Tariff Turbulence
Is there a light at the end of the tunnel?
ITS GOOD TO BE BACK!
We are going to jump right back in after our hiatus and cover a scary topic in the world right now. Tariffs… what are they? How did it turn out in history when used before? Will this harm relations with other countries? What is the endgame? I will not beat around the bush on this one. We are witnessing different opinions politically where many believe this will raise prices, while others believe prices will lower. My intention with this article is to show how both sides are actually correct in their own way. Also, with this much uncertainty in the air, we as leaders must adapt, research, and learn. Will you be able to confidently answer your team when they ask if their job will survive?
The first thing we have to address is what exactly is a tariff. A tariff can be defined as a tax implemented by a government on imported goods or services from other countries. Many people will see the word “tax” and begin to panic. It is understandable for people to react this way as times right now can be pricey. People are on edge trying to see what will cost them more money vs what will save them more money. It is important though to learn up on how we have used tariffs throughout history to shape where we are now.
Dating all the way back to the days of George Washington was when the US first witnessed the Tariff Act of 1789. Then the Tariff of 1816, Tariff of Abominations in 1828, the Morrill Tariff of 1861, the McKinley Tariff of 1890, the Wilson-Gorman Tariff of 1894, and more. I could keep going, but my purpose if to spread understanding, not to list every time a tariff has been used. If you wish to read up on the history of these different tariffs and the impact they made there is a great article that covers all of the tariffs briefly. I will cover some of the “why” behind the tariffs in history. This will help paint a picture of how this can look in the future of the US.
Here are the pros that we have seen from tariffs. When raising the taxes from imported goods from overseas, you now provide an advantage for domestic product. Essentially, when cost of imported product rises for the consumer, the consumer then turns to domestic “home-made” products for purchase. This allows industries that are based in America begin to grow with less competition. We have seen this in the past to severely boost production in manufacturing industries such as iron, steel, and other products that are American made. This can also aid smaller businesses such as a butchery, boutique, and other mom & pop stores that can barely survive due to large retail competitors. Over time, the increase tax on imported goods provides more government revenue for operations, as well as grow industries in the US to create more jobs.
Now you can’t have pros without cons. Of course, we already covered the fact of imported goods being more expensive. Global Supply Chains become disrupted as the consequences of tariffs can take place immediately. I personally am seeing this where I currently work as the majority of our business is moving freight in the automotive industry. Cost of imported goods such as parts have slowed down production greatly while large industries step back to plan to adapt to these changes. We are seeing retaliatory tariffs from other countries that can harm the US by making it more difficult to generate revenue on our exported goods. Less investing from foreign sources can slow down innovation in the US which means we will have outdated software and hardware which can also lead to unforeseen expenses. Let’s go over what is happening today, and what could we see as the endgame for the US.
After WWII there was a major decrease in tariffs. The World Trade Organization was established in 1994 signed by 123 nations to regulate trade and settle disputes. The US was proactive and signed multiple trade agreements with intentions to create a more stable trade, a faster-growing economy, and cheaper imports/exports. The tariff war we are seeing today is simply an extreme form of negotiation and strategy. The 25% additional tariff on Canada and Mexico, which I believe is still currently paused while terms are being negotiated, is an attempt to not only reduce some competition but also to slow down the import of illegal immigration and drugs that sneak in the US through freight carriers that cross borders. I personally believe the back-and-forth retaliation of tariffs from both US and foreign countries is all for show but will open the door for discussion with other nations. This could be the audit that the US needs right now to begin moving in a right direction. In the end of this trade war, there will be tariffs in place. Here is how I picture the endgame.
Increase in revenue for automotive manufacturers that are based in the US such as Ford, General Motors, Stellantis, Jeep, and Chevrolet. Other manufacturers will adjust to bring some of their foreign plant locations to the US, but this could take years.
Price differences in retailers such as Walmart, Target, Kroger, etc. Products they have brought in from US locations will thrive while imports from overseas will have a higher price tag. This will create new action plans in supply-chain causing retailers to want to stock up on more American made products.
As US industries grow from the increase in revenue, businesses will expand to more states, creating more jobs. (I will address a fear or myth many have after these points.) Sadly, there will be some who lose their jobs at companies that rely more on exported/imported goods.
Shakey relationships with other nations. While this will open up more communication between leaders, intentions can be seen in different perspectives. There are possibilities that people will hate the US and make attempts to sabotage trade, or this can lay the groundwork for the US to not be taken advantage of. This will be an unseen variable for now. Many allies felt blindsided creating diplomatic tension.
Lastly, I want to cover an argument I have seen lately in media. That if we create more jobs this way, no one will work them because of low wages. The way I see this is we have to audit businesses. One potential consequence of a tariff is American manufacturers can be tempted to take advantage of less foreign competition and raise their cost of their goods. These tariffs need to be a way to lower cost of living. Domestic goods become more affordable meaning wages can go farther. More of these types of jobs means more work for those who do not wish to further their education just for a chance at a decent job. The fight for higher wages will no longer be needed as cost of goods declines. This applies for housing as well. As long as a landlord isn’t corrupt rent prices can decrease since they will be able to survive on less income. Over time we can see a decline in the price of owning a home, lower rates on mortgages, and cheaper healthcare as there will not be a need to upscale prices. This can only be achieved as a nation if we have accountability in the US. A more fair, affordable system is needed and can benefit everyone.
I am not here to debate on whether or not Trump is going about implementing tariffs the right way. We are seeing the aftermath that can come from this. Retaliation and major fluctuations in the stock market. There is an argument however that a slower more methodical approach would have been ignored and shut down any attempts for negotiation. We can only speculate what the future holds and hope that our world leaders have everyone’s best interest at heart. I try to be the middleman seeing this from a perspective of both Republican and Democrat views. There are still questions in my brain wondering how long will the people that lose their job from tariffs take to recover. Will the pros outweigh the cons?
“We can afford to differ on the currency, the tariff, and foreign policy; but we cannot afford to differ on the question of honesty if we expect our republic permanently to endure.” - Theodore Roosevelt