Tariffs are all bad, right? That is probably what you were taught in grade school or college. They are a relic of an old and defunct economic system called Mercantilism and are the cause of many wars and economic downturns. I know that’s what I was taught. However, years later I picked up ‘The Wealth of Nations’ and actually read it instead of breezing the ‘Cliff Notes’ and what I found makes perfect sense today as it did then.
There are two cases, Adam Smith argues, for rendering a tariff. The first is for Military Goods and Services, a Defense Tariff. He advises extremely high import duties on Defense goods and services for the obvious reason that creating a military dependence upon a foreign nation almost always leads to Regime Change, your own. When you outsource your Defense, you inadvertently end up outsourcing your Gov’t as well. The Defense Tariff is never intended to produce revenue, it is put in place to keep Defense goods and services completely Domestic by making foreign Defense too expensive to contemplate.
The second reason, which is the one I am focused on today, is to keep the playing field level, or rather re-level the playing field by making foreign industry pay the same amount as our domestic industry is made to. Now this idea flies in the face of convention in that it obviously raises prices of foreign goods to levels that will make consumers unhappy. But we need to fly in the face of convention because it is convention that has led to jobs being moved overseas.
Now imagine for a moment that the US took the unconventional approach of making Chinese et al industries pay the same Corporate, Payroll, Sales, FICA, Medicare, SS, School, State and Local, EPA fees, Licenses, Fuel, Income, Property, Ad Valorem, millage, etc, etc, etc Taxes that our Small Medium and Large companies are made to pay. We’re not talking about ‘protectionist’ taxes to keep foreign goods out, we’re talking about making foreign competitors deal with the same adversities that our Dear Leaders are forcing upon the businesses that most of us depend on for our daily bread.
So what is that going to do? Rob Viglione, someone I respect and follow on Twitter, says it will only increase prices on the goods and services our foreign competitors produce and that is simply adding another bad policy to the current one. It will reduce purchasing power and cause all sorts of other problems, “it is better to end bad domestic policy” without adding new ones.
Well, it turns out that Mr. Viglione and I mostly agree on that, but I don’t think it is bad policy to make foreign competitors pay for the same bad policy that is hurting American businesses. I see his point, two wrongs don’t make a right, but I think this time it does.
Year after year we all hear pundits talk about how to end the arbitrary and oppressive taxes that have built up over the years. Year after year nothing gets accomplished and more taxes are added. At the birth of our nation you could count all the taxes placed on Americans on two hands, today you can’t name ten things that are not taxed. Just try to think of ten things that are not taxed in the US. I gave up after ten minutes and had come up with less than five.
Everyone knows that our business’s worst enemy is not foreign competition, but rather our own government’s taxes and policies. Our Dear Leaders put shackles on the Home Team’s ankles and then shout “Free Trade” as they open our markets to foreigners to compete for American earnings and loyalty. We’re handicapping our friends’ and neighbor’s businesses and then whining about lost jobs and industry. It’s insane.
So what to do? Convention says to keep trying to elect or convince leaders to end the arbitrary taxes and regulations. I don’t think this will ever work. This approach has been the main strategy since mankind has disagreed with their masters/representatives and it still fails today.
“level the playing field by making foreign industry pay the same amount as our domestic industry is made to”
My and Adam Smith’s solution, albeit unconventional today and somewhat risky, is this. Create a Tariff that adds the average cost of doing business domestically to our foreign competitor’s cost of goods and services. Why should our domestic industries be punished for being local and supplying us with jobs and prosperity? All I’m talking about is leveling the playing field for the home team. No advantages save a person’s desire to support local business.
Yes, this will temporarily raise the price of foreign goods and services, but it is my and Adam Smith’s opinion that Americans will choose to get rid of both the arbitrary Taxes on Domestic businesses and the Tariffs that are based off those Domestic Taxes. I don’t believe that Americans will get rid of the domestic taxes without adding the Tariff because history has shown otherwise time and time again.
The End is Far,
Steve A Morris
P.S. – Huge changes are taking place right now that will put Robots and the Internet of Things into the hands of Billions of Small Businesses in the US and abroad. Most manufacturing will soon be local and highly customizable to suit local needs. We will only ‘need’ to import and transport raw materials to be made locally into almost everything we could ever dream up.
The Giant Corporations behind the TPP and like oligopolies will try very hard to have ‘everything’ made in Giant Factories in some foreign land, but I don’t think they will win. Healthy Ecosystems, including ‘Eco’nomies, are made up of millions of diverse individuals competing for all sorts of limited resources. Unhealthy ecosystems/economies are made up of a handful of organizations fighting over the same. We must choose between a healthy and unhealthy future for our children and our posterity.