Re:Economic Reality
by twblalock on Tuesday July 05, 2016 @06:07PM
(#12039862)
Another very harmful and insidious consequence of tariffs: by preserving non-competitive industries that would not survive in a free market, tariffs delay, and worsen, the inevitable collapse of those industries.
By hiding behind tariffs, we delay the replacement of non-competitive industries with competitive ones. When we finally drop the tariffs and start developing competitive industries, other countries will have had a head start in doing so.
Our companies and workers will be behind their global competitors by years. The countries which declined protectionism and developed competitive industries when it first made sense to do so will reap the rewards.
Someone might point out that we could avoid this situation by simply keeping the tariffs around forever. But that never happens. Eventually, the tariffs will become unpopular because people will know that outside of this country, the same goods cost significantly less. That gap is likely to increase over time. The Oak Tree Capital article uses a hypothetical example of cell phones being kept at a $150 price in the domestic market by tariffs, when they are available at $100 in the international market. After a few years, they will still be $150 here, but maybe down to $80 in the international market. A few years later, they may cost only $50 internationally. They won't become much cheaper in the domestic market because manufacturers will have no incentive to lower prices, because they are protected by the tariff. Furthermore, if the domestic manufacturers were capable of competing on price, the tariff never would have been necessary in the first place. At some point, the tariff will be too politically unpopular to be sustained.
It's worth noting that one of the contributing factors to the collapse of communism in Europe in the late 1980s and early 1990s was the obvious and increasing divergence in quality of life between the communist and capitalist countries, and that protectionism and anti-trade policies in the communist countries, along with attempts at central planning, accounts for much of that. They had a good run, but they could not hide from economic reality forever when their neighbors obviously had it so much better. That's why tariffs can't survive indefinitely.
By hiding behind tariffs, we delay the replacement of non-competitive industries with competitive ones. When we finally drop the tariffs and start developing competitive industries, other countries will have had a head start in doing so.
Our companies and workers will be behind their global competitors by years. The countries which declined protectionism and developed competitive industries when it first made sense to do so will reap the rewards.
Someone might point out that we could avoid this situation by simply keeping the tariffs around forever. But that never happens. Eventually, the tariffs will become unpopular because people will know that outside of this country, the same goods cost significantly less. That gap is likely to increase over time. The Oak Tree Capital article uses a hypothetical example of cell phones being kept at a $150 price in the domestic market by tariffs, when they are available at $100 in the international market. After a few years, they will still be $150 here, but maybe down to $80 in the international market. A few years later, they may cost only $50 internationally. They won't become much cheaper in the domestic market because manufacturers will have no incentive to lower prices, because they are protected by the tariff. Furthermore, if the domestic manufacturers were capable of competing on price, the tariff never would have been necessary in the first place. At some point, the tariff will be too politically unpopular to be sustained.
It's worth noting that one of the contributing factors to the collapse of communism in Europe in the late 1980s and early 1990s was the obvious and increasing divergence in quality of life between the communist and capitalist countries, and that protectionism and anti-trade policies in the communist countries, along with attempts at central planning, accounts for much of that. They had a good run, but they could not hide from economic reality forever when their neighbors obviously had it so much better. That's why tariffs can't survive indefinitely.