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‘INFLATION’S DRIVER’ PART 5 OF THE SERIES

‘INFLATION’S DRIVER’ PART 5 OF THE SERIES

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.


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