Letter to the Editor: Tariffs Explained by Bob Moores

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There is a small island far far out in the ocean. On the island are two villages, Unbrellina and Chairica. Unbrellina was so-named because it is home to renowned maker of beach umbrellas, Joseph Umbrellaman. Chairica was named for Samuel Chairman, whose business of making quality beach chairs is legendary in oceanic lore.

Both Unbrellina and Chairica use the same currency, the Nemodollar.

Unbrellaman sells his umbrellas for $10, both locally and for export to Chairica.

Chairman sells his chairs for $10, both locally and for export to Umbrellina.

Chairica has a local manufacturer of umbrellas, Sydney’s Umbrellas, but since Sydney’s is not efficient, its price for umbrellas is $15. Value-minded Chairicans therefore buy most of their beach umbrellas from Umbrellina.

Similarly, Umbrellina has a local manufacturer of beach chairs, but because of a shortage of chair-stuff he has to price his chairs at $15. Consequently, Umbrellinians buy most of their chairs from Chairica.

One day, the Chief of Chairica, in order to help his friend Sydney, slaps a 100% tax (a.k.a. tariff) on umbrellas from Umbrellina. Umbrellas from Umbrellina now cost Chairicans $20 instead of $10. Naturally, value-minded Chairicans stop buying imported umbrellas and begin buying $15 umbrellas from Sydney.

The Chief of Umbrellina is not happy with the new tariff on his main export. He retaliates tit-for-tat. He slaps a 100% tax on chairs from Chairica, imported chairs now costing $20. Value-minded Umbrellinians stop buying imported chairs, and begin buying $15 locally-made chairs.

Who wins and who loses from these events?

Sydney of Chairica is happy because his umbrella business is more profitable. The two additional employees he hires are happy to be employed.

Umbrellica’s local supplier of chairs is happy because of increased sales of his chairs. The two additional employees he hires are happy to be employed.

But the 1000 consumers in Chairica must pay 50% more for every umbrella they buy. And the 1000 consumers of Umbrellica must pay 50% more for every chair they buy.

The consumers of both villages lose. It’s called “inflation.”

Bob Moores
Chestertown

 

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Letters to Editor

  1. Ed Plaisance says:

    While it may not technically be inflation, https://www.investopedia.com/university/inflation/inflation1.asp the effect on the pocketbook appears the same.

    It certainly is a tax on both groups and it is only going to protect the inefficiencies on both sides.

    Here is an excellent unbiased presentation of the world of tariffs on vehicles…it ain’t so simple as Trump would have you believe

    https://worldview.stratfor.com/article/why-hitting-gas-car-tariffs-could-stall-everyone

  2. Steve Payne says:

    If both manufacturers did this they might possibly hire more people to make items for the local market previously made by their neighbor but they would surely loose employees previously making products for export. Both might lose employees due to slower sales due to the price increases.

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