An economics lesson on tariffs from an old professor. Tariffs are NOT a tax on the foreign power, like China; they are a tax effectively paid by American companies and, once those companies raise their prices to compensate for increased costs, on consumers. So, when the president announced a $16 billion bailout to farmers afflicted by his tariffs, his statement that the money “all comes from China” was patently false. 

Yes, in some cases tariffs may cause marginal difficulty for the adversary nation because it will sell fewer goods to the United States.  But the impact of tariffs on China are most damaging for Americans — especially farmers’ markets for soybeans and some other grains, and higher prices for us at the store or online.  One example:  most of the shoes we buy in this country are made in China.

With rare exceptions, tariffs are bad business. They distort international markets.  They damage the citizens of the country imposing them. In the case of China, there is a larger danger. China presently purchases more of our federal debt than any other nation.  We could be brought to our financial knees if the Chinese ceased such purchases.  

China is here to stay on the world scene. Chinese leaders can be troublesome, but we need to find ways to live with them. When in conflict, imposing tariffs is a truly hazardous policy choice. And now, the United States may impose tariffs on Mexico. The impact of such tariffs on the American economy could be disastrous.

David A. Nichols


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