On Tariffs and Free Trade
Apr. 3rd, 2025 02:10 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
chris_gerribIn the wake of Trump's tariff declaration, which is, to use a technical economic term, whackadoodle, herewith some thoughts on tariffs and free trade. I'm in part riffing on this post from Cory Doctorow.
Tariffs
First, tariffs are a tool, just like a hammer is a tool. The tool per se is neither bad nor good, it just is. Where tariffs are good is if they are being used to support a specific industry. If you are trying to support a specific industry, you need to:
1) Ensure that the tariffs are targeted at that specific industry.
2) Will be in effect long enough for the industry to move production.
3) Have some plan to support / subsidize that industry in your country.
We're doing none of the above with the current tariffs. Take, at random, Switzerland. Trump's tariff is based on charging ALL imports from a country at 50% of the trade imbalance. (Note: NOT what tariffs they ompose on us.) The math for Switzerland is: (In billions USD)
US exports to Switzerland 24,962.0
Swiss imports to US 63,425.3
Balance -38,463.3
38,463.3/63,425.3=0.60643466 ~61% times 0.5 = 31%
Now, here's the problem. Based on this report, 47% of Swiss exports to the US are pharmaceuticals. The other 53% is everything from clocks to fish. Which US industries are we trying to subsidize? And what (other than lip service) are we doing to support them while they build the factories, etc. needed to compete?
Lastly, tariffs raise prices. That's how they work. By imposing a blanket tariff, we take all the pain and they get only partial pain. For example, Switzerland's biggest trading partner is Germany, not the US.
Free Trade
Almost all economists argue that free trade is good. Basically, why should we try to make, say T-shirts, when some other country can make them at a lower cost? Well, here's a couple of potential reasons why.
1) Jobs - free trade means that some people will lose jobs. In a perfect world, they'll all go get jobs somewhere else making the same money. Clearly we don't live anywhere near perfect.
2) Competitive advantage - under free trade theory, as countries specialize, they get richer. The problem here is that some "specialization" is "having a cheap labor force." There's a reason you aren't wearing a US-made T-shirt - most of the cost of that T-shirt is labor and so it's made wherever wages are lowest.
Here again is the problem. What is the goal? Do we really want to on-shore the manufacturing of T-shirts? Yeah, we would (in theory) add jobs, but they would either be really low-paying ones (for example, the minimum wage in Vietnam is $201 PER MONTH) or you'd pay a hell of a lot more for a T-shirt.
Bottom line: the Trump tariffs are incoherent and will accomplish nothing but create (more) economic havoc.
Tariffs
First, tariffs are a tool, just like a hammer is a tool. The tool per se is neither bad nor good, it just is. Where tariffs are good is if they are being used to support a specific industry. If you are trying to support a specific industry, you need to:
1) Ensure that the tariffs are targeted at that specific industry.
2) Will be in effect long enough for the industry to move production.
3) Have some plan to support / subsidize that industry in your country.
We're doing none of the above with the current tariffs. Take, at random, Switzerland. Trump's tariff is based on charging ALL imports from a country at 50% of the trade imbalance. (Note: NOT what tariffs they ompose on us.) The math for Switzerland is: (In billions USD)
US exports to Switzerland 24,962.0
Swiss imports to US 63,425.3
Balance -38,463.3
38,463.3/63,425.3=0.60643466 ~61% times 0.5 = 31%
Now, here's the problem. Based on this report, 47% of Swiss exports to the US are pharmaceuticals. The other 53% is everything from clocks to fish. Which US industries are we trying to subsidize? And what (other than lip service) are we doing to support them while they build the factories, etc. needed to compete?
Lastly, tariffs raise prices. That's how they work. By imposing a blanket tariff, we take all the pain and they get only partial pain. For example, Switzerland's biggest trading partner is Germany, not the US.
Free Trade
Almost all economists argue that free trade is good. Basically, why should we try to make, say T-shirts, when some other country can make them at a lower cost? Well, here's a couple of potential reasons why.
1) Jobs - free trade means that some people will lose jobs. In a perfect world, they'll all go get jobs somewhere else making the same money. Clearly we don't live anywhere near perfect.
2) Competitive advantage - under free trade theory, as countries specialize, they get richer. The problem here is that some "specialization" is "having a cheap labor force." There's a reason you aren't wearing a US-made T-shirt - most of the cost of that T-shirt is labor and so it's made wherever wages are lowest.
Here again is the problem. What is the goal? Do we really want to on-shore the manufacturing of T-shirts? Yeah, we would (in theory) add jobs, but they would either be really low-paying ones (for example, the minimum wage in Vietnam is $201 PER MONTH) or you'd pay a hell of a lot more for a T-shirt.
Bottom line: the Trump tariffs are incoherent and will accomplish nothing but create (more) economic havoc.
