Tariff is not a beautiful word

Tariffs: “An eye for an eye makes the whole world blind”

Where do we start with the very bad idea that tariffs are good for anybody? “Tariff is a beautiful word”. When I first heard that Trump had said this I genuinely didn’t understand it. I thought perhaps it was a misspeak or something – so obvious is the fact that tariffs are only a force for damaging both the imposer of the tariff, as well as the recipient.

David Ricardo is one of the founding fathers of Economics and his instrumental principle of Comparative Advantage has led to the creation of international trade, in which countries that excel at producing certain things trade them with countries that excel at producing different things. Ergo, the net gain is greater than the sum of its parts. Even this statement shouldn’t really need to be explained: the fact that we trade, is itself a benefit. By imposing stringent tariffs on any product – and particularly a technologically advanced product, from which by exposure to the presence of that product in our marketplace, it is likely to prompt competitive innovation in the production of a rival product, or novel and innovative ways of including this product in day-to-day living, in ways that had previously not been considered. Either way, invariably it is a win-win. The fact that BYD appears to have become better at making electric cars than Tesla, may not be great news for Tesla but it’s certainly is for the consumer, and thus the transition to electric vehicles.

Tariffs are a very powerful mechanism for the retardation of economic growth. They are also a fairly effective mechanism for prompting homegrown inflation, requiring either domestic interest rate rises, or at best delayed interest rate reductions – all of which will further retard investment in potentially additional productive capacity: thereby reducing economic growth. A downward spiral of retrenchment, both economically and technologically.

And that is before we get into the geopolitics of isolationism. Again, it’s Diplomacy 101: talking with, and trading with economic partners, particularly post Second World War, has shown that we are much less likely to invade each other and treat each other as a latent threat.

Trump’s ascendancy, like Brexit, doesn’t have an economic rationale. It’s a sociological and political manifestation of fear: fear of the unknown, fear of “the other”; fear of being swamped, fear of losing identity, sovereignty and self-determination… Time after time history has shown us that isolationism and retrenchment exacerbates these fears rather than alleviating them. Tariff is not a beautiful word.

#economics #tariff #trump #competition