Saturday, 28 April 2018

Tariffs and prices

The US is imposing tariffs on a number of imports - notably steel and aluminium.  The aim is to protect US manufacturing by making foreign goods more expensive - thus making domestic products more competitive.  Now I haven't seen the details of the tariffs - but I do know that this is an area in which there are often unintended consequences - and my experience also tells me that the 'pain' from unintended consequences often outweighs the 'pleasure' from the intended consequences.

I hope President Trump's advisors have remembered that US auto manufacturers import steel and aluminium parts from around the world.

There is evidence that - mot surprisingly - countries like China will respond in kind, imposing tariffs on goods most likely to come form the US.

There is other evidence that Modi, in India, is also looking towards forms of protectionism - it seems to becoming into fashion as politicians become more populist - looking for short-term vote grabbers rather than long-term economic success.
Trade wars are a bit like price wars .... they can end up being a 'race to the bottom'.   Countries use their energy thinking about the next trade skirmish - instead of how to grow trade in the longer-term.

Keep your eyes on the prize - and set your strategy accordingly.  Use pricing intelligently - as part of that strategy, not as a blunt weapon.

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