During rallies, interviews and statements on social media, Donald Trump And its proponents often claim that the plan Assign duties A 10 percent tariff on all products imported into the U.S. serves to pay foreign companies for access to the U.S. market. A phrase recently echoed by former Trump strategist Steve Bannon, who is far less relevant than he was in the first administration but is still an ardent supporter of the future president of the United States.
However, these statements either betray a misunderstanding of what trade tariffs are and how they affect the economy, or attempt to misrepresent them to voters. The duty is not imposed on importers, but on imports, which are made by companies in the country that impose the duty. They are not used to charge for market access.But to protect it from competition by artificially raising prices. With potentially significant consequences, especially for how the US economy is currently structured.
What Trump wants to do with the tariffs and how he believes they will work.
During the election campaign, the future president of the United States, Donald Trump, repeatedly spoke of a plan to increase customs barriers on all imports. 10% duties. The only exception is Chinese goods, which will instead be taxed at 60 percent on import. A proposal that has few precedents in recent American history. From multiple statements, Trump and his closest allies are confident the tariffs will happen. Payment is made by importing companiesSo by foreign companies that want to sell in the US.
“Tariffs are coming, You have to pay to access the US market.. It is no longer free, the free market is gone, because Europe has abused us, as other allies have done,” he declared in a recent interview. Corrie della Sierra Steve Bannon, The former strategist for Trump’s 2016 campaign, far less influential today than he was then, is still one of the future president’s most ardent supporters.
The future president of the United States himself talked about why Trump wants to impose tariffs on imports: “That way companies will want to come to America and open factories to avoid them,” he told one of his interviewers in Chicago. Answered The Economist So Trump and Bannon believe that tariffs are a kind of entry ticket to the US market and Companies will move their production sites to the US. To avoid paying it. However, tariffs do not work that way and, even if they did, they would not achieve this result in the case of the United States.
How Trade Tariffs Actually Work
Trade duties are a tax. that a state imposes on the importation of a product. It is levied on financial transactions, so the person who pays for the imported product pays it. In the case of Trump’s tariffs, These are American companies.. If a company wanted to import $100 million in Italian products today, it would pay $100 million to an Italian company to acquire those products and then sell them in the U.S. market for potentially more than $100 million.
With Trump’s tariffs, that transaction would be taxed at 10%. So the American company will pay $110 million, the Italian company $100 million and the state $10. He then has to resell these products, Possibly at a higher price What would be the application of it without duties?
So what are trade tariffs for? Trump seems to have clear ideas about this. They are usually addicted. Protect local industries.. Tariffs actually artificially raise the prices of foreign goods and allow otherwise uncompetitive companies to become competitive. In this case it would make sense for a foreign company to move its production to a duty-imposing state, if it is interested in staying in that market. The problem is that not only is the economic situation in the United States not in need of protection, but the influx of other manufacturing companies into the area would hardly benefit.
What effect could trade tariffs have on the US economy?
To understand why it is difficult for a company to move its production to the US due to tariffs, it is important to have some clear data.The United States economy.
- America consumes more than it produces in almost every sector except energy.
- The unemployment rate in the US has hovered around 4%, which is often considered full employment.
Once these points are clear, they can be addressed immediately. Some problems with Trump’s plan. Consumers in the United States are not in a position to choose between an American product and a foreign competitor, and then decide to buy the foreign one because it costs less. In contrast, they often have no American substitutes for the products they buy every day.
This argument alone will not make the tariff useless, but this is where full employment comes into the picture. A country with a high unemployment rate can use tariffs to protect the developing sector, create an internal market for its products sold, Unemployed people As it grows and then to compete with foreign companies only once it reaches the necessary size.
This practice is impossible in America, because There is no large number of people looking for work.. An unemployment rate of around 3% is considered by economists to be “natural”, that is, created by people looking for work not because they can’t find it, but because they no longer have it. They are also choosing to look for something better or have resigned. Jobs Even if factories move to the U.S., they will find themselves competing for the highest-paid workers in the world, which will defy avoiding a 10% tariff.
In fact, there will be a solution to this problem as well. Allow. Mass immigration of workersIt is important for companies that want to avoid duties to gain access to the US market without penalizing competition. An approach, however, that does not seem to align with the policies of the future president, who has repeatedly declared that he wants to curb immigration to the United States even as he wants to deport millions of immigrants.
