Nothing in economics is “always” or “never” true. The correct answer in economics begins with “It depends …”
Do U.S. consumers pay tariffs on products imported into the United States? Free traders repeat that a tariff is a tax and that consumers always pay it. Even Fox’s Neal Cavuto said this last week.
Your child or grandchild will fail his Economics 101 mid-term without an understanding of the elasticity of demand and the elasticity of supply. The demand curve for a particular product can be elastic or inelastic. That is, demand can be sensitive to price or insensitive to price. You have heard of the supply and demand curves. But those curves are different for different products in various markets.
A classic example in economics education (not just my idea) is that you are crawling through the Sahara Desert on your hands and knees, dying of thirst, and come to a food cart. How much would you pay for a bottle of water? The price in Manhattan might be $5. If the food cart charges $500 in the middle of the Sahara, would you be any less likely to buy the bottle of water? You would sell your season tickets to the opera to pay whatever the vendor asks. If he asked $5,000 for a bottle of water in the middle of the Sahara Desert, you would pay it.
In other words, the demand for a bottle of water in the desert is inelastic. It makes no difference what the price is; you are going to pay it. By contrast, if the price of a garden gnome statute for your front lawn doubled, would you still buy one?
I know that from earning my Bachelor of Sciences in business administration and studying law and economics at the Antonin J. Scalia School of Law. So what are all these talking heads on television going on about?
Who pays the tariff? It depends. Is demand for the product inelastic or elastic, strong or weak? If demand for the product is strong and insensitive to price, then the importer / wholesaler will pass the tariff along to the consumer. If demand is weak and highly sensitive to price, the importer cannot raise prices to cover the added expense of the tariff, and the importer will have to “eat” the tariff out of its own profits or reduce other expenses. Or, obviously, the importer could switch to a different supplier who is not subject to the tariff.
Are all the free traders correct that a tariff is a tax? Well, you don’t have to pay it. If you don’t wish to pay the tariff, just don’t by an imported product. Buy American. If you don’t have to pay it, is it a tax?
So how can a chorus of intellectuals lecture us every day about how “Trump’s” trade policies are hurting consumers or businesses? Are they lying? Or are they ignorant? Are they just groupies who don’t know or care but just repeat the talking points?
We are told – which has me throwing things at my TV – that U.S. farmers are hurting because of “Trump’s trade war.”
Who stopped eating? On planet Earth, there were roughly 7 billion people who generally speaking want to eat three times a day. Today, there are slightly more. So who stopped eating?
How can U.S. farmers sell less food if the same number of people want to keep eating as before? Well, they could be ineffective at marketing their products. And yes, that includes farmers who know how to farm but are not experts in the sales end (which is the same for me as an attorney, no slight intended).
The. U.S. Commerce Department organizes what it calls “trade missions” to bring company executives and industry leaders to other countries to meet with potential business partners. Every U.S. embassy has a commercial section that is supposed to promote U.S. business interests, primarily helping U.S. companies find buyers for U.S. exports.
So, China stopped buying some U.S. agricultural products and switched to buying from other countries. No problem. Who was buying food from those other countries? Don’t those people still need to eat? Who is going to supply them with food now? That’s what our U.S. embassies, commercial sections and the Department of Commerce are supposed to be there for. They should research opportunities to sell U.S. food exports.
Suppose China slapped a 100 percent tariff on U.S. agricultural products. Would China’s families stop eating? They would complain. They might have to give up other purchases. But they would not stop eating, even if the price of food doubled.
An excessive devotion to free trade took over the Republican Party in recent decades. They claim to have the only conservative position. They follow their one true god. But tariffs are enshrined in the U.S. Constitution. From 1791 to 1913, high tariffs were about the only source of revenue for the U.S. government. What conservative rejects the Constitution?
Ronald Reagan was a free-trader. Ronald Reagan was a protectionist. Sometimes Reagan was a free trader in one paragraph of a speech and a protectionist in the very next paragraph in the same speech on the same day. Reagan imposed one of the most dramatic, sweeping and largest battery of protectionist tariffs in U.S. history against Japanese imports.
In fact, Harley Davidson was saved by Reagan’s protectionist tariffs on Japanese motorcycles. Harley Davidson is in business today, able to throw insults at President Trump, only because Reagan’s protectionist tariffs saved their bacon in the 1980s.
Reagan practiced “strategic ambiguity.” In other words, trade policy is a tool, not a god. You pull out a socket wrench when you need one – but you don’t bow down and worship it.
