Tag: tariffs

Tariff Turbulence

Tariffs are back in the daily News again. In fact, they never went away it’s just that more attention getting events have been happening. Tariffs were something specialist trade negotiators talked about before this year started. Now, the word is commonplace.

The simple assumption is always made that everyone knows what the word means. Apparently, the origins of the word are Arabic[1]. Linked to information. Now, it’s a fee that someone must pay. The important bit being “must”. In this context it’s about the import and export of goods. The relations between countries.

A presumption made by politicians, who like these bureaucratic instruments, is that they can help protect a nation’s domestic industry from competition from other countries. Thus, tipping the balance away from investments made abroad to those made at home. This chimes with nationalistic instincts.

If only it were as simple. Globalisation is a reality. Kicking against it has its attractive points, if it weren’t for the overall benefits that it has delivered in recent decades. Much of the technology we take for granted is available at low prices because of where and how it’s manufactured.

One advice given out by banks is to avoid knee-jerk reactions. In other words, the ups and downs and on and offs of changing tariff regimes may seem to demand an immediate response. However, it could be wiser to ride out the turbulence of these early months of 2025. To sit back and let the dust settle.

Politically driven efforts to disrupt global trade are likely to impact both importer and exporter. It doesn’t take more than a few minutes walking around a large warehouse store to see goods originating from all over the world. That is quality goods that are offered for sale at astonishingly low prices. It astounds me that I can easily buy a perfectly good basic kitchen microwave for £50.

I hate to say it, but I don’t think there’s anyway whatsoever that a domestic manufacturer could compete with that electrical product’s price and quality even if there was a 100% tariff placed on its import. The story vacuum cleaners is one of designs emanating from Britain but being made in Asia. Globalisation is a reality.

I will make at least one concession. That’s the environmental one. Shipping vast qualities of raw materials and goods around the globe has a real cost. An environmental cost. So, it would be wise, at least, to investigate if domestic production is a viable prospect before automatically assuming an import is better. This is a matter for both industry and public policy.

Not only this point but for some critical products, say steel and semiconductors, there should be a domestic capability even if it’s only aimed at meeting a fraction of the potential demand. Strategic needs are not trivial.

Are tariffs a good way to shift the global balance sheet? To me the answer depends on adopting either a short-term or long-term perspective. Certainly, in the later tariffs are a foolish measure. My recollections come from the history of subsidised industries in the 1970s and the poor products that resulted. It a sorry saga of designed decline. One quick look at the story of the British Leyland Motor Company (BLMC) is a good lesson.

I know for a liberal I sound Thatcherite but competition brings better outcomes than protectionism. That generally depends on a level playing field. Yes, tariffs are a form domestic protectionism and that’s much like a permanent subsidy. Trouble is that permanence is never permanent.

Trump maybe a part-time socialist. If not by word then by action. For the time being the tariff humbug will continue to command attention. In the longer term – I think not. Relearning what has been learnt in the past.

[1] https://blog.collinsdictionary.com/language-lovers/the-fascinating-journey-of-the-word-tariff/

Tariffs Fail

Do you need to be a monster brain in economics to get the hang of tariffs? If you deep-dive into all the complexities surrounding every possibility, maybe you do. Nevertheless, the basics are the basics. Much like erecting a wall. Putting up a barrier makes it harder to do business. Harder to communicate. Harder to understand common concerns.

It’s a perfectly human thing to do. We erect barriers all over the place. That garden hedge, wooden fence or brick-built wall are a statement that says, this bit is mine and that bit is yours. Rarely is this absolute. Both sides of these unnatural barriers have mutual interests. Not admitting that reality is a problem. In fact, disputes between neighbours are one of the most common forms of dispute.

A barrier isn’t an invitation for you to disregard the concerns of your neighbours, and vice versa. That all night party, with the music turned up to eleven, maybe fine once a year but don’t do it every week. Well, don’t do it unless you are quarrelsome.

Economic barriers, like tariffs, are going to happen. When perception is all, the idea that one party can protect itself from those who would wish to do harm or take advantage, is very powerful. I say “perception” because a threat doesn’t need to be real. Politics is much about perception.

Trouble is that erecting barriers has a painfully poor history of failure. If we go back to walls, there’s not one that has stood the test of time. Maginot Line[1] is a case in point. The lesson there is that a barrier concentrates the opponents mind on how to overcome it. The elaborate nature of a barrier is no defence to the inventive mind. Barriers are time limited.

Tariffs, and non-tariff barriers are much the same. They may work to advantage for a while only to crumble when their weaknesses have been discovered. Although, I would say that non-tariff barriers are more powerful than straightforward economic barriers. The point being that the former is far more difficult to understand, counter and control.

2025 is a year of volatility, at least so far. Talk of tariffs is on, then it’s off, then it’s on again. It’s the real cat on the hot tin roof. A hop, a jump, and a skip. Everyone is left wondering what comes next. Even if there’s to be any return to a form of reasonable stability anytime soon. That’s the point.

Disruption offers opportunities. At least, for those quick inventive minds with resources to hand. If you don’t fit into that category, then chances are there’s a big downside and a lot of hurt.

To give the monopoly of the home market in the produce of domestic industry…………………must, in almost all cases, be either a useless or hurtful regulation. Adam Smith. The Wealth of Nations (1776).

[1] https://www.britannica.com/topic/Maginot-Line