Tariffs – a Balanced Look (i.e., no politics or opinions)

Tarriff Wikimedia

“Tariffs are one of the oldest trade policy instruments, with their use dating back to at least the 18th century. Historically, the main objective of a tariff was to raise revenue (my emphasis). In fact, before ratifying the 16th Amendment in 1913 and formally creating the income tax, the U.S. government raised most of its revenue (taxes) from tariffs. Even so, the main purpose of a tariff these days tends to be about protecting particular domestic industries from foreign competition, alongside raising revenue.” Source: What is a tariff?

 

So Tariffs do two things: raise revenue (as a form of tax) for the government and protect industry within the country with the tariff.

 

You can ignore much of the political positioning of the US and other countries because each country is basically protecting their revenue source and certain industries they have within their country. If one wants freer trade and no trade wars, all countries would abandon all tariffs (like that would happen). But then, there goes their revenue (the government collects the tariff from the importer) … note above what happened to US tariffs prior to 1913. And other countries are less willing to reduce or eliminate their tariffs (revenues) or want to protect their industries (popular for voters). The US isn’t the only one with tariffs, so you shouldn’t think the US is starting something, or that other countries have not had tariffs up until now.

Tariffs in other countries.

Lowest tariffs worldwide. Note: we used to have the highest corporate income tax rate in the world, which was lowered considerably in 2017 to encourage US companies to bring money earned overseas back into the US for business expansion here.

Tariffs in US history. “… since the end of the 18th century [1700’s], the United States has been ‘the homeland and bastion of modern protectionism’. In fact, the United States never adhered to free trade until 1945. A protectionist policy was adopted during the presidency of George Washington by Alexander Hamilton, the first US Treasury Secretary “

Moral of the story: ALL countries are posturing their tariff policies with revenues and home voters in mind. It is not like they didn’t exist before! It’s just that now we’re more aware of them. Are they good or bad? Depends on the eye of the beholder. They’re not unlike toll bridges or toll highways. Anything beyond the basics here may simply be your opinion or bias weighing in – are toll bridges or highways bad (rhetorical question)?

 

PS. The “Skittles Charts” illustrates diversification and how money flows around year by year between key asset classes. What does this mean for investments? US Small companies are domestic and unaffected to a greater extent to tariffs from other countries. Protected industries here are protected by the tariff too. However, uncertainty is always present. Uncertainty was present before too – just for different reasons … and that’s my point. Uncertainty has different reasons at different times (and the “Best Time to Invest” video ( link)  illustrates that too … see how everything comes together?). We can’t predict what will cause the next uncertainty and shouldn’t even speculate. You can think back to other things causing uncertainty in the past (remember Greece, or Brexit, for example?). Let your portfolio stay allocated smartly and everything washes over and through it year by year. Stay invested smartly for the long term (= the rest of your life). Markets go up and down for different reasons at different times. We know that. It’s not an investment strategy to change investments with every change in the winds.

 

Photo by Felix O on Wikimedia:

https://commons.wikimedia.org/wiki/File:Deutsche_Reichsbahn_Dresden_S-Bahn_Tarriff,_DM_period,_1994._-_Flickr_-_sludgegulper.jpg

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