Page 7 - Miami Vol 7 No 2

GENE C. SULZBERGER | Wealth Management
Tariffs: A New Conversation on an Old Topic
Asof this article’s submis- sion, tari s have been big economic news. Tari s are taxes levied by governments on im- ported goods. e United States has been moving over the past 20-plus years to a free trade environment. e United States has been removing tari s on imported goods; and, other countries are removing the tari s they have imposed on U.S. goods they
import.
One of the most signi cant uses of tar-
i s in U.S. history was the Smoot-Haw- ley Tari Act from 1930, which became law just a er the stock market crash of 1929. e bill’s impending passage led to downturns in the stock market, leading up to the crash, as exports signi cantly dropped. Some economists argue that the Smoot-Hawley tari extended the Great Depression. e impact on U.S. exports, at the time, was felt most on ag- ricultural products and led to defaulted loans by farmers and bank defaults.
e United States was able to extract itself from the chaos of the Smoot-Haw- ley Tari Act during the presidency of Franklin Roosevelt. Under the Recipro- cal Trade Agreement Act of 1934 Con- gress ceded authority over international commerce to the president. e act empowered the president to negotiate tari reductions that Congress wouldn’t do itself. is is where we nd ourselves today.
During the 1980s and 1990s, Repub- licans abandoned tari s and favored policies with minimal economic barriers to global trade. is was a pro-business stance and one that was fully endorsed
by the U.S. Chamber of Commerce. e United States started with the Can- ada-U.S. Free Trade Agreement in 1987, which led to the North American Free Trade Agreement in 1994. President Clinton had strong Republican sup- port in 1993 to push NAFTA through Congress, despite the objection of labor unions.
When considering exporting manu- facturing to another country to take advantage of cheaper labor there are two primary risks that a country like the United States faces. First, there is the risk of losing labor skills and becoming de- pendent on the other country. As a con- sequence, that other country now has leverage over the United States.
Tari s have been a way to protect the United States’ production interests, by making imported goods more expen- sive than domestic goods. is may be the case, but they also a ect consumer behavior. Trade barriers reduce the ef- ciencies of markets, disrupt behavior, and can negatively impact companies. If products are more expensive, consumers hold o on purchases, businesses hold back on further investment, and do- mestic growth is curtailed. In ation also impacts the country’s domestic product and the likelihood of a fall in the U.S. stock market increases.
A quick example is the recent case with Whirlpool, which complained that they were losing out to lower priced interna- tional competition. e White House placed a high tari on competing wash- ing machines from importers. ere was an initial boost in Whirlpool’s stock price, but two things then occurred. e
White House put a tari on steel and aluminum imports. Whirlpool had to increase the price of their machines. Sec- ond, consumers slowed their purchasing ofwashingmachineswiththeincreasein theprice.WhirlpoolandU.S.consumers are both losing the battle.
Positive global business sentiment has been a driver of much of the recent growth in the markets. Trade disputes like these can have long-term conse- quences, such as increasing the cost of goods worldwide and reducing our liv- ing standard. So far, the amount of goods covered by tari s has been relatively small and the impact on the markets has not been signi cant.
If this is a short-lived con ict with constructive negotiation and eventual agreements that result in freer and fairer trade, such a tari battle could have good long-term consequences. However, if this becomes a protracted tari war, there will be a damaging cycle of retalia- tory actions, combined with a failure of open negotiations, as each side digs its heels in, resulting in less fair trade.
What will the long-term implica- tions of disrupting supply chains be for the United States? What is the potential for the United States to be perceived as an unreliable trading partner going for- ward? e current picture appears to be closer to a war, as China establishes open free trade with many other countries around the world,
excluding the United States in these nego- tiations.
Gene C. Sulzberger is president of Sulzberger Capital Advisors, a registered investment advisory rm in Miami. He works with U.S. and international clients, to help them meet their wealth management goals. Gene is a CERTIFIED FINANCIAL PLANNERTM and a Registered Trust and Estate Practitioner (TEP). He has his Juris Doctor and previously practiced trust and estate planning law. He has over 20 years of experience in nancial services and planning. Gene can be reached at (305) 573-4900 or [email protected] Capital Advisors only transacts busi- ness in states where it is properly registered, or is excluded or exempted from registration requirements. Registra- tion as an investment advisor does not constitute an endorsement of the rm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability. Content is provided for informational purposes only and should not be construed as legal, tax, or investment advice.
AALMagazine.com
7