TaxReform

Most people don’t seem to understand tariffs anymore. I don’t know what Trump “Thinks”. I don’t like him, and I never voted for him. However, I do understand what a tariff is meant to do.

A tariff isn’t meant to be paid. The whole point is to encourage people not to pay the tariff. Historically, tariffs originated as a means to stifle economic competition from other nations by raising the price of imported goods beyond what the average consumer was willing or able to pay. By comparison, domestic goods would be cheaper and a more viable option for the majority of the citizenry.
When more domestic goods are sold, more jobs and wealth are created at home. At least, that’s the idea. When domestic resources (such as iron, aluminum, and oil) are abundant, the concept can work well in practice. However, once domestic resources have been depleted, a tariff can cause more harm than good. That’s because resources have to be imported just to support domestic manufacturing.
This is the situation that occurred in the 1960s. More and more businesses had to import basic resources. As they did so, they discovered that moving production overseas was a more economically viable solution. It wasn’t just about cheaper labor and lower taxes. If you need oil, iron, rubber aluminum, copper, tin, lead, and silica as basic resources to create just one product, that’s a lot of import taxes to pay on what are essential business goods.
When inflation began rising due to the cost of the Vietnam War (and later with the Oil Embargo), American businesses looked for ways to keep prices reasonably low. Paying a tariff on a finished product was more viable than paying tariffs on every item used to build that product. That meant moving production overseas — which is what happened (we call it Deindustrialization). Of course, once businesses began enjoying cheaper labor and lower taxes too, they didn’t want to give up that profit-producing trifecta. Thus, as Bruce Springsteen sang, “…these jobs are goin’, boy, and they ain’t comin’ back.”
Businesses then began lobbying to lower tariffs on two fronts. Those that remained in the U.S. wanted a cheaper way to import resources. Those that moved production overseas wanted a cheaper way to import the product so they could preserve brand dominance in the American market. Of course, as tariffs were lowered, American products began seeing more foreign competition in the American markets. This is when brands like Toyota, Datsun (now Nissan), Subaru, and Sony began gaining ground in the U.S. Meanwhile, major brands like Philips, RCA, Pioneer, Firestone, AT&T, and Nike began moving their production overseas during the 1970s and 1980s.

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