Here's Why Trump's Tariffs Could Work for America...

What Happened?

Tariffs are bad. Normally.

Well, in a truly global free market they are bad.

Because they ultimately punish the consumer. They can punish the domestic workforce too.

But here’s the thing. We aren’t a ‘truly global free market’.

We are in a manipulated and distorted market.

In which case, does that mean tariffs can be good? We’ll explore…

Why it Matters

The single best way to achieve wealth is through the free movement of goods and services.

Where innovation and trade allow individuals and businesses to develop products and services, and then sell those products or services to willing buyers.

When that happens, everyone wins. Entrepreneurs and businesses get to profit from their ideas, and consumers get to use the things they’ve bought, either for their own consumption or to use as part of their own business efforts.

However, while that’s perfect in theory, the reality is that almost all markets are manipulated and distorted by government intervention. That usually happens when an established business starts to face competition from new market entrants or from changes in the market.

In search of votes, a government will try to protect those businesses from competition. It will increase regulations, making it hard for others to compete. Or it will subsidize a favorite industry.

Or if the competitor is foreign, it will apply tariffs, in order to make the competitor’s products more expensive.

So in general, tariffs are bad news.

But, there can be exceptions. That is where a competitor country dumps cheap products into a market with the intention to destroy competition in the long-run. In other words, the ‘dumper’ hopes to gain so much market share, that companies in the domestic market can’t compete and will eventually go out of business.

At which point, now it has dominant market share, it can increase prices. Meaning, in the short term the consumer may have benefited from cheap goods, but in the long run the consumer loses out as prices increase again.

How it Affects You

In situations like this, tariffs will benefit American consumers. Sure, it could mean you won’t benefit from a short-term dip in some prices, but by the some token, you won’t lose out in the long-term as prices increase again.

But there is a further caveat on this. In order for the tariffs to be effective and to not punish consumers from genuine competitively priced goods, any government shouldn’t apply them across the board to all imports.

Furthermore, the tariffs shouldn’t be used to prop up industries and companies that are destined to fail anyway — remember the Obama administration’s $535 million loan guarantee to Solyndra?

In short, we would prefer a world without tariffs and subsidies. But that’s not how it is. As long as the Trump administration doesn’t apply tariffs to everything, but instead targets them where appropriate, there’s a good chance it will provide another boost to the American economy…

And save a whole lot of jobs that would otherwise have disappeared. We’ll watch with keen interest as this develops in 2025.

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