Tariffs, and the 4 ways they hurt the economy (explained in plain English)

Tariffs, and the 4 ways they hurt the economy (explained in plain English)

What’s a tariff?

A tariff is a tax imposed by a government upon certain imported goods from other nations. It’s a protectionist measure enacted by the government meant to insulate domestic producers from competing foreign industries.

The logic follows that, if foreign-produced goods are artificially made to be more expensive than domestic goods, then citizens of that country will be forced to purchase goods manufactured at home, thus inciting growth in the nation’s own economy.

Among his plethora of anti-establishment promises, President Donald Trump vowed to levy a 45 percent tariff on all Chinese exports to the United States during his campaign run. It was one of his chief rallying cries — American manufacturers are threatened by cheaply made foreign goods and is driving down the American economy.

Just like any action of the government, the argument is motivated by emotional appeal. “My industry is being destroyed by foreign competition,” says the lobbyist. “If the government does nothing, my industry will flee the country or go out of business. Thousands of workers will be out of work and poor!”

To ignore the plight would seem calloused, cruel, utterly inhumane. Indeed, that industry probably will die out and result in many job losses.

Yet the mistake made by those ignorant of economics is looking only at what immediately results from an event, and ignoring the long-term side effects of the action. True economists are swayed by logic. Not emotion.

While we believe that there are big problems with the American economy that require radical, sweeping solutions, imposing tariffs will do more harm than good to the burgeoning eCommerce industry.

As of this writing, the online retail industry is experiencing record growth. According to the U.S. Commerce Department, online sales accounted for more than one third of all total retail sales in 2015, a level unmatched previously. The National Retail Federation expects that online retail will increase 8-12 percent in 2017, which lands anywhere from $427 billion to $443 billion — three times the growth of the traditional variety. There’s no doubt that e-Commerce is set to become the economy of the future, though a tariff would slow down its growth along with all other industries.

Whether brick-and-mortar or on the Web, a free market is always the healthiest market. Government manipulation of the economy almost always produces a result opposite to what was promised, and favor a few industries at the expense of many. Tariffs are no exception. From Adam Smith to Murray Rothbard, classical economists have unanimously agreed that tariffs are not going to make America greater.

They will make us poorer.

1. Higher prices

Of course, that’s the whole idea of a tariff: to use political force to artificially raise the prices of foreign competitors in your country. Domestically produced products are now the cheapest. Consumers will flock to goods made in the homeland, and business will return. Right?

But by artificially increasing the price of foreign goods above the amount the free market allows them to be, that interferes with the ability for individual people to exchange with each other at the rates they choose.

It isn’t just the protected industry whose products grow more protected. The prices of all products that contain steel or rely on steel also increase and the price of services that rely on those products will also rise. So the unintended consequence is a continuing spiral of rising prices.

Adam Smith stated the case for free trade in The Wealth of Nations:

“In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it the cheapest.”

In a healthy economy, prices would rise due to increased demand. But under a tariff, demand actually decreases — consumers will sensibly purchase less of a more expensive product. With the added price to the product “protected” by a tariff, consumers have that much less to purchase on other products. Less cash flows into other industries.

It takes generations of propaganda from governments to rid people of their natural common sense.

Forcing people to pay more for stuff is never going to grow the market.

2. Reduced wages

Take a current example: in 2002, the current president George W. Bush passed a tariff on all imported steel, in response to lobbyists from American steel companies.

In brief, it was incredibly short-lived and ravaged the American economy.

The legislation was meant to rescue the U.S. steel industry from doom. Not only were its effects on the steel industry nonexistent, but it wreaked havoc upon all the companies that relied on cheap steal for their production. Metal manufacturing, machinery and equipment, and transportation industries all suffered.

As stated above, companies that relied upon steel to manufacture their products suffered a loss of profits from the increased steel prices. To compensate, the company reduces the wages of its workers. This resulted in approximately $4 billion in lost wages during the year 2002, according to a report prepared for the CITAC Foundation.

3. Job loss

If lowering wages does not mitigate the damage of a tariff, a company will resort to outright downsizing of its employment. According to the report on the 2002 American steel tariff, “200,000 Americans lost their jobs to higher steel prices during 2002.”

