What are Tariffs? Why do we have them? | Kami Story Time

[Music] hello hello and more hello so we are back with a new video I haven't done one quite like this before but I have a business degree and I think it's high time I use that it's something that doesn't really come up too often uh it has come up a little bit when we've been doing some uh virtual talk episodes but not a lot of topics that uh we cover there really need like a business degree and even this is something you should know I think the first time I heard about them was in high school government class so yeah we're we're going to go into this topic so what is the topic today's topic is what is a tff a lot of people don't seem to understand what they are so I feel it's important that uh we go and uh give it a little talk I have Wikipedia up I usually won't be uh reading directly from Wikipedia it's just a good thing to have in the background so if you want while I talk you can read a little bit what is a tariff a tariff is a tax imposed either by the government or with a body that uh supersedes the government this can be a Trade union or um like a guilds in the old days uh something that has the ability to put attacks on imported or exported Goods um it's very unusual to put a tariff on exported Goods uh because that would make your products more expensive outside of your country uh that can happen but usually it doesn't need to happen because the cost of transporting your goods is already going to in increase the price anywhere else in the world that you choose to sell them so because of that exported tariffs are very unusual so now that we know what a tariff is let's answer question two why do we use tariffs so the most common form of tariff by far are protective tariffs these are tariffs put on very specific Goods to increase the cost of a good in your own country uh since they're usually as we just explained on imported goods so here are some classic examples from the US uh that's probably the best place to start we put tariffs on foreign cars because of this a lot of car manufacturers started to build uh assembly plants either in the US or in our trade Partners who do not get hit with the tariffs which by the way is Canada and Mexico that's why you'll find almost every foreign car company that sells in the US has a plant either here in Canada or in Mexico they get all the parts that they need to make their vehicles and then they ship them here and they do the final assembly here and that gets around the Tariff on an imported car this is the way that a tariff is supposed to work it incentivizes the companies to work around the Tariff and in doing so increase your actual production in your country they're usually called one of the few levers that we have to affect the economy and that's the most classic example uh another good example are Chinese made solar panels and solar cells because of the way China operates uh their solar panel companies and solar cell grading companies were able to price their own products far below costs when shipping to the rest of the world because of this the price for their products was significantly below that of our native uh panel creators and cell creators here in the US and other parts of the world at this point I believe in that particular Market something like 80% of the market is all chines so that is a very classic example so what did we do as a country we put a tariff on their solar panels that increases the price here to buy those goods again and that makes it so our own companies can start to have a equal foot in the market because the price is going to be roughly the same for the two products so it's no longer looking at one that is 30% cheaper than the other uh what China is doing by the way with those is something that is termed dumping you can read about it down here if you actually want to read Wikipedia but basically it's where you produce things that are under the cost of just about anywhere else in the entire world uh in China's case they were specifically making it so it would be cheaper than anywhere else in the world so that is what a tariff does it's used to prop up your own industry so it can compete usually in an unfair situation with an outside entity having said that why do we not use tariffs more often well there's a simple reason why we usually do targeted tariffs once aimed at specific markets and I'll go back to the cars for a very quick explanation of this if we were to have a universal tariff on all imported goods say a 10% tariff and if we already had had a 10% tariff on assembled uh cars that we were bringing in from outside uh just to make these numbers even this is convenient so before you did the universal tariff you were already having a 10% markup on cars that you assembled elsewhere and brought here that's very similar to how things are already work now if you put a universal tariff on all Goods coming into this country all of those assembly plants that we just talked about earlier they're now more expensive as each individual good you bring in is taxed with a tariff since each part coming in now has a 10% markup it is far cheaper to build a car elsewhere in the world ship it here and only have to eat the Tariff once this is a classic example again of why you don't have Universal tariffs you have now just negated the benefit that you had with a targeted tariff it's no longer protecting just a very specific markets it is now aimed across the board and as we already explained the cost of a good sold is what changes with a tariff you you're not taxing China when you put a tax on imported uh solar panels from China that cost is what goes down on the product Here China doesn't pay that China already sold the good the one that pays it is whoever brings it into the country and then goes to sell it uh usually if that's different from the entity that brings it over it is considered sold to someone here when you actually do the transit so that's should be a fairly simple concept so if uh you were say a fex and you were carrying something over that has a tariff on it from oh Germany to the us as a easy example off the top of my head uh FedEx doesn't pay the Tariff who pays the Tariff is whoever gets it on the other end in the same way those tariffs or the cost of them are passed on to whoever ends up with the product since almost no business wants to make no money in fact I don't know any businesses that don't want to make money they would not be a business for very long if they did so there's one last aspect to tariffs that we need to look at at least here in the us if you're not a US citizen you can probably basically uh skip this part so who can actually impose a tariff in the US well this right here basically explains the answer and uh I'm not going to read the particular trade reciprocal trade agreements act Clauses to you but let's just say a trade agreement Act of 1934 authorized the president to negotiate bilateral reciprocal trade agreements and Proclaim changes to the US tariff rates up to 50% of existing rates without further congressional action so a president doesn't necessarily need Congress to imply almost any tariff on any good and who says this you might wonder I mean it's not Google Google's not saying that no that would be the Congressional research service and because it's such a recent thing for people to be interested in they did this as part of the July 31st publication of this year it is one of the few levers that the president can actually do without invoking Congress now I'm not 100% sold on the fact that you can actually universally tax all products just from the president but uh that would have to be argued probably in the Supreme Court whether they have unilateral ability to do uh Universal tariffs cuz I don't think the language in the original Law and I actually did read it but I won't pain you guys with reading it to you and uh it seems to be fairly broad worded it's not specific enough uh cuz it doesn't ever mention Universal tariffs but presumably the president has the ability to do it without any act of Congress uh a very unusual situation so uh I think we've pretty much covered what you need to know about tariffs I won't make any decisions for you about what to do with this information but I feel this is important information for you to have CU as I've stated tariffs are not taxes on other countries or specifically anything that goes back to those countries there are taxes that apply to whoever here is the one that buys them and specifically for the US this is important because we make very little here in the US anymore in the short term putting a universal tariff on all Goods coming from outside of our country would be a disaster the likes you cannot imagine I'll just let you think that over for a little bit until our own internal American production can actually match our demand here in the US for goods and services a universal tax on foreign Goods is is going to demolish our actual prices that we pay and with that I will end this so I hope you enjoyed this little conversation if you have uh put a comment in subscribe maybe give me a like and uh I'll see you later bye