Archive | September 2015

Tariffs: A Definition

When you buy, you seek the best price that suits the budget you are disposing of, without ignoring quality. Normally people do not care where the good comes from or who made it, they just want something functional that supplies their needs and/or desires perfectly or almost perfectly. In normal market conditions, where there are no taxes being imposed and there is no government with vested interests, transactions are made with virtually no problem at all. However, today we have many problems in understanding an economy and even more in leaving it alone. One of the greatest problems is the economic relations between two nations and the taxes imposed on imported and exported goods, known as tariffs. Whether we believe it or understand it or not, the economy is tremendously influenced by these phenomenons.

As it was mentioned in “Crony Capitalism”, exchange is a concept that defines two sides of a transaction; it affects both the buyer and the seller. These two parties have a considerable amount of responsibility upon each’s shoulders to supply the needs and longings of their trading partner. If one fails to comply, both of them will be damaged in the present, affecting future exchanges. It is as simple as a man buying a television of some local brand with a malfunction. The man will be uncertain if he ever wants to buy a television of such brand in the future. If the man and his buddies never buy again, the local television producers will lose money and will not be able to prevail in business. Any person with an average amount of intelligence is able to comprehend this economic logic. However, when political rationale is mixed in with economic logic, the former ends up defeating the latter.

This is clearly seen in tariffs. Tariffs, even though they involve money, our freedom to do whatever we desire with it, and exchange, are not an economic battlefield, but a political one. The arguments favoring tariffs are confused with immigration and have a slight taste of patriotism mixed with discrimination. After all a nation must protect itself from any foreign enterprise that is more productive and competitive in a market, capable of reducing costs and prices causing a greater consumer satisfaction. The government is obligated to subside ineffective native producers by raising or establishing tariffs upon imported goods that they may defend from better foreign products and have less competition, ultimately meaning that these native companies have become potential monopolies; monopolies that have no idea how to be successful in catering consumer demand effectively.

Do you see the problem? If a product from a bordering nation is cheaper and better than a native nation, which would rather you buy? When you buy the foreign good, the native producer will be hurt economically and convince the government to save jobs by raising tariffs on the foreign producers’ goods. Although, this will eliminate jobs on the foreign country and reduce their wealth to buy goods coming from your nation, finally meaning that jobs will reduce in your nation, as well. Yet, that is not the worst part of the problem, how your number of choices will be shortened is. Consumers will not be able to have a broad range of prices to choose from, but instead face native monopolies with high prices and decreasing quality. It is either that, or pay a tariff. Whatever the case, individual consumers lose wealth and liberty on both sides of the border.

Now, why does this occur? Because people, namely voters, confuse people with goods, and prosperity with disguised taxes (tariffs). They accept arguments saying that importing goods will change a nations culture, and its decisions will be negatively impacted. However, a good does not have a mind of its own, a culture, and even better, doesn’t vote. A foreign good brought to a national market increases competition, in this way raising quality and reducing prices. In better words, our national industries become better competitors in international markets.

With tariffs, customers lose authority to choose freely and the state gains more authority to allocate resources. Economic allocation moves from the market to the ballot box and there is an obvious reduced wealth for everyone (except the government) in the name of protection. The greed of the government and the false sensation of patriotism are the propellers of tariffs. They not only impact negatively a bordering nation, but also your own nation. Remember that.

Crony Capitalism

If there is a store selling American-made cotton t-shirts at 20 dollars and another store selling the same t-shirts, but Mexican made at 16 dollars, which shirts would you rather buy? They are the exact same shirts, same quality, same color, only different price and manufacturer, which would you buy? If you listen to your budget, the cheaper ones, if you are patriotic, the American-made ones. However, that is not what is important. The point is that if you would rather buy cheaper, even if it meant ignoring a hometown manufacturer, imagine what other nations do when American-made goods are more expensive than theirs. This is the direct but unseen result of an interventionist government establishing tariffs.

Who likes taxes? Government officials do for it is money received, but not the average citizen for it is money plundered. Yet, when it comes to tariffs (taxes imposed on imported goods) the average person agrees with being taxed due to misconceptions which are specially popular in protectionist nations, as the United States. People actually think that what is really an involuntary transfer of wealth on imported goods benefits their country, even if it harms the exporting nation. In other words, people believe that reducing customer’s freedom increases the productivity and prosperity of their nation. This is obviously false. Tariffs injure economic prosperity and the trading relations between two countries. Exchange is a two-side, mutual process that either benefits or hurts both sides. It seems that politicians who favor tariffs do not understand this. Let’s analyze what happens.

Suppose the Mexican manufacturers of cotton t-shirts are getting the American manufacturers a little tied up. Obviously this is not a personal matter, it is just business that is allowing customers to decide what they prefer. Even so, the American producers cannot take anymore losses, so they appeal to the government to protect them from their own marketing mistakes and raise tariffs (taxes) on Mexican-made cotton t-shirts.

The American producers will enter an organization in charge of lobbying the government to eliminate foreign competition. What they will basically do is bribe politicians by giving juicy amounts of “donations” for their campaigns and/or policies. In a nutshell it goes like this, if a congressman votes in favor of tariffs, he gets money. If he votes against tariffs he practically doesn’t receive any money from these organizations. What do you think the politician will do?

Now this is not what they tell normal people like you and me. Congress gives a legal justification: a border that separates the countries. Therefore, the constitution authorizes tariffs across the national border. Here it is important to mention that national borders are not the only existing borders. There is a border separating your house, street, city and state. Every one of these borders, including a national border is different culturally and judicially, but the same when it comes to exchange. Imagine the government charged tariffs for goods imported from other cities in the same state or goods that you imported from someone’s house. Of course people would rebel against this. Although, when it comes to national borders people don’t think the same.

A good is different than a person. A good doesn’t vote or bring a whole ideology that will impact and utterly change a nation. Goods do not seek citizenship, they don’t seek anything. People do. Hence, an invisible line offers no economic impact on the exchange of goods and services between two nations. Unless, of course, there is a tariff imposed. Tariffs do not allow customers to buy according to their tastes or preferences. They are a manifestation of discrimination that reduces trade. Tariffs help eliminate competition creating monopolies. Tariffs give the government more sovereignty and revenue. Tariffs not only reduce imports but also exports. This last fact is because the nation we do not buy from will have less from our currency to buy from us. Tariffs are imposed on you, not on the ones who imported the good.

If tariffs really did what politicians say they do, then it would be better to also impose them across states and cities. This would increase the production of each individual state and city creating greater wealth for the country. However, no one believes this to be true, then why do we still believe it in national borders? Tariffs destroy jobs on both sides of the border. If one nation decides to buy less from another nation, the other nation will do the same to that nation. That is to say that if the USA places tariffs on Canadian goods, Canada will do the same on American goods. This will do away with jobs.

The government and those whom it favors are the only ones who win. National customers lose, foreign producers lose, foreign customers lose, national workers lose, and foreign workers lose. The government decides that if a certain exchange will not be profitable to the government in terms of tariffs, then that exchange will not be legitimate. Nothing else will matter, your money will be taken and not only your wealth will be shortened but your liberty will be hampered. This is welfare state economics. This is crony capitalism. The triumph of a gun supported by a badge. The victory of the things seen over the things not seen. If you promote tariffs you don’t understand economics. I hope you don’t listen to someone saying that tariffs will increase productivity and wealth again, because thwarting people’s freedom will never make a country richer.

A nation cannot destroy another economically. A nation can only destroy itself economically.