Alternatives to tariffs

Those who don't trade goods trade bombs.

In other words, perhaps the greatest peacemaker of all time has been free trade. When people around the world both know each other and are bound to each by trade, they form affinities and dependencies that politicians cannot disrupt.

Americans' economic literacy has increased over the past century, and with it support for tariffs has plummeted. Tariffs have not worked historically and they will not now. Much like a market, a political conflict has two sides, and when the conflict is heavily publicized, no leader is going to be humiliated.

It's important to understand that a tariff is a tax. The government adds a price to a good, and that incremental price goes to its coffers. If you don't like taxes, you shouldn't like tariffs. The tariffs the United States is imposing now are one of the largest tax increases on its citizens in decades (1). The current tariff tax, the nonpartisan Tax Foundation estimates, will cost over 155,000 Americans their jobs. (2)

It's also important to understand that a tariff is antithetical to a free market. It allows the government to pick and choose winners. You can see this in the shoe industry as they write sycophantic letters to this administration, begging that their one industry be released. This behavior is more akin to communism than free markets. So if you like freedom, you shouldn't like tariffs either.

Historically, and now, it is common for a political leader to use a tariff to fear-monger, to divert attention from real issues, or to bend the scope of a problem and blame it on foreigners. That is almost all of what is going on today.

But there is one issue that is real, and that is the one that I want to address. By real, I emphasize that it is not important in the scale of important problems our country faces. It's frankly minor in that regard - there are many that are more pressing. But it's interesting academically, and it affects one industry disproportionately.

That is the issue of intellectual property theft cross-borders, as currently practiced by China. This primarily affects the high-tech industry.

Historically, we know that tariffs won't work. We also know that if you brow-beat someone into a pact, they will sign it and then cheat anyway, so nothing will be accomplished except politicians saving face. So what are realistic options? Here are two.

1. Take inspiration from the open source software movement. Several years ago Tesla open-sourced all of its patents. Why? Did Elon wake up and decide today was charity day? No, they open-sourced to intentionally create a larger electric vehicle industry, because they wanted more scale in their supply chain to lower costs. Smart businesspeople have figured out that you can create much more wealth, and much larger markets, but giving much of your business away. This is why we don't pay for each search on Google - though that idea was often discussed in the early 1990's search engines.

Open-source software companies give a portion away and build services on top of it. They assume they will always be moving faster than the folks copying and following, and that the revenue lost in the product is recaptured in market size increase. You can view international technology the same way.

2. Stop fighting in a "red ocean" of conflict (3), step back, and reframe the approach. Realize that the people building the technology are more valuable than the technology itself. Robin Li grew up in China, determined to get to the United States. He did, and was educated here with a PhD in computer science. For various reasons, after September 11th we lost him and he returned to China and built the largest search engine in Asia. Losing Robin Li was arguably orders of magnitude more important than having some technology reverse-engineered.

If we focus on attracting bright, productive immigrants, we'll create a competitive system. And a system is tough to copy.

Dan Cunningham

(1) CNBC 5/16/19: The tariff tax increase

(2) Tax Foundation - Tracking the Impact of U.S. Tariffs 5/31/19

(3) The reference above to a "Red Ocean" is from the book "Blue Ocean Strategy."

Return to Articles
How We Are Different
Low-fee index funds. Transparent & fiduciary financial advisors.
Local Financial Advisor
We are in your community. We are local.
Investment Management
We tailor to each client. Index funds at the core.
Index Funds
Broad market exposure, low expense.
Dan's Corner
Meaningful musings from our founder.
Fiduciary
Your best interests are our priority.
Low Fees
Our fees are among the lowest in the nation.
Financial Planner
Financial advisor optimizes your financial picture.
U.S. Treasury Bonds
Use Treasury Bonds to reduce risk.
Book Recommendations
Here are some of our favorites
Who We Serve
We work with clients nationwide from all financial backgrounds.
When Should I Invest?
Life transitions = important financial decisions.
Retirement: 401k and More
Retiring? Plan the future you want.
IRA Rollovers
401k Rollovers. IRA Rollovers
Active vs. Passive Investing
We believe there is a winner in this debate.
The Investment Process
How we work: low-cost index funds, personalized attention.
Simplicity
Simplicity is the ultimate sophistication.
Investing: What to Focus On
Low-fee index funds. fee-only advisor.
Switching Financial Advisors
Can be uncomfortable, but an important step.
Advisor Recruiting
We attract top-tier talent. Not your usual firm.
Basic Investing
Let's start with Investing 101.
Understanding Your Financial Statement
Let's break it down to basics.
Taxes on Investments
What causes taxes within your investments?
Behavioral Finance
Nudge vs. Sludge.
Advanced Investing
Let's geek out on stats and figures.
How Financial Firms Bill
Fee-based vs. fee-only, and lots more.
Who Supports Indexing?
Bogle, Swensen, Buffett, and others.
Transparency
One click to see our fees.
Mutual Funds vs ETFs
Clarifying the difference.
Does Stock Picking Work?
The resaerch says no.
Countering Arguments Against Index Funds
What happens in a down market?
Annuities
Lots of fees, little clarity.
How Do Mutual Funds Work?
Invest in the basket.
How to Relieve Financial Stress
New client? anxiety is normal.
Financial Terms Glossary
Common investment terms you should know.
Firm Comparison
One Day In July vs the competition.
Retired Investing
Retiring? Let us help.
Young Investors
Plant a seed, watch it grow.
High Net Worth Investors
Preserve and grow your wealth.
Investing an Inheritance
Prioritizing and planning for the future.
Frequently Asked Questions
Good questions, real answers.
Female Investors
Your voice needs to be heard. We are listening.
For the Business Owner
Choosing what's best for your business.
Environmental Investing
Carbon intensity, fossil fuels.

Locations

Vermont

Connecticut

United States

Services

Individuals

401k Plans

Institutions

Environmental

Account Types

Differentiators

Cash Flows

Low Fees

Fiduciary

Dedicated Advisor

Materials

Advisors: Join Us

Careers

Articles on Investing

About the Secure Act

Quarterly Booklets

Resources

Vermont Investment Management

Vermont Retirement Planning

Vermont Wealth Management

Vermont Financial Advisors

Investment Tools

Shelburne, VT Financial Advisor

Frank Koster | Josh Kruk | Keith McCarthy

5247 Shelburne Rd, Suite #101

Shelburne, VT 05482

(802) 777-9768

Stowe, VT Finanical Advisor

Available for meetings in Stowe.

Peter Egolf

(802) 999-2321

Burlington, VT Financial Advisor

Hans Smith | Katie Muttitt

Nancy Westbrook | Peter Egolf

77 College Street #3A

Burlington, VT 05401

(802) 503-8280

Darien, CT Financial Advisor

Available for meetings in Darien.

Keith McCarthy

(203) 554-9466


v 1.7.16 | © One Day In July LLC. All Rights Reserved.