With the US unemployment rate holding near 10% for several months, there has been a great clamour for government-sponsored initiatives that will help spur job creation. One such crusade that has gained traction across several sectors of the manufacturing industry is the call for import tariffs. Those who support import tariffs are no doubt well-meaning (at least, towards their domestic citizenry they are), but their stance is helping hold America back from its more prosperous potential.
By Saj Karsan, Wednesday, July 28, 2010, 6:42 AM | Unemployment | 3 comments »
The logic behind import tariffs is simple enough: raise the price on foreign goods so that domestic producers can profit as a result, which allows domestic producers to maintain or grow the domestic workforce. The problem with this approach is that it assumes this action exists in a vacuum, whereas in reality it has a ripple effect which actually serves to harm the economy.
First, while import tariffs may (if only temporarily) save the jobs of a few Americans, it raises the cost of goods for the buyers of that product. As such, it reduces the profits (for a business) or the standard of living (for individuals) reliant on that product. The impact is spread out over a number of people, which can obscure the fact that there is an impact, but overall, the country is worse-off by protecting the industries which are least competitive at the expense of all of its other industries.
In addition, countries producing goods on which tariffs have been slapped may choose to retaliate by protecting their own weaker industries from their stronger American counterparts. This would harm America's successful businesses, which are the ones that should be encouraged to grow. In effect, the tariff is transferring jobs from successful businesses to businesses that are barely scraping by, which results in a poor overall result for the country. Even if the affected countries do not retaliate with formal tariffs, their businesses will end up poorer than they otherwise would have been, again lowering their abilities to increase their business with America's successes (Google ads, Apple smartphones, Boeing jets, pharma drugs etc.), which drive the high-paying American jobs that university graduates seek.
Finally, those who accept the aforementioned economic reasoning but who reject its application on compassionate grounds should consider which worker needs their help the most: the worker in the developing country who either works or starves, or the one in the developed country, who has access to temporary jobless benefits, worker re-training programs and welfare protection, should the transition to new employment take longer than expected.
If tariffs aren't the answer to increasing American jobs, then what is? Education.