Goblins in the Tech Market: Tariffs

Posted on

It’s Spooktober, but year-round, our fears are what we do not know or understand. However, some things are easier to learn about than others, which means saving space for the things that are actually terrifying.

One such scary thing can be government policies, especially economic ones. This has become true for the tariffs levied by President Trump this year, which have directly affected technology hardware companies, as well as other industries and personal consumption. However, they don’t have to be scary, maybe just annoying.

What is a tariff?

A tariff is a tax, expressed as a percent, on an imported good. An imported good is something we buy from another country, like Heineken beer. Tariffs serve two purposes: collect revenue (money) and protect industry at home.

You may remember hearing about them in middle school, way back in American history. England wanted to put tariffs on goods imported to the original Thirteen Colonies to pay for their wars, among other things. They also wanted to limit trade so that American Colonists only bought English products, protecting their market share. One of these taxed items was tea. The people of Boston didn’t like that “taxation without representation” on a popular home good. They held a famous Tea Party, dumping tea into the harbor, and sent an expensive message, collect.

What would a tariff look like in numbers?

Let’s use steak in an “ideal world” example.

An American restaurant can buy American steak for $12/lb. They could also buy Argentinian steak for $10/lb. If you’re trying to save money, and the two items are similar, obviously you choose cheaper, right?

Except, to protect the American beef market, the US government has put a 25% tariff on Argentinian steak. At check out, the American restaurant will pay: (10 x .25) + 10 = $12.50/lb. Ideally, the restaurant now buys the cheaper American beef and hangs a farm-to-table, #eatlocal sign in their dining room.

Why are tariffs affecting us today?

Unfortunately, ideally doesn’t always happen. Tariffs haven’t been used often in the United States since the 1930s because one tariff gave them all an especially bad reputation.

Economists believe that a particular tariff, called the Smoot-Hawley Tariff, made the Great Depression worse, here and abroad. It raised tariffs on farm products and manufactured goods to encourage Americans to buy American-made products. As a result, other nations retaliated with their own tariffs. The global economy came to a standstill. Not long after, these economic conditions contributed to the social climate that birthed WWII.

To prevent the bad side of tariffs, these taxes, also called “duties,” have been negotiated as part of the “global free market economy,” which relies on fair, free trade agreements. These agreements let people specialize in specific industries, like maple syrup and motorcycle production. We had one with Canada and Mexico called NAFTA, which was recently renegotiated and renamed.

Sometimes, though, governments don’t play by these “fair and free” rules. They rig the game to make it easier for their national industries to take all the market space. President Trump alleges that China is one of those countries that does not play fairly, giving money to companies so they can price their goods more cheaply than American companies can price goods.

To pressure China to quit these practices, President Trump put a 25% tariff on some Chinese products. China has returned fire on US agricultural goods, like soy products. It’s a game of chicken: can America afford those expensive goods, or will China stop rigging the game?

These tariffs have directly affected the technology hardware market because they went into effect on fundamental components and materials. Many companies have been able to absorb these costs before they affect the consumer, but not all of them. This means that some technology goods have risen in price to reflect these tariffs. However, leaders in Washington have conveyed the belief that these measures will be over with sooner rather than later.