Tariffs Are Evil

 

By Richard Colman

When America imposes a tariff on a foreign product, an American manufacturer of the same or a similar product becomes less competitive, charges higher prices, and produces a lower quality good.

Look at Japanese cars, many of which are made in America.  Japanese auto companies produce high-quality vehicles that are often less expensive than American vehicles.  Also, Japan has less trouble (or no trouble) with labor unions compared with American firms.

A few years ago, a Nissan plant in Tennessee faced a unionization election.  The pro-union forces lost badly.  Nissan is a Japanese company.

If a person owns a Japanese vehicle, why did he buy it?

Over the last four years, Lexus vehicles have consistently received top ratings from the annual Consumer Reports automobile issue.  Why can’t American cars beat Lexus?

If the Japanese government subsidizes a Japanese auto firm and if the customer gets $2,000 off on a Japanese car, why should he complain?  If the Japanese taxpayer wants to give an American customer a $2,000 gift, the American customer should take it. 

Under a free-market system, the American dollar and the Japanese yen will eventually adjust if there is an imbalance.  For example, many years ago one American dollar bought 360 Japanese yen.  Today, one dollar buys 113 yen.  Thus, the dollar does not go as far in Japan today as the dollar did in the past.

Tariffs are not the answer for failing American firms.  American firms, especially steel and auto firms, made several serious mistakes as did the American government.

·         These American firms did not invest in new technology.

·         They did not have good quality control.

·         Their products were too expensive.

·         They probably paid their executives too much.

·         They had to deal with obnoxious, greedy unions.

The American government should do three things:

·         Give a tax break — like the Investment Tax Credit — to firms that invest in new technology, new products, and additional employees.  Example:  If a firm spends $100,000 on a new robot, the firm’s taxes should go down by $100,000.

·         Devalue the American dollar.  This can be dangerous because the result is likely to be inflation.  A weak dollar makes foreign goods more expensive.

·         Eliminate the corporate income tax.  Any profits sent as dividends to shareholders should have the shareholders pay taxes directly — as part of their personal income tax.

The forces that want tariffs are inefficient American firms and greedy American labor unions.

Inside America, there is free trade.  An American state cannot put a tariff on another state’s products. 

If there were no free trade inside America, Oklahoma might want to put a tariff on cheap Texas oil.  Residents of both states would lose.  In Oklahoma, the price of oil would go up.  In Texas, oil workers would lose their jobs because Oklahomans would not be buying as much Texas oil.

Free trade works well among the 50 states and territories of the United States. 

When airplane manufacturing became too expensive in the Seattle area, Boeing opened a plant in South Carolina.  (The Obama administration tried, unsuccessfully, to block the move.)  In February 2017, Boeing’s South Carolina plant had a unionization election.  The union involved complained that Seattle-area workers were getting paid more than South Carolina workers.  The South Carolina vote on unionization was 74 percent against unionization.  Boeing’s workers in South Carolina knew that while they were being paid less, their lower salaries were more than offset by the lower cost of living in South Carolina.

A protectionist philosophy will bring economic hardship to the United States.  Protectionism will raise prices.  Between June 2017 and June 2018, American inflation was 2.9 percent  During the same interval, core inflation, which excludes food and energy prices, was 3.4 percent.  With tariffs, these percentages are likely to rise.

Inflation is the equivalent of a tax.  If a person earns $100,000 and government assesses a three percent tax, that person will have $97,000 left over.  If prices go up three percent, that same person will still have $97,000 left over.  The difference between a tax and inflation is this:  Government must pass a tax.  Inflation does not require action by a government body.

Americans do not need higher prices and lower quality because of tariffs.

Richard Colman is the founder and president of Biomed Inc., a biotechnology, publishing, and informatics company.  He is a biochemist and earned masters and doctoral degrees from the University of California at Berkeley.  He lives in Orinda, California.


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