Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution and author, Entry #1.  Most entries are formatted as conversations. Characters appear in a number of entries, with many entries building on previous conversations.

Occasionally I break from the normal formatting and do a “sense check.”  Auditing one’s own work is problematic but I try to be objective.  Entries #300 and #301 are the most recent “sense checks.”  Your thoughts are welcomed and appreciated.  Thanks for your time and interest…and comments, please.

Scene: Jordan’s office, Washington, DC, start of workday.  “Can We Talk about Economics” conversation began Entry #308.

Gelly: “Professor Jordan, now that you’ve had a break, ready to explain more economics?”

Jordan: “Professor, hardly, but yes, let’s continue. Any topic in particular?”

Gelly: “I’d like to know more about tariffs. I think I understand the concept but not sure how effective tariffs really are, especially for worker bees.”

Jordan: “OK, tell me your understanding of tariffs. Why would a country implement a tariff?”

Gelly: “First, let me make sure I understand the idea of trade between two countries. I get the part where one country might have stuff the other country needs, or makes some product more efficiently than the other country. That all seems logical. What also seems logical is that trade should be fair. Maybe I’m being naïve but shouldn’t trade between countries be like what we were all supposed to learn as kids…you know, treat your neighbor as you want to be treated?”

Jordan: “Gelly, how do you boil complex issues down to such basic ideas? You’re right, trade should be fair to both sides.”

Gelly: “Like most any relationship, sometimes trade probably gets out of whack and one country has an advantage that needs to be adjusted. Is that what tariffs are supposed to do? Provide a balance? Or maybe protect some industry or set of products?”

Jordan: “Yes, that’s the theory. However, for trade to work long-term, the industries being protected should be considered ‘critical’ for some legiimate strategic reason.”

Gelly: “Critical such as growing and exporting coffee beans might be critical to the economy and welfare of the people of say Costa Rica? Coffee’s probably a big deal to Costa Rica but hardly of any importance to the US…other than maybe Hawaii.”

Jordan: “Right.  Because coffee has such a major impact on its economy, Costa Rica could add tariffs to any coffee imported from say Brazil or Columbia in order to protect its economy.”

Gelly: “I get that part.  Then what impact would a tariff have on exports from Costa Rica? People in Costa Rica can’t drink all the coffee grown there. If Costa Rica added tariffs to products imported from other countries…and those countries then added tariffs to Costa Rican coffee…wouldn’t that hurt exports? Tariffs seem like a two-edged sword to me.”

Jordan: “For countries with only a few products to export and where those products do not have much competition, tariffs might work. But, for most countries, tariffs are a high-risk poker game. While coffee can’t be grown in every country, in can be grown in many countries. Unless your country is a real big dog for that product or commodity, the country adding tariffs runs the risk of losing exports.”

Gelly: “For countries with lots of different kinds of products – Germany, Canada, China, the US – tariffs seem a lot more complicated.”

Jordan: “I said earlier you were becoming an economist. Keep talking.”

Gelly: “Isn’t trade between countries also affected by currency rates?”

Jordan: “Yes, but put currency rates aside for a few minutes. We’ll cover that later.”

Gelly: “OK, so if the US say claimed China was selling steel at too low a price, the US might put a tariff on steel made in China or goods produced with steel made in China. But what really happens after the tariff is implemented?”

Jordan: “Well, for one thing, China can then decide to add tariffs to some goods imported in China from the US – say corn or soybeans, which is exactly what they did after Trump put tariffs on Chinese steel.”

Gelly: “Those tit-for-tat tariffs can go on for a long time. And what do they accomplish?”

Jordan: “Good question.  To answer your questions let’s look at what happened after Trump put tariffs on raw steel and aluminum from China…and Canada, of all places.”

Gelly: “Did the price of Chinese steel increase after the tariffs?”

Jordan: “Yes.”

Gelly: “Did American companies start selling more steel?”

Jordan: “Some but the US steel companies did what often happens in the US when tariffs are implemented – the US companies immediately raised prices.”

Gelly: “C’mon, how much could that increase really cost a company? Couldn’t have been that much, could it?”

Jordan: “Soon after the tariffs were announced, Ford said tariffs on steel and aluminum would increase their cost at least $1,000,000,000 per year. And that’s the cost to just one company.”

Gelly: “This might sound dumb but if a company’s costs keep going up, wouldn’t the company raise prices? For Ford, they would have to increase prices of cars and trucks, right?”

Jordan: “You got it.”

Gelly: “Then, unless I’m missing something, the tariffs really end up being a tax on consumers. The government might collect revenue from the tariffs but the consumer – the working stiffs – are the ones who gets screwed.”

Jordan: “Now, remember what happened to the corn and soybean farmer after Trump put tariffs on Chinese steel and then China retaliated?”

Gelly: “The Chinese didn’t stop consuming corn and soybeans…but the Chinese began buying corn and soybeans from other countries. So the tariffs caused US farmers to lose exports to a major market…and the same farmers ended up paying more for their tractor and pick-up truck. So why do tariffs like the ones Trump imposed seem so stupid?”

Jordan: “A lot Trump’s tariffs were head scratchers. In fairness, sometimes trade between countries does get out of whack. And tariffs can help resolve the issue. But tariffs are like a Band-Aid, for small wounds and to help only temporarily. There’s a better way to solve issues when trade gets out of whack…and a better way to manage trade.”

Gelly: “You mean like trade agreements? Agreements such as Nafta or whatever Trump tried to rename it?”

Jordan: “Yes, trade agreements. The agreements usually include what you might call a trade court.  That court helps revolve issues and avoids tariffs.”

Gelly: “I’m interested in learning more but need to put this conversation on hold, please. I’ve got a conference call in a few minutes and need to get ready. Let’s continue later, OK?”

Jordan: “Deal.”

(Continued)