alexhutton

Tariffs negatively impact the country that imposes the tariffs, because it is a tax on imports.

For example, steel is used by many businesses in the USA to create products which brings profit to those businesses. If the price of steel goes up due to a tariff, then it affects the profitability of those businesses. Businesses which actually produce steel itself would be able to obtain higher profit margins because they no longer need to compete with cheaper exports, but the overal affect on the economy is negative.

So if you look at the EU, yes, they should lower their tariffs, but they are hurting themselves with their tariffs. So the idea of reciprocol trade barrier reduction is incorrect. The country the eliminates tariffs benefits regardless of what the other country does.

But this does not happen for policital reasons and that is why the EU talks about trade wars. It's to look good to their voters. You'll notice in trade deals each country tries to get wins for targetted on certain special interest groups within their country. But this is in spite of the fact that if all trade barriers were removed it would result in the greatest possible benefit.

If you get tariffs, ie governmental inteference in trade, you can suddenly have large firms become unprofitable which leads to mass layoffs. So governments get up and say they blame the foreign government for it. And they may impose tariffs as a reprisal. In other words, if the actions of the foreign government are unpopular, it gives them cover to bring in tariffs that benefit certain special interest groups, increasing their political power within their country. And, in general, if a population thinks they are being attacked it usually galvanises them to support their leadership.

The argument against tariffs is that they are a tax and therefore coercive and immoral. Further to that, tariffs reduce the overall volume of trade, which negatively impacts overall economic activity. Another angle is that tariffs reduce specialisation, which means that overall productivity falls. The final point is that trade tariffs can create animositiy between countries, which can escalate “When goods don’t cross borders, soldiers will” .

The correct way to address trade imbalances is by addressing the root cause, which is the expansion of money supply in the trade deficit country.

If you have a fixed quantity of money, then you cannot run indefinite current account deficits. This is because you sell your money to buy the goods and when the money runs out you can't buy any more goods, unless you sell some goods to obtain money.

Hard money is a natural inhibitor against trade imbalances. It creates self-balancing trade where, mathematically, one country cannot take more than they give.

The USA has had an exponentially increasing money supply for decades, then in 2008 it climbed rapidly, more than quadrupling within 5 years. Trade deficits simply wouldn't be possible without this. But the USA government needs the expanding money supply to support its fiscal deficit, otherwise it wouldn't be able to finance its warface/welfare state.

The purpose of central banking is to protect private banks from bank runs. Free banking operated prior to the introduction of central banking and it was less stable. In free banking a bank either had the capital to pay its depositors or it didn't, and if it didn't it failed. Although this was a less stable situation it meant that credit couldn't expand indefinitely because each time one of the periodic bank failures occurred it would would reduce the money supply.

Another way to prevent credit expanding indefinitely would be to eliminate fractional reserve lending. But that wouldn't work out well for governments who often borrowed from banks to finance wars and other actions that were not supported by their citizens.