Tariffs
Tariffs are in the news a lot today. I have had a lot of people ask me what they actually are and how they work. It is understandable that people are somewhat confused about tariffs because there are now two versions of what they are and how they work and affect the public.
Both versions agree that they are an added cost to a product. One version states that they are a cost paid by the seller and collected by the Government that placed the tariff on the product. A newer version (I say newer version as I don’t believe anybody thought this before Donald Trump suggested it) This version states that the cost is paid by the government that had the tariff placed on it.
The first version has been around since at least the Roman civilization. It is the accepted version and is understood by modern economists and governments. This version is generally accepted as the way they work and it is the way the US government collects tariffs. A side note: A government needs to collect the tariff at its border to make sure it is getting the correct amount! If they don’t, it would be very easy for the importer to say they paid it and disguise it in a bill of lading or some other paperwork. Taxes are an amount of money a government charges for a particular transaction in this case bringing a product in to a country from another country. So Tariffs are a tax. Let`s make sure we understand that Tariffs are a tax. They are an import tax, which is very close to a sales tax.
Now the importer pays the tariff on the cost of goods so their cost go up. Generally, the importer adds some if not all of the cost and can actually add even more than the actual tariff cost. If a company was marking up an item by 50% why not mark up the tariff also? It is part of the cost of the product, just another cost. So a widget originally costs $10 to the importer, then the government adds a 25% tariff and it is now costing the importer $12.50. They used to charge 15 for the widget, so to keep the markup the same, now it`s $18.75 not $17.50. Eventually, that will generally be paid by the consumer. The amount the importer will add, will be controlled by a lot other factors though. Factors include what other importers are doing, what the market can bear and if there is a retailer involved. If there are several companies involved, they all want their same profit. A lot of other factors that can affect how the tariff is absorbed or passed along. It way to complicated to go into detail here, and full understanding is really not necessary for our discussion.
Lets take a look at that in somewhat recent events, the 2018/19 tariffs were generally 10% but prices to the consumer rose on average 20%. We saw a higher rise in price not just the importers making up their 10% increased cost.
You also can't expect to put a tariff on another government (which are our trade partners) without them being upset. You are reducing their sales, their economy, hurting them. You generally get a negative attitude from the countries that you place the tariffs on. So generally, they retaliate. They can stop buying from you, put a tariff on our products, reduce respect, reduce tourism, a host of harmful things, and generally, they do several of the retaliatory measures. You know like a bad breakup. That it not only raises prices, it pisses off the country and its inhabitants. So they are hurt from the breakup and because it is not cost-effective for them to pop over and slash our tires, they get back at us in other ways. Mainly not buying stuff from us. So now your country doesn’t sell as much as it did. Then the company that is selling less than it did doesn’t have as much work so it doesn't need Bob anymore. So the income of both goes down and both countries lose employment for 100s of thousands of Bobs and Barbras. It can also hurt the value of your currency. Another thing a country can do is send its products to a country that doesn't have a tariffs or at least a lesser tariff and ship from there. These effects of tariffs are part of why prices soared during the pandemic. I will hopefully have a podcast covering the pandemic. It was the perfect storm. Please subscribe to keep America and me going.
As an example of the negative effects of tariffs are the 2018/19 tariffs. In the first 3 years the value of the dollar declined. The average American family of four paid more than $2,300 annually for costs and services caused by the tariffs. US exports fell by 8.4%. We lost about 2.5 million jobs, but we gained 335 thousand jobs in manufacturing, so the actual loss was only 2.2 million jobs. The final impact is that the US lost about $555 thousand for every job gained in manufacturing. That is the reality of tariffs.
In the long run countries are generally better off if they trade with the world. Trading is as old as villages where we see products that come from thousands of miles away. Archaeologists have found evidence items were transferred by trade and migration thousands on miles on every contentment except Antarctica. Everybody has heard of the great silk road. There were thousands of other trade routes which brought exotic items it also helped civilizations advance by bringing technology and other innovations. Genghis Kahn brought Europe the printing press, the compass, paper money, gun powder and even Pants. Yes pants were introduced to Europe, just think about riding around on a horse in the Mongolian winter wearing a toga. You would produce pants pretty quickly, like before the winter came.
