There’s a lot of political rhetoric around tariffs these days. For us, we’re not interested in the politics, but rather in the question itself. Brevity and simple language suggest the question might have a simple answer. But as you might have guessed, that’s often not the case.
Let’s go a level deeper with an oversimplified example. Let’s say the US will put a 25% tariff on imported steel. What are the implications?
A US car manufacturer that makes cars domestically has a number of things to consider.
With the Tariff, foreign steel manufacturers might have to raise the price of steel if they want to maintain profit margins. And if the steel gets more expensive, the car manufacture might raise the price of cars to compensate. That means cars become more expensive for Americans. Is that a good thing?
If the car company doesn’t raise car prices, they make less money (their costs go up while revenue stays flat). This could lead to a drop in the stock price (a reduction in the overall value of the company) and perhaps a slowdown in the economy. Is that better than the above situation? 🤔
Or perhaps to avoid paying tariffs, the car company closes its US plant to start manufacturing the cars somewhere else. Then they ship the finished cars to the US for sale. So they avoid higher priced steel, but we lose jobs instead. Do we take door number three? 😵
And of course (as we’ve seen), nothing happens in a vacuum. Tariffs in one category of goods leads to retaliation and more tariffs in other categories. So what starts out affecting a few companies in one industry fans out to thousands of companies in myriad industries.
So you see, there are tons of complexities and knock on effects in what might appear to be a simple question. And that tends to be the case with most things. The problem is that, as humans, we seek out patterns and simplicity. So we often default to simple answers that reduce the neurological load.
So the next time you are about to answer a question on Vectr, think about what nuances and complexities might be at play. Because the best questions tend to lead to more questions, rather than simple answers.
-Jeremy & Jake