With all the news headlines about negotiating trade agreements with foreign powers and then talk of handing down tariffs on same, few consumers will admit to knowing what these terms mean much less how they might be affecting our net worth if not our wellbeing. For those of us who did not major in PolySci in college, here is a quick overview of U.S. Tariffs and Trade Agreements and what these have and currently mean to Americans.
What is a Tariff?
For those who associate the word with the Sheriff of Nottingham and Robin Hood, yes, that is ballpark. The SoN levied taxes on everyone in the land, except the rich, of course. Enter Robin Hood who stole from those idle rich to supplement the needs of the newly poor due to the SoN’s tariffs. So a tariff is a tax, but in today’s lesson, it is a tax that is levied on goods that are made elsewhere and imported into the United States.
What might be an attempt to make consumers buy American-made goods over imports, could backfire for a number of reasons. Chiefly, there are not all that many big ticket items that are made entirely in the U.S. anymore. Over 60 years ago, Union-worker salaries and other conditions drove the labor prices up, so to remain in business, American factories looked abroad to find cheaper labor. The result was collaboration on an international scale.
Not long ago someone chided me for driving a Subaru. “How can you drive an Asian import when Detroit is closing factories?” To which I responded, “What! When did we sell Oklahoma to foreign interests?” Fact is, Subarus are assembled in the U.S. from parts that are manufactured abroad from raw steel that we export. Got all that? Due to trade agreements, there are many such collaborative efforts and these are not just limited to the automotive industry, either. Which leads us to Lesson 2:
What is a Trade Agreement?
A trade agreement is literally that: when two nations or more agree upon what goods and services they will exchange. At the same time, they decide which duties or tariffs (there’s THAT word again) will be imposed on both what is imported as well as what is exported. International trade, as we know it, is founded on trade agreements. There are several types of trade agreements but the important takeaway here is that with each there are pros and cons. For example, Lower tariffs, those taxes levied on imported goods, mean lower prices for U.S. consumers. However, some American businesses suffer since they can no longer compete for consumer spend against nations with a lower standard of living.
So when we buy a range of products including housewares, vehicles, furniture, even recreational products for boating and RVs do we look to see if the purchase is American made or designed and manufactured in other countries? Coulda, woulda, shoulda is little consolation for American workers who might well be displaced when their local factory closes its doors. And when two world leaders cannot agree on a trade agreement, what happens then?
World Trade Organization as Referee
Keeping the peace or at least trying to is the World Trade Organization (WTO) that mitigates agreements above the regional level. As an international body, its purpose is to remain objective and to both enforce agreements and investigate complaints. A recent example is the failure of an international attempt to lower tariffs worldwide, thereby opening the floodgates to free trade. The problem here is that already beleaguered economic sectors, such as farming, would have been badly impacted by this accord. The U.S. and Europe, two members of WTO, steadfastly refused to comply, citing that to agree would lower farm subsidies and impoverish farmers many of whom were already struggling to survive.
American consumers are particularly naive about where the products and consumer goods we purchase are actually manufactured. Price drives our decisions, and we seldom think about anything else. The point here is not to advocate ‘buy American’ at the expense of imported goods. Instead, let’s all just become more aware of what we own, where it comes from, and, in hindsight, did that purchase prove to be a good one? And, with our very next big ticket item purchase, consider more than just price as criteria.
Does Foreign-Grown Food Taste Better?
Another example is grocery shopping. Do we ever stop to think about where our food comes from? Were those avocados on your breakfast toast grown in California, Florida, or Mexico? It would surely be worth more to me knowing that I participated in maintaining the financial solvency of an American farmer, even if buying their produce cost more. Did I really need to buy that cheese from France or was there a similar option made in Maine or Wisconsin to consider? Next time you shop, be mindful. Ask about or read labels. Try to put more American-made items in your cart. That’s easy with perishables such as dairy, but what about condiments and canned goods?
And when we shop in stores, look around. Where do you think those store display units, mannequins, and price labels are made? American retailers and distributors depend on cheaper foreign-made goods and furnishings to boost their profit margins while maintaining prices that consumers consider fair.
The fact is, we can even regionalize saving money and saving jobs. Did you know that if you purchase an item manufactured out-of-state that a percentage of the proceeds benefit that area and not yours? “Buy local” is not just a nice idea, but it can ensure that more of your hard earned dollars can be earmarked for community improvements such as schools, playgrounds, roadways, and even parks. Think about that next time you need tomatoes. The farmstand up the road will have fresher, much better tasting produce and while it will cost more, you are helping out a neighbor who is trying to improve your life as well.
Find Creative Workarounds
The fact is, tariffs and trade agreements take place on a global scale yet impact our lives through higher costs for consumer goods. Another issue is that trade agreements that lower tariffs on imported goods, mean that a local or regional business might be hard pressed to remain solvent. It helps to be aware of where our necessities come from and why we elect to pay what we do for them. And finding alternative ways to buy. For example, if it will improve the quality of your life to have a foreign-made luxury item, consider buying it secondhand through an American-based online thrift shop that hires displaced American workers.
Striking a balance between buying American made and foreign goods might be easier to achieve and maintain if we just think about the outcome of our decisions. After all, it is not just about our quality of life that we should be thinking about maintaining, but our neighbors’, and fellow Americans’, too. Decisions about the economy may be made by politicians and regulatory agencies in the form of tariffs and trade agreements, but in truth, they are maintained by us as citizens in the choices that we make. Your move.