Tariffs: The new frontier of trade wars
Raphael A. Cabrera examines how tariffs balance U.S. trade and economic protection.
What are tariffs? A tariff is a tax or duty imposed by a government on imported or exported goods. Going all the way back to the Romans, tariffs have been used as tools to generate wealth for empires, kingdoms and nations. Countries like France, Spain and the United Kingdom benefited from using tariffs, especially during the Mercantilist era, to counter taxes from rival countries.
Let us fast-forward to today, where the U.S. stands as the world’s top importer, followed by the United Kingdom. These two economies bring in more goods than they send out, which creates what we call a “trade deficit.”
Think of it like this: Exports are cash inflow (money in the bank!), and imports are cash outflow (money flying out the door!). Currently, the U.S. has a hefty trade deficit, particularly with countries like China ($365 billion), Germany ($74.1 billion) and Mexico ($58.4 billion). But on the upside, the U.S. has trade allies that buy more from us than we buy from them, like Hong Kong ($30.5 billion), the Netherlands ($24 billion) and Belgium ($14.6 billion).
Now, here is where it gets interesting. With Donald Trump back in the spotlight, he is proposing to tackle trade deficits, particularly with China. His idea is to level the playing field to give American workers and businesses a fairer shot, hopefully protecting U.S. jobs from the effects of free trade.
But what would Adam Smith, the father of economics, think about all this? In his groundbreaking book, “The Wealth of Nations,” Smith argued that tariffs could disrupt the free market, where competition naturally lowers prices. However, he also pointed out a few exceptions when tariffs might make sense.
For example, if another country imposes tariffs on your goods, it might be fair to return the favor, which would create a “level playing field.” This is what happened in the famous Chicken War, when Europe slapped tariffs on U.S. chicken imports, leading the U.S. to retaliate with tariffs on European cars.
So, with all this tariff talk, imagine Trump sitting down with leaders from countries with which the U.S. has large trade deficits. They might work out deals like this: If the U.S. has a $1 billion deficit with a country, that country could agree to invest $500 million in American infrastructure, such as roads or schools. It is a win-win that keeps the benefits closer to Americans.
As you can see, tariffs are more than just taxes; they are powerful tools that can influence economies in surprising ways. They help keep money circulating within the country but make trade a bit of a balancing act.
So, here is a question for you: Should we use tariffs to protect our economy, or let free trade run its course? What’s your opinion?
Author Raphael A. Cabrera is the owner of Kanso Worldshop Inc.
