American producers: I can’t compete with that $10 foreign product, I have to sell my product at $12 to turn a razor thin profit.
Politician: ok I’ll slap a $5 tariff on the foreign product to protect you.
Act 2
American producer: awesome so now the foreign product costs $15! I can compete
American consumer: oh well I guess I can spend $12 instead of $10… sucks but America first I guess
Act 3
American producer: no need to leave $3 on the table, let’s sell ours for $14.99, I need more profits because everything I want to buy with my profits is now more expensive for some reason.
American consumer: the foreign one used to cost $10 and the domestic one cost $12… now they cost $15 and $14.99. I guess I’ll buy the American one and skip dinner tonight.
To be clear, I think it’s a shit idea and we know (since Elon is running things) the execution will be awful. Tariffs are almost always a shitty idea and will cause nothing but inflation. But that’s the point for Trump. It’s a stealth tax increase.
The only times I think tariffs are good is if:
Another country is subsidizing an industry with the goal of creating a monopoly on something essential.
You have an infant industry that’s viable at scale but it needs time and investment to scale up but it’ll be competitive once it does
Frienemy national security situations with unreliable trade partners (to wildly over-simplify, if you import all your guns and bullets from a frienemy and your exports to them are fancy purses, you probably need a domestic producer of guns and bullets more than they need a fancy purse industry.)
Something wild like a stupid, unjust war initiated by a madman. But that never happens, right?
But it’s always, in the end, a tax on your citizens and there are almost alway better ways to go about it than tariffs.
Doesn’t stop them passing the “tariff charges” on regardless if they actually have to pay or not
Don’t be surprised if these companies suddenly show 10-25% increase in net profits.
That’s the whole point. Raise the price on things and then American producers can compete.
Why tariffs are stupid in three acts
Act 1
American producers: I can’t compete with that $10 foreign product, I have to sell my product at $12 to turn a razor thin profit.
Politician: ok I’ll slap a $5 tariff on the foreign product to protect you.
Act 2
American producer: awesome so now the foreign product costs $15! I can compete
American consumer: oh well I guess I can spend $12 instead of $10… sucks but America first I guess
Act 3
American producer: no need to leave $3 on the table, let’s sell ours for $14.99, I need more profits because everything I want to buy with my profits is now more expensive for some reason.
American consumer: the foreign one used to cost $10 and the domestic one cost $12… now they cost $15 and $14.99. I guess I’ll buy the American one and skip dinner tonight.
To be clear, I think it’s a shit idea and we know (since Elon is running things) the execution will be awful. Tariffs are almost always a shitty idea and will cause nothing but inflation. But that’s the point for Trump. It’s a stealth tax increase.
The only times I think tariffs are good is if:
But it’s always, in the end, a tax on your citizens and there are almost alway better ways to go about it than tariffs.
They’ll still manufacture overseas as long as they can cause of shareholder value