There is an economic argument that goods are selling at the clearing rate. We sell widgets for $5 because that’s the price point at which we move the most number of widgets and therefore generate the most revenue.
If we start taxing imported widgets by $1/ea, the retailer has to choose between stocking the domestic widget (expensive but no tax) versus the imported widget (cheap but taxed). But they still want to maximize the units sold, so they won’t raise the price above $5.
There is a counterargument that tariffs will cause importers to redirect their supply to other countries. That drives the gross inventory down over time and raises the clearing price above $5.
But, broadly speaking, tariffs will raise the price of goods that we can’t efficiently make in the US while the price of goods we can make will remain largely unchanged. So this then raises the question, What Do We Make in the United States Today?
The question is: what should we be making in the US?
Tariffs can give domestic manufacturing a temporary reprieve from lower priced foreign suppliers, to build or improve domestic manufacturing.
They can also be used to try to punish other countries for unfair trading practices
For example
100% tariffs on Chinese manufactured EVs are claimed to be in retaliation on for unfair Chinese government subsidies
US government is offering incentives to domestic EV manufacturers and purchasers of domestically produced EVs, which could help build domestic production, in conjunction with temporary tariffs
I’m not convinced that they’ve put this much thought into it, nor that domestic manufacturers will use this window of opportunity
100% tariffs on Chinese manufactured EVs are claimed to be in retaliation on for unfair Chinese government subsidies
The Chinese government subsidies are the same set of public improvements and business incentives every industrial country provides to build up domestic infrastructure. They’re significantly less generous than the Big Three Bailouts that Bush, Obama, Trump, and Biden all had to extend at least once in each of their terms.
US government is offering incentives to domestic EV manufacturers
But this is also an “unfair” subsidy, isn’t it?
I’m not convinced that they’ve put this much thought into it, nor that domestic manufacturers will use this window of opportunity
Foreign car companies - BYD being one, but Hyundai, Toyota, and Volkswagen certainly piling on the bandwagon - have invested far more money in small vehicle production than US contemporaries. Consequently, they tend to produce vehicles with better fuel economy at a much cheaper price point.
At the end of the day, that’s what this tariff is penalizing.
There is an economic argument that goods are selling at the clearing rate. We sell widgets for $5 because that’s the price point at which we move the most number of widgets and therefore generate the most revenue.
If we start taxing imported widgets by $1/ea, the retailer has to choose between stocking the domestic widget (expensive but no tax) versus the imported widget (cheap but taxed). But they still want to maximize the units sold, so they won’t raise the price above $5.
There is a counterargument that tariffs will cause importers to redirect their supply to other countries. That drives the gross inventory down over time and raises the clearing price above $5.
But, broadly speaking, tariffs will raise the price of goods that we can’t efficiently make in the US while the price of goods we can make will remain largely unchanged. So this then raises the question, What Do We Make in the United States Today?
The question is: what should we be making in the US?
Tariffs can give domestic manufacturing a temporary reprieve from lower priced foreign suppliers, to build or improve domestic manufacturing.
They can also be used to try to punish other countries for unfair trading practices
For example
I’m not convinced that they’ve put this much thought into it, nor that domestic manufacturers will use this window of opportunity
The Chinese government subsidies are the same set of public improvements and business incentives every industrial country provides to build up domestic infrastructure. They’re significantly less generous than the Big Three Bailouts that Bush, Obama, Trump, and Biden all had to extend at least once in each of their terms.
But this is also an “unfair” subsidy, isn’t it?
Foreign car companies - BYD being one, but Hyundai, Toyota, and Volkswagen certainly piling on the bandwagon - have invested far more money in small vehicle production than US contemporaries. Consequently, they tend to produce vehicles with better fuel economy at a much cheaper price point.
At the end of the day, that’s what this tariff is penalizing.
Dumb decisions, people nervous, that sort of thing…