This Is A Tariff
By: Lyndon P.
Do Tariffs Terrify International Trade?
Sifting through the contradictory news reporting on the impact of increased US tariffs on imported goods, consumers might be confused while trying to understand the effect of tariffs on their daily lives. Simply stated, tariffs are a tool for evening the playing field when your trading partners do not appear to be playing a fair game.
Products that we consume (headphones, coffee, bananas, automobiles) can be produced globally and subsequently shipped to markets where demand exists. Sellers ship these products to places where pricing ensures a profit. If it is not profitable to ship and sell the product in another market, it will not happen. In some cases, local governments at the place of production might subsidize a product, or partially pay the product’s cost at its site of origin, so that the cost of production is lower than what economics dictate. In this instance, an unfair trade event occurred because of an artificially low cost and similarly, a below market price for the product.
An example, using a mythical product named a “zingle”, would be if the actual cost of manufacturing a “zingle” is $40 US dollars, but due to government subsidies, its cost in its home country is artificially low at $20 so that US consumers only pay $25 and the consumer (you) will pay $25. However, if your neighbor in your country owns a company and manufactures the zingle (without subsidies) at its true cost of $40, to earn a profit, your neighbor will need to sell the product at a price higher than $40. You will save money by purchasing the imported product at $25. The unfair trade transaction costs your neighbor lost sales, and this neighbor is likely to employ people who live in your town. Your neighbor will go out of business or will buy products from out of the country to stay in business. Your neighbors who are employed locally will lose their jobs.
Suppose the US government imposes a $20 tariff on zingles such that the zingle’s cost in the US is its true cost of $20 plus $20 in tariffs = $40. In this case, its seller will need to compete with your neighbor’s product on an equal and fair basis and price the product at $40 or more.
One major reason for imposing tariffs on imports is to make sure that global sellers are pricing products at their true cost and unfair advantages provided by foreign governments do not destroy domestic producers.
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