Monday, April 10, 2017

Why trump's tariffs may not work

There are a lot of people who don't like free trade agreements because they work to the disadvantage of Americans. American companies move their factories to other countries where labor is cheaper, and then they sell their products to Americans at a lower price. Trump said this strategy has resulted in the loss of over 70,000 U.S. industries, and many jobs to boot. His plan is to raise the tariff to, I think, something around 30%.

This sounds like a good idea, but it probably won't work. The reason is because industries don't pay taxes; corporations don't pay taxes. If a tariff is imposed, companies would put some of that tariff into the price of the product. They would put some of it at wholesale price, some of it in retail price, and some of it out of their marketing budget. They might write the check to pay the tax (the tariff), but the money is going to come from the consumer at the end of the line. 

Then, if this results in a price of air conditioners that are too high, then the product won't be sold in America. However, if Trump can use this threat to get companies to stay in the United States, all the power to him. And so far this seems to be working. So far, Ford is staying, and so is Carrier, an so are other companies Trump has negotiated with. So long as he continues to succeed at keeping such industries in the U.S., then there will be no tariff.

And this might be his plan all along. Trump is not stupid. He knows that high tariffs won't work. He has to know that. He has to know it because I wrote about it before right here