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President Trump reinstates tariffs on Brazil and Argentina

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President Trump reinstates tariffs on Brazil and Argentina

Free trade is a necessary component of an open market, but there are situations in which punitive tariffs are necessary in order to correct market conditions for domestic exporters. One such situation is when nations devalue their currency to make it less practical to import goods against a strong U.S. dollar. That’s exactly what President Trump is accusing Brazil and Argentina of doing, which is why he is restoring tariffs on steel and aluminum imports from the two South American nations.

He also continued his call to the Fed to lower interest rates to compensate. While the correlations is weaker between interest rates and exports, it plays a part. This is something the President has been pushing since he entered the Oval Office.

By weakening their currency, countries reduce their buying power on U.S. imports. It makes it cheaper for U.S. countries to import from them, prompting many U.S. companies to import rather than buy materials domestically. The tactic, when intentional, is frowned upon by the international community, though many countries, including China, still do so for the sake of short-term gains.

Tariffs have a side-benefit: revenue. Since the federal government collects the tariffs from foreign exporters, the money is often used to mitigate damage they can cause. As the President noted, the original tariffs imposed on several countries, especially China, has generated revenue that has been passed on to domestic industries, most notably farmers.

Tariffs as a general practice are bad for the economy, but in the long-term the can help the nation correct trade imbalances that are artificially created when countries devalue their currency. This is one of those cases.

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