Now the other version of tariffs, Trump's version. This version as far as I know is only expressed by Trump and a few of his backers, the idea appears to have originated with him. They say that the importing country pays the tariff. As I stated before, that can't work because the importing country would have a lot of ability to disguise the payment and say it was paid. A major proof of that is the receipt I have on the website, it is under the webcast tab subcategory tariffs. (www.pompu.us) Having the importing country pay, is just not the way it works. Trump has mentioned on several occasions that the US Treasury does get money from the tariffs; you would hope he figured it out that the treasury is getting the money at the port of entry, but that is not what he is saying. I have to say that anyone with his understanding of tariffs and their effects should not be allowed to manage or regulate them. They should NOT be allowed to be in a position that even affects them. Maybe he’s just lying to us, the American people, and he does understand. Either way the evidence points to bad management. The other thing is it would still cost the other country money, which it would want to recoup.
So now to the question, should we have tariffs, and if so why? The answer is yes tariffs can be used effectively. But they have to be thought out, NOT rammed down everybody's throat. The president says part of the reason is using them is, he is trying to bring back manufacturing. We see from above we are losing manufacturing jobs because of them. He also said it is to stop drugs coming to our country. If a country is just starting out or if a trading partner is heavily subsidizing an industry. If a country is heavily subsidizing a sector we can go to the World Trade Organization let them decide. But we need to be carful because we should susidise certain industries where we can have a manufacturing advantage or patents. We need to decide what manufacturing we want, Like Jets, medicine high tech or heavily robotic. He also says he is using them to reduce the flow of fentanyl. Once again this is bad management. You need to get to the root cause and fix that. You cant fix a flat tire by raising the price of rubber or air.
A big question no one asked is, do we need more manufacturing jobs, let alone want them? Do we want the garment industry, toy manufacturing, low-quality furniture or manufacturing that creates lots of pollution? When Trump entered office, the unemployment rate was under 4 percent and had been the lowest in 55 years. Economists suggest that an unemployment rate of 3 percent is the lowest an economy can ideally get to without a substantial rise in wages. The reason economists believe this is the threshold is the idea of supply and demand, in this case supply of workers vs the demand for jobs. The facts (economic data produced by the government so we can make intelligent decisions about the economy) show that the tariffs Trump put in place 6 to 7 years ago are creating manufacturing jobs, BUT at the expense of other jobs, at a rate of over 6 jobs lost for each one gained.
The U.S imports a lot of products but do we even have the resources to replace the manufacturing of those products? It takes around 10 percent of the China’s workforce to produce the products we buy from them. That’s about 100 million people. China is just one of the countries we import from, so it takes around 200 million people around the world to produce the items we want. That is just the stuff we import; we already manufacture a large amount of the products we consume at home. Another issue is how interconnected manufacturing is. The average car part goes back and forth between Mexico, US and Canada six times to be completed. Each one of the 3 countries has some ability that is does cheaper, better or has the right factory that give it an advantage. Most of our products are manufactured are this way, the products have many parts that are made somewhere else.
The point of this quick look at importing and exporting is we had about 12 million people (if you include people not looking for a job but unemployed in January 2025) to do the work. So we have maybe less than five percent of the workforce needed to stop importing. The lack of a workforce is just one of many reasons it is better to do global trade. The fact is that many of the products that we consume are better off being manufactured offshore, some other country has some advantage that we don`t. We and the world are better off having them made offshore. That’s not what is being brought up by the media, by candidates and elected officials. It is a major disconnect from reality. Around 80 percent of the us population believes we need to bring back manufacturing to the US. This number would be far different if people were more informed. Part of our mission is to help people be more informed. So they make better decisions.
