than half of the fruits we consume and more than a quarter of our vegetables are imported, mostly from Mexico and Canada. Conditions in other countries may be more conducive to higher quality produce. It can also be cheaper to import foods because of the value of foreign currencies, and there are jobs created with the importing process. This isn't to suggest we shouldn't grow foods locally when and where we're able to. But there are things we can't grow here, and things we can only grow domestically in certain seasons. So if we want to maintain the level of choice and selection we currently enjoy at the grocery store, we need to import food. 

Most recently, Trump has suggested a policy which would enact a 25% tariff on all goods imported from Canada and Mexico, two of our biggest trade partners, as a way to address the fentanyl crisis. I have one big point of confusion with this: I don't believe Canada plays a large role, if any at all, in the stream of fentanyl across our Southern border. So I'm not clear about what we could possibly gain from straining our trade relationship with Canada for the sake of stemming fentanyl which they have no control over. Setting that aside, the way Trump wants to respond to the fentanyl crisis is to hurt business owners and consumers in both countries?  How will this actually impact the flow of fentanyl into the US? Most fentanyl is coming through legal ports of entry by US citizens. Do we think mutually assured destruction is a salient strategy for foreign affairs and global trade? It just does not make sense.

Also, tariffs on imports will likely impact exports when those trade partners issue retaliatory tariffs on goods we sell to them. Tariffs will likely strain our relationships with other countries, undermining our ability to work with our allies. I'm not sure how pretty American isolationism will be, despite the rose colored depiction America-First advocates espouse. But it looks like we may have the opportunity to see it play out in real time.