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10 May 2019  (502 Views) 
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Tariff


America will impose higher tariff on import from China
President Trump said that tariff is a good alternative to a trade agreement with China. 

I agree with this perspective. A trade agreement is a messy and ineffective way to deal with the economic challenges.

Tariff will bring revenue to the US government. The govt needs revenue to run the country. They cannot continue to run the country with insufficient revenue and rely on debt. 

President Trump said that China will pay for the tariff. This is not true. The cost of the tariff will be shared by the following parties:

a) US consumers - who have to pay higher prices for their imports
b) China companies (both local and foreign owned) will have to reduce their prices and profit margin to remain competitive
c) The people in China - through a depreciation in the value of the Chinese yuan.

China wil have to go through some painful adjustment, but they will be able to work it out within a year or two.

The impact on the China economy will be temporary. With economic stimulus in China, the economy can restructure successfully. As they are highly productive, they can still continue to export to America, in spite of higher tariff.

A large share of the impact will be felt by the multi-national companies (which are mainly American owned) that now operate in China. They will move some of their production to other countries. it will be costly for them to set up set up the factories and to train the workers. Their profit margins will be squeezed. This will impact their share prices and the stock market.

This outcome will be good as a large share of the wealth from the stock market is owned for a few very wealthy individuals.

This shift of production to other countries will not be a long term solution. President Trump will find some reason to impose tariffs on other countries as well. The US govt does need the revenue from the tariffs and a way to bring some of the jobs back to America. 

There are some negative impact from tariffs. It will force some of the production to be done in the home countries, where the cost is higher. But it does help to bring back jobs to these countries. On balance, I think the positive impact outweigh the negative.

Here are my views of the positive impact of tariffs. Each country will be better off when the government is able to collect sufficient revenue to run the country, rather than rely on debts and low interest rate, and to create jobs for its own people. They may have to rely on protectionist measures, but there is no other way. 

I am in favor of tariffs as a way to restructure the global economy, to bring jobs back to the developed countries and to bring revenue to the governments.

Tan Kin Lian

Vote - do you agree that tariff is good for a country?



 


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