The race to the bottom begins. Let’s see who can hurt his own consumers worse...

There is always a counterparty and a counter-reaction to an economic stimulus.  In this case, the U.S. consumer pays the tariff on imported items because the importer or seller or business passes the tariff through to the consumer, just as it does taxes.  The consumer decides the price is too high and finds another, non-imported item to buy, eventually.  In the interim, the consumer pays the tariffs.  The tax collected goes to the coffers of the U.S. government.  Tariffs are just another transfer of wealth from the consumer/taxpayer to the government. 

These tariffs are estimated to reduce our GDP by 1%.  In what alternate universe does transferring this vast amount of money from the consumer to the U.S. government help?

President Trump and his tariffs are hurting the tax-paying citizen the president is sworn to protect.  He is also tearing down federal controls and spending and taxation.  Great moves.  So why is he imposing more government on foreign trade?

The following was only one side of the transaction.  The other side is the business in a foreign nation, from our perspective, the exporter.  They will experience a slowdown due to artificial price increases from tariffs on their exports.

Tariffs are thought, at least by Trump, to harm the foreign nation by depressing tax revenues through these tariffs, by slowing down the foreign nations business activity.  But both nations are imposing tariffs, so the only thing that matters is the trade differential, the difference between what we import from another country and what we export to that country.  If the foreign trade balance is equal, the net effect is equal, zero.  To the nations involved, the tariffs have no effect.  It’s just that the citizens in each country are impacted.

Notice something odd here?  Both sides in a tariff war suffer. 

Notice something else: The governments don’t suffer, but the citizens, the individuals, do.  Tariffs are all posturing and bluster.  As Shakespeare said, “life is but a poor player strutting and fretting his hour upon the stage, full of sound and fury, signifying nothing.”

Where are Trumps economic advisers?

Who blinks first?

If Trump wants a permanent, long-term solution (and I think he does), he should continue to remove our government’s boot print from free enterprise.  Reduce taxation and regulation and let people keep more of what they earn, and they will invest their earning in the best, most competitive product and thereby boost the best businesses.

It is the duty of individuals and businesses to find the right product offering and make it attractive enough to generate sales.  This transaction is strictly voluntary — capitalism at its best.  It is decided by the individual of his own free will, not imposed on him by his government.

Jay Davidson is founder and CEO of a commercial bank. He is a student of the Austrian School of Economics and a dedicated capitalist. He believes there is a direct connection between individual right and responsibility, our Constitution, capitalism, and the intent of our Creator.

Image: pasja1000 via Pixabay, Pixabay License.