Monday, May 23, 2016

Prepare for a world of tariffs

If Donald Trump or Bernie Sanders becomes the President, America will introduce tariffs on products that are imported into the country. Donald Trump referred to tariffs of 35% for cars entering the country. Bernie Sanders did not state any figure, but he probably have to use the same approach.

Even if Hillary Clinton is elected as President, she would come under the same pressure to introduce tariffs to bring the jobs back to America.

My view is that it is good for countries to introduce tariffs. This is the only way to protect jobs in their country. The disappearance of the middle class, due to reduction of wages caused by global competition, is not good for any country.  It has lead to social tensions and unrest.

Here are some good effects on the introduction of tariffs:

a) The government collects revenue form the import tariffs.
b) The additional revenue can allow the government to provide better public services without increasing taxation.
c) The higher prices for imported goods encourages companies to produce the goods within the country and to pay higher wages to the local workers.
d) The price of consumer goods will increase, but not to the same extent of the tariffs. Corporate profits and top management salaries will have to adjust downwards to offset part of the tariffs.
e) The government may be able to reduce the VAT or sales tax, as they now have an additional source of revenue from the import tariffs.
f) There is less need for countries to adjust their currency values to become more competitive in their exports.

There could be some negative effects on the re-introduction of tariffs into the global trading system, but they are likely to be more than compensated by the positive effects.

I am in favor of introducing tariffs into the new global trading system.

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