There is also another way to affect countries that are not playing fair in the market. It is called the World Trade Organization, which the USA helped start, to help resolve trade disputes. The tariffs Trump is imposing violate the very laws of the organization we helped make to make sure the playing field is fair. They also violate the USMCA the trade deal that Trump negotiated, agreed to and signed in to law the first time he was in office. The one that took NAFTA from being the “worst trade deal ever” to the best trade deal ever. The differences are minimal, there is some updating to the current era. I don’t know what criteria Trump used to decide which was better as our trade deficit more than doubled with both countries with his version of the deal. I guess he though is better to have our neighbors get a bigger slice of the pie. We really did not gain much with the changes we are fairing worse, in fact it more than doubled the trade deficit and cost 600k manufacturing jobs. NAFTA did help though but that is another discussion. So on top of taking a good trade deal for the US and its neighbors and turning it to a worse deal for the US he RENIGED ON HIS OWN AGREEMENT, with our two closest neighbors. I mean the USMCA could use some work, but it does provide jobs and income for millions of people. Many of those people are south of the border, and will not want to migrate because the have good jobs, well-had good jobs as the auto industry is faltering because of his tariffs. All three countries ignored the elephant in the room, Asia. There should have been a lot of changes to keep up with them but the discussions never materialized.
A big question no one asked is do we need more manufacturing jobs, let alone want them? Do we want the garment industry, toy manufacturing, low-quality furniture or manufacturing that creates lots of pollution? When Trump entered office, the unemployment rate was under 4 percent and had been the lowest in 55 years. We actually have an average of 6.2 over the last 20 years, and that is affected by the 2008 downturn and the pandemic. Economists suggest that an unemployment rate of 3 percent is the lowest an economy can ideally get to without a substantial rise in wages. The reason economists believe this is the threshold is the idea of supply and demand, in this case supply of workers vs the demand for jobs.
The U.S imports a lot of products but do we even have the resources to replace the manufacturing of those products? It takes around 10 percent of the China’s workforce to produce the products we buy from them. That’s about 100 million people. China is just one of the countries we import from, so it takes around 200 million people around the world to produce the items we want. That is just the stuff we import; we already manufacture a large amount of the products we consume. While researching on the topic of our manufacturing vs importing it was amazing how interconnected manufacturing is. The average car part goes back and forth between Mexico, US and Canada six times to be completed. Each one of the 3 countries has some ability that is does cheaper, better or has the right factory that give it an advantage. Most of our products are manufactured are this way, they have many parts that are made somewhere else.
Trade with other companies has cost us manufacturing jobs. BUT it has reduced the cost of products we buy by over 50%. Another point of this quick look at importing and exporting is we had about 12 million people if you include people not looking for a job but unemployed in of January 2025, to do the work. So we had less than five percent of the workforce needed to stop importing. The main thing that other countries have is a low-cost work force. The average pay in manufacturing in the us is $15.00 but in Asia it is 45 cents and there are less payroll taxes and labor laws. The fact is that many of the product that we consume are better off being manufactured offshore, some other country has some advantage that we dont. The lack of a workforce is just one of many reasons We and the world are better off having them made offshore.
Another reason we cant compete with other countries is one advantage we had was technologies, Our business owners are the one who transferred the jobs and technologies, not Juan and Juanita. They also did very poorly. They got very little assurances form Asia and even handed over patents and manufacturing technologies with very little compensation or control of product manufacturing rights.
Another point is we are (were) the second biggest exporter in the world. So pissing off our trading partners is Not a good idea. What we need to do is manufacture things that we have an advantage on making. Like vaccines, new technologies, things we can patent, things that involve a lot of robotics or we could work on making a space factory where we could make stuff that is effected by gravity on earth. Of course we would have to look into the cost effectiveness of all of the possible directions, we could go
That’s not what is being brought up by the media, by candidates and elected officials. It is a major disconnect from reality. Around 80 percent of the us population believes we need to bring back manufacturing to the US. This number would be far different if people were more informed. Part of our mission is to help people be more informed. So they make better decisions. That need to include other countries, our unions, our business and forward thinking NOT ATIQUATED TRADE HINERANCES!
