The Simple Sad Truth About Tariffs (Q&A)

In this morning's video commentary I suggested that I'd offer up more on protectionism and markets over the weekend. Thinking about it, the brief mention in this morning's written post pretty much sums up the why of the market's negative reaction:

We've been strongly suggesting that the correction has yet to run its course, which means days like the last three (we'll see about today) were in the offing with or without the ill-timed (always ill-timed!!) announcement that the U.S. is about to do a number on its own consumers, its exporters, its manufacturers who import all manner of components, and of course its key international relationships.

In terms of the impact on the U.S. consumer, let's do a simple hypothetical Q and A between an everyday consumer and a legitimate economist:

Consumer: So what's all the hullabaloo over the President applying tariffs to foreign-made steel and aluminum about? Isn't it time we tried to level the playing field and protect our industries?

Economist: Hmm... where to begin... May I ask you a few questions?

C: Uhh... sure.

E: Do you have a sense of the present health of the U.S. economy?

C: I hear it's been getting better lately?

E: Has that been your experience?

C: Well, yeah, my wife and I both have good jobs, we're able to pay our mortgage and make our one car payment -- her car's paid off. We can pay for our kids' educations, go on a vacation every year and put a pretty good chunk into our 401(k)s. Actually, life's good these days.

E: Very nice. Any big purchases coming up?

C: Well, my wife's car is paid off because it's 13 years old.

E: So you're buying a new car soon?

C: Looks like it.

E: U.S.?

C: I don't know. Honestly, we've had great luck with Toyota's.

E: You know, there's a decent chance that the next Toyota you buy will have been made in America; they have 6 plants right here in the U.S..

C: Oh cool! I didn't know that.

E: Lots of steel and aluminum in a Toyota ya know...

C: Yeah?

E: Those tariffs you asked about......

C: Oh, so you're saying Toyota's costs are going up?

E: Wouldn't you say that?

C: Yeah. And you're saying I'll have to pay up for our next car?

E: Wouldn't you say that?

C: I guess so. But maybe now they'll use U.S.-produced metal.

E: And that would benefit you?

C: Well, I'd still pay more but it would benefit our country.

E: How's that?

C: It's obvious; the U.S. steel and aluminum industries; they'd get the business.

E: Oh, okay, so you'd be willing to pay up for a car to help out U.S. industry? Would you have done that without the tariff?

C: How could I?

E: Well, if you think about it, before the tariff you could've done the math (theoretically applying the tariff yourself) and maybe made a donation to the U.S. steel workers union??

C: Hmm... never would've thought of that.

E: So would ya?

C: Honestly, no.

E: Why not?

C: Like I said, I like where I am. My family lives a nice life and I can save for retirement. I'd have less for us if I started donating to the steel industry.

E: So it would be a bad thing for you to do to yourself and your family? 

C: Yes...

E: And would it be a bad thing for you to do to the producers and distributors where you would've otherwise spent those dollars?

C: Wouldn't have thought of that, but, yeah, obviously.

E: So it's not a bad thing when the government does it to you? When, essentially, it steals from you, your family and the companies you do business with and gives to the steel industry?

C: 😒

E: Have I answered your original question?

For a deeper dive into the topic, read Mark Perry...