Purpose and Outcomes of Reciprocal Tariffs
Author(s): Scott Douglas Jacobsen
Publication (Outlet/Website): The Good Men Project
Publication Date (yyyy/mm/dd): 2025/03/27
Laura Dow is the Business Director of China Performance Group (CPG Sourcing), a global sourcing service provider operating in China since 1978. With expertise in supply chain management, logistics, and responsible sourcing, she helps companies navigate procurement challenges while ensuring compliance and efficiency. Laura frequently speaks on trade policies, tariffs, and economic trends. She advocates for strategic sourcing solutions to optimize global trade and mitigate risks in an evolving market.
Scott Douglas Jacobsen: What is the purpose and expected outcome of reciprocal tariffs?
Laura Dow: While reciprocal tariffs may aim to establish fairer trading practices and reduce trade imbalances, historical evidence shows that tariffs often deliver the opposite.
Tariffs function as taxes on imports and, as such, increase costs. Businesses pass these additional costs onto consumers, leading to higher prices for a wide range of goods and contributing to increased inflation.
Tariffs can impact economic growth and employment in three primary ways:
Reduced Consumer Spending: Higher consumer prices resulting from tariffs can decrease consumer spending, as individuals buy less when prices rise. This reduced demand may cause businesses to cut back on production and, consequently, their workforce.
Increased Operational Costs: To offset higher costs due to tariffs, businesses often downsize their workforce, even before any noticeable decline in consumer demand.
Reduced planning and investment: In an environment of uncertainty, businesses do not invest or plan for expansion, thus reducing growth and hiring.
Reciprocal tariffs may also prompt retaliatory measures from trading partners, escalating into trade wars that further hinder global commerce. In turn, diminished global commerce can lower competition between countries, adversely affecting innovation in the following ways:
Reduced Investment in R&D: The financial strain from tariffs can compel firms to cut back on research and development expenditures, hindering technological advancement and innovation.
Reduced Innovation: With decreased competition, industries may feel less pressure to innovate, leading to a decline in competitiveness. Global collaboration and the exchange of ideas are essential drivers of innovation.
Conversely, trade liberalization and reduced global tariffs have proven more effective in promoting economic growth. A notable example is the Reciprocal Trade Agreements Act of 1934, which led to a significant reduction in tariffs and an expansion of international trade.
Jacobsen: Thank you, Laura.
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