So, this week, like last, markets went a little crazy over the possibility of more trade wars enacted by President Donald Trump. It was indeed a scary week, especially in tech-land, where we saw Amazon (AMZN on NASDAQ) shares drop more than $100 at one point on Wednesday. Sure, it wasn\u2019t all trade-war related, and Facebook\u2019s privacy breaches need to share some of the blame. But trade wars are certainly worrying for investors, and investor fear is back in vogue. Why are trade wars so bad? Let\u2019s take a look at five reasons, and this might explain why most investors simply wanted \u2018out\u2019 this week.<\/p>\n
Seriously, Mr. Trump, any first-year university economics student knows this. Trade wars simply are not effective. We could reference \u2014 what should we use, now \u2014 oh, yeah, the Great Depression, as an example. Other politicians such as George Bush have also tried to implement tariffs and duties, and none have really succeeded at all.<\/p>\n
In addition to having to monitor and collect tariffs, trade wars add other bureaucratic and red tape issues. In Canada, for example, a committee has already been set up to make sure than other countries do not \u2018dump\u2019 steel into Canada in reaction to the U.S. steel tariffs. More paperwork, less efficiency and higher costs are the result as companies try to \u2018game\u2019 the system and try to get around the tariffs in any way possible.<\/p>\n
By preventing low-cost products from entering a market, everyone<\/em>\u2019s costs go up. The price of steel, for example, rises on average, and then the cost of everything with steel in it goes up. A car buyer in Idaho, thus, pays more for his\/her car thanks to Trump\u2019s fight with China.<\/p>\n Imagine you are a company producing goods (in any country), thinking about adding a second manufacturing facility. But, rumours abound that your goods will face tariffs. Guess what? You are not going to build that second facility. How about the same type of company in the U.S.? Maybe they think business will improve with better trade protection. But what happens when Trump goes, or if he changes his mind on tariffs? Either way, that new facility is unlikely to get the green light to be built.<\/p>\n That\u2019s what they are supposed<\/em> to do, but the reality is quite different. Sure, some steel jobs might be saved. But look again at our third and fourth points above. Tariffs result in less capital spending and higher costs. Again, any economics student knows that that is a recipe for net job losses across an economy, not net job additions.<\/p>\n We could give you dozens of more reasons why tariffs and trade wars are bad, but in keeping to the theme of this column we will stop at five. Mr. Trump, give us a call if you want some more pointers on how your plan is such a bad idea.<\/p>\n","protected":false},"excerpt":{"rendered":" To start with trade wars mean more paperwork, less efficiency and higher costs for companies, and invariably for consumers<\/p>\n","protected":false},"author":578,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/2904"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/578"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=2904"}],"version-history":[{"count":1,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/2904\/revisions"}],"predecessor-version":[{"id":2908,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/2904\/revisions\/2908"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=2904"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=2904"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=2904"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}They prevent effective long-term planning<\/h3>\n
Trade wars don\u2019t actually protect jobs <\/h3>\n