Understanding Tariffs and Their Impact on Economic Growth

Just think about this….

Tariffs

There had been a terrific amount of discussion, noise and political blather over a simple concept. Tariffs have been around forever – even our Federal Government, prior to the implementation of the personal income tax, existed on tariff income. Yes, tariff costs can be considered a tax. The facts are all taxes on business and their employees, all fines and settlements paid by business, and all the legal and regulatory costs are just a “cost of doing business.” It is included in the cost of everything you purchase.

In the “Key Items Necessary to Measure Economic Growth” section of this website, we discuss GDP, GDP per capita, and the formula used when Calculating both. A quick review – the formula is (GDP=C+I+G+(X-M). C=Consumption, I=Business investment, G=Government Spending, X=Exports, and I=Imports. If Imports exceed Exports the result is a negative number. That results in a lowering of GDP and a lowering of GDP Per Capita (per Person). Lower numbers indicate a lower Standard of Living – that affects everyone.

The chart below shows the US has experienced a trade deficit for many years while China has enjoyed many years of trade surpluses. Please do not confuse the info as this is both countries’ overall trade position and not just the trade between the two. The press, etc. comments regularly how China is generally growing at a faster pace than the US and most other countries. They report or imply that China must be cheating. They might be – but there is no doubt that China’s is a major exporter of goods to the world and a very minor importer of other countries’ goods or to put it bluntly – China as a nation sells more than they buy while the US buys more than it sells. Buying more than you earn is not good, earning more than you buy is good.