“Tariffs’ most important effect, particularly in the short term, is the extent to which they cause uncertainty. Businesses won’t invest in the face of policy instability and consumers won’t spend. In the longer term, their impact is inflationary and a drag on economic growth.”

Bad or good?

Tariffs, that is. I don’t mean to be cute, but the answer is, it depends. By way of explanation let’s examine why they are (usually) implemented.

While we can’t be sure of the reasons why President Trump believes them to be such a valuable instrument to get what he wants, his public statements began with their use as a threat to generate a response from Canada and Mexico to do a better job of policing their borders with the United States. Efforts by both countries to do so were certainly the result. Beyond this initial ambition, the President argues they are a mechanism to encourage manufacturing jobs to re-locate to America. It is highly unlikely that it will happen. Such jobs are created where they make the most economic sense. They only move when the long-term outlook or rationale changes. Tariffs are a political tool, not an economic driver like proximity to raw materials or cheap and abundant electricity or availability of skilled labour. As such, they can and do change from one government to another, and as evidenced by Mr. Trump’s first term in office, within or during the mandate of a government.

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