The Role of Tariffs
Recently there has been lots of talk about in the news both locally and internationally. In the first few weeks of Trump’s second term as president of the U.S., he has suggested imposing several tariffs on various countries. Locally tariffs have also recently been levied to protect numerous industries. In this week’s article, we will break down what tariffs are, what they are used for and what their impact is. This article is not intended to support any political view but rather to look at interesting real-world case studies to help better understand tariffs.
Tariffs are taxes imposed on imported goods to make them more expensive than locally produced alternatives. It is important to note that these taxes are paid for by the local importer and often this cost is passed on to the consumers in the country imposing the tax. Tariffs can thus increase the price for consumers which can lead to inflation, and it is important to carefully consider the economic consequences of implementing tariffs. Governments usually use tariffs to protect domestic industries from foreign competition to encourage local production and preserve jobs.
South Africa recently imposed additional import taxes (a.k.a tariffs), on low-cost international online retailers like Shein and Temu. The goal of these tariffs is to protect local clothing manufacturers who struggle to compete with the low prices of these Chinese e-commerce platforms. By making imported clothing more expensive, the government hopes to support domestic textile businesses and preserve local jobs.
Another recent local example is the South African automotive industry, which is facing increased competition from an influx of Chinese vehicles, often cheaper than locally manufactured cars. Local automakers have recently approached the government requesting protectionist measures, including tariffs, to prevent the domestic industry from being undercut by lower-cost imports. The argument is that without intervention, local car manufacturers may struggle to remain competitive, leading to job losses and economic downturns in related sectors.
The U.S. has also recently been in the news for potentially making use of tariffs, but it seems that the reasons for these tariffs are not to protect local industries but rather to eliminate their trade deficit. A trade deficit occurs when a country imports more goods than it exports, but is not an indication of the economy’s health, and is therefore neither good nor bad. The U.S. trade deficit exists largely because of high consumer demand and a large population that consumes more goods than the country produces domestically. It can however be argued that it gives other countries more leverage during negotiations as the U.S. might be dependent on their imports and that this is the reason U.S. President Trump wants to address the trade deficit. The problem is that using tariffs to reduce a trade deficit is not addressing the underlying causes of the imbalance and it might have unintended consequences that can cause more harm than good, such as inflation and job losses.
Another issue with tariffs is that they provoke retaliation from trade partners, harming local industries. Countries affected by U.S. tariffs often impose their own tariffs on American exports, making U.S. goods more expensive and less competitive in foreign markets. During Trump’s previous tariff policies, China responded with retaliatory tariffs that significantly hurt American farmers, particularly soybean producers, who saw their exports to China decline. By sparking a trade war, tariffs can end up damaging the very industries they aim to protect.
Beyond economic costs, tariffs also harm trade relationships and disrupt global supply chains. Many American industries rely on imported materials or components to manufacture their products. Uncertainty caused by trade disputes discourages investment, slows business expansion, and can weaken long-term economic growth.
Tariffs are a powerful economic tool that can protect local industries and jobs, but they come with trade-offs. While they provide short-term relief for domestic businesses, they can also lead to higher prices and trade tensions. Understanding how tariffs impact the economy helps individuals and businesses make better financial decisions. As global trade continues to evolve, governments must balance protectionist measures with the broader economic interests of consumers and businesses alike.