Tariffs: Robbing Peter to Pay Paul

Rob-Peter-to-pay-Paul-Tariffs

Unintended Consequences of Well-Intended Actions

The steep tariffs on steel and aluminum from three of America’s biggest trading partners — Canada, Mexico and the European Union – are a perfect example of what it means to lose sight of the big picture. Whether or not you believe that the root, or the focus of these tariffs is well intended (i.e., to help Americans get or keep jobs in these industries), they come at the expense of something else. In this case, our allies and trading partners are retaliating by putting tariffs in place in other sectors, where we will end up losing far more jobs than we savedhttps://www.kcra.com/article/how-tariffs-have-already-cost-jobs-in-norcal/22889194

Robbing Peter to Pay Paul

Every time I see something in the news about the U.S. tariffs on steel and aluminum, I’m reminded of the old expression, “robbing Peter to pay Paul.” It’s a great way to express what happens when we try to improve things in one area, only to end up hurting ourselves in another. Now, as a follow-up to the tariff retaliation from our allies, President Trump is promising $12B in aid to U.S. farmers. While it sounds good at first glance, this money has to come from somewhere. It’s a case of financial engineering, or a shell game, of sorts; we’re creating the illusion of helping through financial aid, while just digging a deeper hole. There will surely be a loss in another area, as we once again rob Peter to pay Paul; in this case, “paying” the farmers by stealing the money from somewhere else.

Unintended Consequences

When we engage in this kind of financial engineering, we fail to connect our actions to potential consequences. It’s like we have a blind spot to the outcome. We may mean well, but whenever we over-focus on one thing at the expense of another, whenever we fail to see the big picture, there are consequences to pay.

I’m reminded of a parent who pays more attention to one child over another. It may be for very legitimate reasons: perhaps one child is disabled and needs extra care. In this case, it’s perfectly natural and instinctive for the parents to spend more time with and to do more for this child. The other child, who seems to be healthier, is consequently “ignored” more, for no ill intent. However, over time, this “healthier” child may very well end up with issues of his or her own, due to unintended neglect.

Here’s another example: back in 2003, if you recall, outsourcing of jobs was a big issue for our country. More and more companies were doing it; and more and more people were getting enraged because of it. A Time magazine report noted that outsourcing to India alone jumped 63% in 2003 compared to the year before. (http://content.time.com/time/press_releases/article/0,8599,593537,00.html)

An effort to cut costs, or to save money (for the company and its consumers), resulted in the loss of domestic jobs. In many cases, the impact of outsourcing was apparently not thought through. I remember doing a TV interview back then about the topic of outsourcing. At the end of that 25-minute interview, I was so impressed with how the host wrapped up our segment. I’ll never forget how he eloquently summarized my responses on outsourcing. He said:

“Think of it this way. We all want our investments to grow… until our neighbor loses his job because of it. Then we begin to worry that he might steal our lawnmower.”

Narrow Thinking

In other words, what looks good at first glance may not really be all that it seems. To please aluminum workers, or to get their vote, our president tells and promises them what they want to hear; what impacts them only. And he acts to help them, by imposing the tariffs. Then he worries about the impact on farmers, so he acts again to help them. But this is narrow thinking, looking only at the impact on one area at a time. It’s really a form of myopia, when we only focus on one part of the picture. Unfortunately, this inevitably leads to negative repercussions or side effects somewhere else. Unintended consequences are like traps you build over time, by failing to take heed. We solve one problem, only to see another arise. And we end up facing the same problems, or new ones, over and over again.

I’m aware of a very vital and successful non-profit organization that helps children with life-threatening illnesses and their families. When this organization began, in its early years, it was like that parent with a disabled child that I referenced earlier. It focused primarily on the needs of the sick children. What it failed to recognize at first was how much help was also needed by the sisters and brothers of the sick children. They, too, are going through a life-changing experience when they have a sibling with a life-threatening illness. And their needs can be easily overlooked. This organization soon realized how important it is not to neglect the needs of the siblings. Consequently, they instituted a “sibling support” program to provide personal attention and care for those sisters and brothers. In other words, they corrected their course. They learned from the unintended consequences of their well-intended actions, and they adjusted accordingly, to provide even more value to what they offered.

We need to stay focused on the big picture; not just where the spotlight might be shining at any given moment. And when problems or unintended consequences do arise because of our myopia, we need to be quick to adjust our plan accordingly, in a way that considers all possible consequences.