Tariff, according to Webster’s Dictionary, is defined as “a list or system of duties imposed by a government on imported or exported goods”.
The reasons countries put duties on imported goods is because they can not produce them as well, or as cheaply. Even after the cost of transporting some goods to the country importing them, the price is still lower, or the quality higher, than domestically produced goods. A second reason for tariffs is to limit the options of the consumers in an importing nation, and tell the consumers how to spend their money…because politicians and bureaucrats believe that they know better than the consumers how the consumer should act.
In effect, import tariffs exist because sometimes the governments believe they know more than you. However, more often they are imposed because of politicians’ and their constituents’ special interests (often involving donations to the politicians’ reelection campaigns) and hinge upon keeping competition out…thus, supporting inefficient industries.
Export tariffs or duties on exported goods exist to keep prices down…often once a government created inflation cycle has begun. The effect of export tariffs is to disallow manufacturers from selling abroad at higher prices, and making suppliers keep their goods at home where the public can enjoy a lower price…at the manufacturers’ expense.
It doesn’t take much vision to see the economic dislocations and inefficiencies created by tariffs. If an exporter is faced with a tariff he will produce less and invest less to expand production, thus creating longer term supply shortages and higher prices. If an importer faces import tariffs, he will utilize lower quality or higher priced domestically manufactured goods, and thus sell to consumers at a higher price. Efficiency and value to the consumer are sacrificed. This also pushes inflation higher
Those that argue for tariffs on the basis of job retention or holding domestic prices down are looking at short run, politically expedient effects and ignoring the long run inflationary effects.
These articles are for informational purposes only and are not intended to be a solicitation, offering or recommendation of any security. Guild Investment Management does not represent that the securities, products, or services discussed in this web site are suitable or appropriate for all investors. Any market analysis constitutes an opinion that may not be correct. Readers must make their own independent investment decisions.
The information in this article is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Guild Investment Management to any registration requirement within such jurisdiction or country.
Any opinions expressed herein, are subject to change without notice. In addition, there are many market, currency, economic, political, business, technological and other risks that are beyond our control. We make reasonable efforts to provide accurate content in these articles; however, some content and some of the assumptions, formulas, algorithms and other data that impact the content may be inaccurate, outdated, or otherwise inappropriate. In addition, we may have conflicts of interest with respect to any investments mentioned. Our principals and our clients may hold positions in investments mentioned on the site or we may take positions contrary to investments mentioned.
Guild’s current and past market commentaries are protected by copyright. Apart from any use permitted under the Copyright Act, you must not copy, frame, modify, transmit or distribute the market commentaries, without seeking the prior consent of Guild.