Say, wasn’t it the threat that a particular industry was going to go extinct and cause unemployment, that the tariff was enacted in the first place?

To add salt to the wound, the report elaborates: “More American workers lost their jobs in 2002 to higher steel prices than the total number employed by the U.S. steel industry itself.”

Do you see the familiar pattern yet? A tariff, like any legislation passed by the government, has unintended effects that are opposite from the original intentions.

4. International tension

If you listen closely to the language politicians use when talking about tariffs — “protection,” “trade abuses,” “cheating,” among others — it is nearly identical as when they talk about war. The very concept of a tariff acts as a wall to repel an army of invading foreign goods.

If a nation raises a tariff wall against another nation, it should be expected that the other nation will retaliate with a counter-tariff. Mexico has vowed to raise “mirror” tariffs on apparel products imported from the United States if Trump imposed his tariff.

Combative trade barriers can even lead into a full-out war. Heavy duties imposed by the British crown were what led to the American Revolution. The Townshed Acts were a series of taxes Great Britain imposed on imports into the American colonies, in an attempt to generate revenue for the salaries of governors, so that they would remain loyal to the crown. There was resistance from the colonists, which eventually led to the English occupation of Boston, the Boston Massacre, and the American Revolutionary War. The Declaration of Independence condemns King George for “cutting off our trade with all parts of the world.”

“When goods do not cross borders, armies will.” Often attribute to economist Frederic Bastiat, the historical occurrences of tariffs, unfortunately, proves his point.

With less variety of goods for people in either country and higher prices, everyone loses.

Automation isn’t taking over the human workforce

Automation isn’t taking over the human workforce

Fears of human workers being supplanted by automated machines were stoked again recently in former president Obama’s farewell address. “The next wave of economic dislocations won’t come from overseas,” he stated. “It will come from the relentless pace of automation that makes a lot of good, middle-class jobs obsolete.”

Certain sources ostensibly suggest that robots could replace half of all jobs during the 2030s. Others claim that 62 percent of jobs that pay under $20 an hour could be performed by robots right now.

But the idea that technology is supplanting human workers is ludicrous.

Technology doesn’t harm the market, but fuels it.

It’s about what you don’t see …

An automobile factory invests in automated welding machines and lays off one hundred human workers. Advocates against automation immediately frame this as the tragic consequences of technological progress.

Not so fast.

This idea is wrong, yet is repeated so often that it is known as the “Luddite Fallacy,” named so after the British textile makers who went about demolishing mechanized looms for fear that they were replacing their work and rendering their skills obsolete.

The fallacy of the anti-technologists is in rushing to a conclusion simply by the plain, surface-level observation — one hundred men losing their jobs. But there is so much else going on that the anti-technologists do not see.

True, one hundred people are temporarily displaced from work. But the factory purchased the machine with the expectation that it will eventually “pay for itself.” The machine will decrease the cost of production and lower prices of its product on the market.

Lower prices leads to two consequences: the factory owner will generate more profit from increased demand. The company will either spend the extra revenue on more equipment or staff for the factory to increase production, or the owner will personally spend the surplus revenue on luxuries, and by doing flowing cash into profit for other industries.

Lower prices also leave consumers (including the displaced workers) with more money in their pockets, which they will spend on products in other industries and continue to stimulate the market.

The good that technology brings to the market — increased production, lower prices, and a better standard of living — significantly outweighs the minor misfortune of temporarily displaced workers.

So let’s illegalize technology!

In the context of online marketing, the situation is even more extreme. Not only does technology aid the market, but eCommerce should be glittering, golden proof that, without the technology that is blamed for supplanting the human workforce, eCommerce could not even exist.

Think about it: if it’s true that technological progress is hurting the economy by automating tasks formerly fulfilled by a human worker, then by logical extension, buying and selling virtually anything at all on the Internet is taking away someone else’s job opportunity. Just think of the old fashioned brick-and-mortar retailing that’s being completely overrun by the Internet market. Online retailing should be outlawed, right?

Dissolve every search engine and bring back Encyclopedias. Do away with the whole Internet, while you’re at it.

