Tariffs: A Necessary Correction or an Economic Gamble

Tariffs: A Necessary Correction or an Economic Gamble

There is ongoing debate surrounding tariffs and their overall effect on the U.S. economy, as well as their impact on specific sectors. While mainstream media has focused on the Republican Party’s stance on tariffs, it is widely understood that some Democratic candidates also plan to retain certain tariffs that are currently in effect.

Many analysts and pundits make direct cause-and-effect predictions, suggesting that rising input costs due to tariffs will significantly increase prices, drive inflation, and ultimately reduce demand. While some of these predictions may hold true, resulting in higher construction costs across all real estate asset classes, this perspective overlooks the broader economic landscape, focusing solely on the demand side. Other important questions and considerations also deserve attention.

One could argue that subsidies and various government programs in other countries have artificially lowered the prices of consumer and durable goods, sometimes to unsustainably low levels. Do we truly need $8 T-shirts from Old Navy or $100 flat-screen televisions? This raises the question of whether increased prices will necessarily fuel inflation or, instead, reflect a necessary correction of artificially low prices.

In many developed countries an emphasis on quantity has spurred a culture of rampant consumerism, arguably at the expense of quality-of-life pursuits. Additionally, shifting manufacturing to developing countries has had detrimental effects on global ecosystems, as labor and manufacturing practices in these regions often fall short of standards mandated in more developed economies. In the U.S., the loss of manufacturing capacity and expertise has further compromised our ability to produce critical goods—such as pharmaceuticals, defense components, and other essential item necessary for national security and public welfare.

Classic economic theory maintains that higher prices resulting from tariffs will encourage both domestic and foreign companies to relocate production to the U.S.. Such a shift could lead to a resurgence in manufacturing, creating demand for facilities and skilled labor. Manufacturing jobs, tend to offer higher wages than many service-based positions, and have traditionally been a path to upward mobility for the middle class.

In truth, no one can precisely predict the ultimate impact of tariffs on the economy. Economic disruptions will inevitably occur, just as they have in response to the internet, artificial intelligence, cell phones, socialized medicine, offshoring, ERP systems, and the COVID-19 pandemic. Change is a constant, with some individuals benefiting while others face challenges and must adapt. Politicians often promise universal benefits, but in reality, gains for some are often offset by losses for others.

Whether you support or oppose tariffs, one thing seems certain: the outcomes will likely differ from current predictions. Fortunately, tariffs are a man-made mechanism that can be adjusted or abandoned. What remains missing from the discussion, however, are clear, measurable goals for tariffs. Once these objectives are defined, policymakers can make adjustments and negotiate to better align tariffs with the stated objectives.