What does a trade war mean for the little guy (or you!)?

This is the first in a short series of articles with thoughts on the current and escalating global trade wars, particularly from the perspective of trying to get a small startup off the ground in the US.

Why am I bothering to write this when I have a million other things to do as a founder (not to mention other areas of my life, which, let's just say, are a little busy right now)? 3 reasons:

1. We're seeing pretty significant shifts in global trade policies with massive effects on all of us. It's become clear to me that the (non-extreme) voices of small business owners and average consumers and citizens have been largely missing from most media coverage and public debate. I don't expect many people to read this (and I'm not trying to promote a B2B service or personal brand on Linked-In), but I can at least contribute in a very small way to filling some of that void.
2. Out of all the (many) risks we thought deeply about when starting our business, geo-political risk was not high on our list! But it turns out it's the factor that if I could wave a magic wand and have go away would make the biggest difference to our startup. Possibly the difference between surviving or not. This is obviously a specific perspective. But I know that we are not the only ones dealing with these issues. And my goal here is to be as reasonable and objective as possible in shedding light on some of the general issues and what they mean for one specific startup.
3. I'm an economics geek. While I do have an economics degree, it was a long time ago and I am not a professional economist (or politician, or trade lawyer). I haven't studied the recent international trade research literature in depth. So this is all primarily from the perspective of a founder trying to run a startup i.e. dealing with a daily exercise of problem-solving with very incomplete information and uncertainty. But I have always loved economics; I've thought about the theory a bit, but more importantly also had to deal with how it plays out in reality. It seems futile to say this in the age of social media, but this is not to be used as a replacement for seeking expert advice in any particular field. These are just the individual thoughts of one small business owner ;)

To get started, I'm including below what I wrote in a recent post about the very basic mechanics of a favoured weapon in this current trade war: tariffs. It occurred to me that it was a bit random as an individual post, but may make more sense in the context of these articles.

One of the (I suppose political) issues at the moment is that there is so much mis-information flying around on top of a lack of understanding of some of the basic facts. Before getting to more personal experiences or opinions, I hope we can at least agree on some facts, like what is a tariff, and who actually has to pay it?

When the US imposes tariffs, who pays them?

The literal answer is pretty simple: whoever brings the goods into the US. You heard that right - when the US puts tariffs on products or raw materials coming from say Germany, Mexico or China, the tariffs are not paid by Germany, Mexico or China, or even by German, Mexican or Chinese exporters, but by whoever brings the products into the US (typically American businesses, although could be businesses anywhere trying to compete in the US).

Tariffs are a tax on imports. So just to be clear, in the example above, if anyone thinks the tariffs are directly "being tough on" Germany, Mexico or China, or "making them pay", be aware that tariffs are not paid by the exporters, but rather people operating in the US market. This is not an opinion, it's just a fact.

That may sound like semantics, but it's not, and makes a huge difference.

I have a feeling that most consumers don't realise this basic fact ("wait, isn't a tariff on Mexico a tax on Mexico?!"), let alone have any chance of an educated perspective on the various indirect effects. That's understandable; why would most people spend any time thinking about it, or about anything to do with international trade? Except that politicians have turned trade into simple slogans that obscure how policies like tariffs actually work, and have I think created a lot of confusion.

Beyond the direct payment by importers, what are the effects of a tariff? Well, welcome to the complexities of economics (not to mention politics and ethics!) If anyone tries to tell you it's simple or obvious, run away very quickly.

I have my opinions (spoiler alert: they are very different to Robert Lighthizer) that I'll save for another time and can certainly be debated. But for now, please stop making people think that tariffs are a direct punishment on other countries paid by those other countries!

#tariffs #protectionism #freetrade #tradepolicy

If you've made it this far, you're a hero. Please let me know! And I'll be back shortly with at least a couple of articles beyond this initial introduction. I hope this journey will be interesting for at least a few people out there!