President-elect Trump has discussed extensively his desire to see China labeled as a currency manipulator, and has repeatedly called for a tariff on “all” Chinese goods. Whether or not that was campaign bluster, or a policy stance his administration will pursue, this is an issue that deserves a look.
What is a Tariff?
A tariff is simply a tax on imported goods. This tax can be levied for a host of reasons and isn’t necessarily done on a countrywide scale. It is often for individual items, or industries.
Why Do They Exist?
Simply put, they help the government maintain control of trade policies and help regulate pricing and wages within industries.
For example, if I was importing a widget at a cost for $1 and the US wanted domestic manufacturers who have a cost of $1.10 to produce the same widget for our markets and be competitive, they would impose a 10% tariff of the widget, and the consumers end cost would be the same for buying either widget. This protects the US manufacturer, produces tax revenue for the government, and has leveled the pricing for the consumer.
Why Not Use Them?
The process above is a very closed off example that doesn’t take the real world into account. Keep that in mind.
If we decided to say impose a large tariff on Chinese goods, the cost of real goods would increase here in the US. Yuck.
We have become dependent on imported goods, and not just completed items, but the components used inside of larger products which are assembled in the US. A 35% increase in costs associated with the largest supplier of our imported goods would lead to a vast increase in costs for our everyday items.
When discussing China, in particular, it’s important to realize that our actions have consequences we can’t necessarily control.
Apple has been a company in the spotlight of this battle, and recently the Chinese government has made it clear that any actions against them would hurt Apple’s access to their markets, as well as other companies, industries and individuals which do business with China.
Is It Really that Big of a Deal?
To answer this question we have to step back and look at this from a larger scale, and that scale considers the very makeup of the earth and its resources.
Rare Earth Elements…. The Big Example
Rare earth elements/metals are absolutely critical to the future of this planet with our current technological paths. They go in everything from cell phones and televisions, to invaluable defensive needs like radar, night vision, guided weapons, stealth technology, and our fiber optic technology applications. They are essentially the lifeblood of the entire modern world we have taken for granted.
The current estimates of total rare earth elements puts the number around 130 million metric tons. China has access to 55 million tons themselves, and the US has relatively small reserves in comparison at 1.8 million tons.
In 2015, China produced 105,000 metric tons from their mines compared to 4,100 metric tons by the US. This level of supply and production mixed with an ever growing demand has China positioned to control the current market of rare earth elements, and by default, all the products and services that use those materials, both civilian and government.
In other words…
This is a much more complicated issue with consequences that reach far beyond manufacturing jobs in the rust belt. The answers to our problems may not be as simple as we had originally hoped.
The international economy isn’t going away, particularly where raw materials are concerned, and in a global market, global pricing will drive down both wages and cost of goods in countries with higher median incomes.
We don’t have the answers to this issue, but we all share the concerns and a large portion of us have shared the burden of this transitionary period in our history. How our workforce adapts to a global economy, changes in technology, robotics, automation and the rest of the changes just around the horizon remains to be seen.
One thing is for certain, we must quickly come together around issues we can identify, and work towards solutions before we get left behind.
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