Tariffs have been put forward as an economic balm for the US by President Trump. It is not so clear what exactly he means by tariffs, or whether he will stick to this policy, but we can make a stab at an explanation.
Most economists regard tariffs as a bad thing, but they are usually short on explanations why.
Tariffs seem to be
understood by the new US administration as a way to bring in money, to, in a
sense, punish foreign producers who undercut US prices, and to encourage the manufacture
and purchase of US made goods and services.
But tariffs are
usually placed upon the importer of the foreign goods, not the exporter, and
this means in this case the US side, because the exporter is a foreign market,
and their prices cannot normally be set by the importing country (the US here).
Tariffs are therefore imposed at the point of the local importer. This has
consequences: it usually leads to a rise in prices for the imported goods,
because the importer now needs to make more money to cover costs.
It is possible that
this could encourage more local production and help the local competition for
this market, but there are usually good reasons for the foreign produced
product being cheaper which may not be able to be repeated locally, it of
course depends on many factors, but in any case this is unlikely to happen
quickly. So, the immediate result of tariffs would be the inflation of prices
in the US.
US citizens are
already complaining about high inflation and the cost of living, and this is
likely to make things worse.
Tariffs can be
understood as a part of economic protectionism, and so perhaps of socialism,
but in the capitalist economy it cannot really be socialist unless you also
subsidise the local industries that you want to support with help from the
government (or go the full route and nationalize them). However, this is obviously
not the policy in the current US, where the federal government is under attack
for being wastefully ‘too socialist’ or ‘woke’. Trump supports the free market
inside the US apparently but is not a free marketeer globally.
The hope of this
government is that tariffs will help boost local US productivity, somehow left unexplained,
in the context of simultaneously stimulating other aspects of the market. The big
idea, not a very new one, is to give tax cuts to the rich, who are described
here as the ‘wealth creators’ (not oligarchs), and hope that these invest and
employ people. Mere hope is not a great policy.
Unfortunately, this is
what already failed to happen, by and large, in the last economic crisis when
money was printed and interest rates were held very low, and which has led us
to this crisis. Investors, of course, may not invest, instead they might
squirrel away their wealth, which they are likely to do if they sense a crisis
and if there is market uncertainty and volatility.
Meanwhile in the US there
is also a parallel attack on illegal or undocumented immigrants, the cheaper
labour that the US enjoys. This attack seems to be the partner with tariffs as
a mooted solution to the economic crisis. Immigrants and refugees are said by
the administration to be stealing US jobs and bringing in harmful drugs and
criminality. The wall of tariffs mimics Trump’s border wall supposedly keeping
out the immigrants.
However, it is the
ruling class that benefits from employing this cheaper and easier to manipulate
labour force. And now they also benefit from deflecting any possible blame for the
crisis onto these vulnerable people and the ‘weaknesses’ of those on the left who
are supposed to have ‘let them in’. It is quite despicable for the rich and
powerful to target these unlucky people in this way, but they do it with the
help of their media.
The rich class must
feel that they have especially lost out on capital since the last crises and
the pandemic and wish to claw back this apparently missing wealth and are
seeking someone and something to blame for the problem other than themselves
and the economic system. This is also an extension of the laying of the blame
for the high cost of living on other countries and other persons, old allies and
old enemies alike.
The last president, Democrat
Joe Biden, did not remove most of Trump’s earlier tariffs, so this policy is
not only that of this administration, but of the US bourgeoisie as a whole.
Tariffs are unlikely
to stay isolated to one country. Other affected countries will have to respond
in some way, the most likely being with their own tariffs, leading to a
freezing up of the global capitalist market. The US is the world’s biggest
economy though, so perhaps the US administration sees this fact as a buffer in
the sense that it is likely to hurt others more than them.
But this can mean a
trade war will result. A trade war can lead to greater friction between nations
politically, and even eventually to actual war. One can already notice a more
aggressive US policy towards foreign parties.