Tariffs

 END OF GATT AND WTO?

PREVIOUS ACCORDS WERE INEFFECTIVE

Attempts at regulating global trade with the "Global Agreement on Tariffs and Trade"  enforced by the World Trade organization are now looking like they will be replaced by individual negotiations. While everyone signed on to these global attempts, they soon found ways to protect their home business and attempt to gain an advantage from trade. We can expect that the inclination is still going to be attempts at protecting home business. 

One of the problems is that every nation wants to preserve its ability to be self sufficient. In a world were advanced economic socialist countries have a higher cost of living and wages it is very easy to soon lose its independence by becoming dependent on imports. It is so easy to replace domestic high cost goods with much cheaper imports and soon the ability to be self sufficient and eventually a lose of prosperity and stability.

Are tariffs the answer? At one time Tariffs were the only source of revenue for the federal government. It was very self regulating in that too high tariffs would end with no revenue for the government, so they had to keep tariffs at a reasonable level and most likely had to be adjusted periodically to keep the revenue at an optimum level. I doubt that tariff revenue would be able to finance the present socialist economic model, but a moderate overall tariff could be a source of revenue.

The present tariff confrontation by the Trump administration is an attempt to negotiate tariffs with each individual nation. Not only tariffs but other attempts to skew trade in a nations favor by regulations and other impediments. 

The reality is the U.S. has been viewed as a cash cow by many trade partners and allies. This, accompanied by the inattention by other administrations has resulted in large trade deficits with every country on earth. While many refuse to admit it, trade deficits is money and assets leaving the country. A country with a $37 trillion debt needs to squeeze every dollar to hope to end the deficits as a start.

One thing must be noted a 25% tariff does not increase the retail price by 25%. An imported good that is taxed at the cost on entry of say $10 would be $2.50. While this item, say high end sneakers, is sold for $100 it would only raise the price by $2.50 or possibly nothing if the competition in sneakers is high.  The markup on many of these items is very high and it is tariffed on the cost at entry.

These high tariffs on most nations are a negotiation tool that most likely will result in no tariffs and a positive outcome for the United States. The situation with China seems to be far different and at this time it is unpredictable as to the result. I suspect the U.S. is dependent on many imports from China and China does have lots of leverage in negotiations.