Tariffs, Free Trade and Buying American in the 21st Century

In the United States, the popular slogan “Buy American” is a way of reminding citizens that buying products made in America will benefit American workers and American companies. But a government has a way of helping this cause by placing tariffs on imports. A tariff is a tax on imported goods. A country places these taxes on products that are brought into the country from other countries. One of the reasons they do this is to protect the country’s companies that manufacture the same goods.

For example, look at automobiles. At one time, Japanese car companies were faced with a tariff that made their cars more expensive to sell in America. Someone interested in purchasing a Japanese car would see that a similar American car would be cheaper in price. The tariff protected American car companies then, because many car buyers chose the cheaper American car. So the profits were made by an American company that was paying American workers.

But Japanese car manufacturers were willing to reduce their prices so low that the tariff didn’t make a difference in the price between a Japanese and an American car. Many car buyers felt that Japanese cars offered higher quality and if the prices were fairly equal, they might choose to buy Japanese cars. The Japanese companies would make their profits by selling more cars and hoping that car buyers would continue to buy their cars years later.

Today many countries enter into agreements with surrounding nations to create free trade agreements or free trade zones where tariffs are not placed on goods between those countries. The purpose is to allow more products to reach buyers and grow the wealth of all the nations involved. An example of this is called NAFTA (North America Free Trade Agreement). It allows for products made in Mexico and Canada to be sold in the United States without any tariff placed on them (and for U.S. products to be sold tariff-free in Mexico and Canada).