Tariff Facts and Staying Above the Chaos
Trade has been a hot topic lately. The question of tariffs and trade wars has been dominating headlines since spring and doesn’t appear to be letting up anytime soon.| By: Randall E. White, CFP®, RICP®, CRPC®, CMFC®
It is important to remember, however, that trade tariffs are older than our republic and the pendulum has swung high and low throughout our nation’s history driven by a variety of policies for a variety of different reasons at any given time.
A Brief History of Tariffs
The great experiment that has been the United States’ economic evolution has included a great deal of experimentation with tariff policies. During the Great Depression, 50% tariffs were enacted in order to exact money from other countries during a time when the country needed more revenue and taxing the people would only further burden those who were struggling to survive already. Nowadays, in our global economy largely dependent on low tariffs to encourage the unencumbered flow of trade, the US import tariffs average just 3.5%. This low-tariff strategy has served the United States well because it was in our best economic interest to reduce reliance on manufacturing everyday goods and, instead, focus on innovations that are more significant in scale like medical research, new defense technology, and Artificial Intelligence.
The Great Debate
So, should we be increasing tariffs on other countries? The debate has a significant political aspect and that is something that will not be addressed here. Let us instead look at it from a numbers perspective, for those are hard truths that cannot be debated. As of 2016, data from the World Trade Organization tells us that the United States is far more generous to its trading partners than they are with us. We tax the EU a little over 4% while they tax us a little over 5%. We tax China just under 4% while they tax us 11%. And some smaller nations with whom we do business are being taxed next to nothing while their tariffs are upwards of 5%. (source: it’s in the graph in the article I sent)
Let us keep in mind that there is a reason for the disparity in some cases. With great power comes great responsibility and, as the largest economy in the world by far, one of those responsibilities is to economically bolster developing economies to encourage democracy and security worldwide. One of the ways in which to do that is to trade goods with those countries and pay the tariff associated even if it is a little higher than what we charge them. The case is being made, however, that economies like the EU and China should not benefit from the altruism granted to small economies as they are superpowers themselves. The tariffs being imposed (or threatened) aren’t increasing the current agreement by ten percentage points. They are, in fact leveling the playing field for the United States when compared to what the tariff averages have been.
We don’t know whether the newly imposed tariffs we result in a “real” trade war or if ongoing negotiations will take us to a more stable and certain place. In the meantime, there are a great many unknowns. It is advisable, in times of uncertainty, to stay the course until the storm passes.
The United States is an economic powerhouse driven by innovation and diversity of industry. We and our trading partners will come to a balance at some point and if that balance ends up including some protection for US companies’ intellectual property, our economy will benefit tremendously. In the meantime, stay focused and stay positive. The US Labor Department reports that, for the first time since the government began keeping records, there are more jobs than there are unemployed Americans. We are fine.
Disclosure text: Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.