Outlaw email systems and bring back the Pony Express. Toss your computer out the window, and go back to writing letters with pen and paper. Or a quill and parchment, if we wish to fair.

Burn your desk and chair, and hire someone to be your personal foot stool. Ban big rig trucks and trains, and instead hire people to carry goods on foot. We’re creating new jobs, aren’t we?

I’m sure you get the picture.

The plot to downgrade the human race

While few have actually thought through their own arguments enough to actually disband eBay, Google, or the entire Internet, there are many groups with a political agenda. It involves using the technology that makes your business and civilized life itself possible as a scapegoat for their own plans.

For example, there is a growing movement in legislation to implement an automation tax on companies that utilize robot workers. Microsoft founder Bill Gates, ironically enough, has advocated for this tax. A tax that would not only hinder the profits of online sellers, but give government yet another way to regulate and confiscate from your earnings.

Robots replace human jobs? OK. Let’s figure out if it holds up by examining evidence from the real world.

Specifically, at the most iconic example of the online market: Amazon.

Amazon wrecks the myth of automation

According to GeekWire, while the robotic workforce is exploding in the Amazon company, it’s not overtaking the human workforce — both groups are growing together. The company said in a 2016 press release that “there are now 45,000 robotic units working alongside Amazon associates in more than 20 fullfillment centers.” That’s 50 percent more than the 30,000 units it reported in 2015, and 15,000 robots by the end of 2014.

“We’ve not seen a slowdown in our hiring at all because of increased automation,” said Paul Misener, vice president of global innovation at Amazon, in an interview with CNet. “It’s been our pattern. We continue to deploy automation and we continue to hire people. They go hand in hand for us.”

Amazon is particularly blamed for wreaking havoc on traditional, low-tech bookstores. There were once fears that the entire book-selling industry could become exclusively online.

Then Amazon opened its own brick-and-mortar shop in Seattle, putting a plot-twist into the narrative. Looks like the techno-giant that was blamed for the death of bookstores, might just be the one to save them.

The key is to increase production

Downgrading current technology to employ more people, or destroying goods for the sake of producing them all over again, are sinfully stupid methods of economic stimulation.

The strength of the economy is not measured by the number of jobs. It is measured by production. More jobs in the online market don’t mean anything unless those jobs are increasing your production.

And how do you produce? Keep creating. Keep innovating. And keep selling. Find easier, faster, freer ways to do it.

Producing is the only way to keep the cash flowing.

If assembly line bots, drones, and screw drivers help you do that, then why would you let someone take that from you?

Or tax it, for that matter?

Magento releases update to the 1.x platform

Magento recently released the update to the 1.x platform. Several of the more useful updates are included below:

The old tax calculation algorithm for shipping charges has been restored, allowing for Magento merchants to correctly charge consumers for products and shipping. Magento allows its users to set up a complex system of taxation, which gives eCommerce merchants tools to categorize products and customers into tax classes. A tutorial for setting up and managing taxes in Magento can be found here (https://www.hostknox.com/tutorials/magento/managing-taxes).

The “Price as configured” for bundle products displays correctly in the shopping cart. Users commonly complained that the feature showed a figure of zero no matter which bundle sub-products were selected for their products, while others complained of overpricing for bundled products if all input options were not selected. A guide to managing prices can be found here: (https://www.siteground.com/tutorials/magento/magento_price.htm).

Catalog price rules, a tool for selecting certain products to be put on sale, now return the correct price. These rules are distinguished from coupons, because they take effect before the shopper places the product into their cart, which increases sales following the simple logic that shoppers are attracted to lower prices. A tutorial for creating catalog price rules can be found here: (http://docs.magento.com/m1/ce/user_guide/marketing/price-rules-catalog.html)

To view the full list of technical renovations, please refer to the links below:

Enterprise Edition: http://devdocs.magento.com/guides/m1x/ce19-ee114/ee1.14_release-notes.html?_ga=1.187917025.834397724.1489463757#ee114-11432

Community Edition: http://devdocs.magento.com/guides/m1x/ce19-ee114/ce1.9_release-notes.html?_ga=1.187917025.834397724.1489463757#ce19-1932