Tensions between the U.S. and some of its major trade partners — with threats of trade wars and retaliation — has the world business community on edge. Talk revolves around escalating tariffs on goods and services as well as the potential loss of jobs and the downfall of some American companies the tariffs may cause.
But what exactly are tariffs, and why are they such a concern? A tariff is simply a tax imposed by one country on the goods and services imported from another country. Investopedia says governments may impose tariffs to raise revenue or protect domestic industries from foreign competition. Tariffs placed on foreign-produced goods can make them more expensive, to the benefit of domestically produced alternatives.
A government will often use tariffs to aid certain industries and protect jobs at home. A country may also use tariffs to exert its will on another country by targeting the trading partner’s main exports until its demands are met.
Are Tariffs Good or Bad?
A domestic industry will ask the government to impose tariffs on foreign competitors when it feels threatened. The tariffs often help that sector, which may boost employment. Workers’ lives are improved, but the tariffs also raise import prices for consumers. So there is almost always a tradeoff.
According to Investopedia, tariffs can have the following positive effects:
- Discourage foreign industries from importing cheaper goods. This can help protect local industries
- Level the playing field by eliminating a foreign industry’s competitive advantage
- Create employment within a country by encouraging an industry to manufacture its own products
- Protect a country from being the recipient of goods that have been rejected by other countries, a process known as dumping
- Increase tax revenue
- Aid economic growth through deficit reduction
The disadvantages of tariffs, according to BizFluent, are as follows:
- Raise the price of the good or service because of increased taxes
- May lead to shortages by discouraging one country from exporting goods or services to another
- Increase friction between two countries, hurting their long-term relationship
- Protect domestic companies from foreign competition (While that builds local economies, it eliminates the competition that provides quality and affordable products to consumers.)
- Negatively impact the economy through reduction of competition among manufacturers and short supply of products
The business leaders of the future must be well-versed in the nuances of tariffs to operate on the world stage. A solid MBA program, like the Boise State University Master of Business Administration, provides a strong foundation and worldview of global economics — including tariffs.
This convenient online MBA program was designed especially for working professionals. The program uses 100 percent digital content and can be completed in 12 months. Boise State is ranked one of the “Top 20 Public Schools” in the West by U.S. News & World Report.
Learn more about Boise State University’s online MBA program.