Can you explain how tariffs are an effective tool against foreign governments subsidizing industries? It has been my understanding that tariffs typically end up being tit-for-tat and relatively zero-sum.
They neutralize the subsidy's effect on pricing and prevent the subsidizer from taking over your market, at least.
> It has been my understanding that tariffs typically end up being tit-for-tat and relatively zero-sum.
The subsidy is already a tit, the tariff is tat. Zero-sum is at least better than just taking the blow and having a negative-sum outcome for yourself.
> The subsidy is already a tit, the tariff is tat. Zero-sum is at least better than just taking the blow and having a negative-sum outcome for yourself.
To be more clear, I meant that it was typical for foreign governments to impose retaliative tariffs. e.g. https://www.trade.gov/feature-article/foreign-retaliations-t...
To say nothing of who actually pays the cost of tarrifs.[0][1]
[0] https://taxfoundation.org/blog/who-really-pays-tariffs/
[1] https://www.cato.org/publications/separating-tariff-facts-ta...
And in the context of massive trade deficits, so what? IIRC, when the Trump tariffs went into effect, there was a lot written that the Chinese didn't have many levers to pull to respond, because of the US trade deficit. I think they implemented a tariff against soybeans (and some other non-tariff actions), and that was about it.
> To say nothing of who actually pays the cost of tarrifs.[0][1]
Who cares who technically pays, especially when they're correcting for some other market distortion? Focusing on that is a hallmark of libertarian anti-tariff propaganda that's pretty monomaniacally focused on free trade dogma and prices to the exclusion of all other considerations.
I was thinking more in the context of consumer inflation. Countries tend to go back and forth in a tariff war, effectively raising taxes and lowering incomes for their citizens.
> I was thinking more in the context of consumer inflation. Countries tend to go back and forth in a tariff war, effectively raising taxes and lowering incomes for their citizens.
That's monomaniacal focus on short-term "prices to the exclusion of all other considerations." An artificially low subsidized price isn't a good deal, especially when its competing with your local industry.
Why is someone else subsidizing the price of a thing you buy bad?
The subsidy is doing you a favor by reducing your input costs, or freeing up your work and capital to produce something else.
From a national security standpoint this can be deadly in a hot conflict.
From an industrial strategy standpoint, it’s the same as any other monopolist practice - they will erode your base, take over your market, then raise prices to fleece your population’s wealth while increasing their own.
Industrial bases are economic strongholds that shouldn’t be lost, particularly not to great power competitors.
What about a cold conflict? How much do the tariffs and protectionist policies cost in the middle to long run?
For example, the Jones Act costs billions per year and has been going on for a lot of years. How many additional aircraft carriers and submarines and so on could the US have bought with that money?
Successful Asian powers studied history, not Milton Friedman. https://en.wikipedia.org/wiki/Historical_school_of_economics
I'm a consumerist at heart. As long as consumers get to consume, it does not matter to me whose industry is doing the producing.
I get that your foreign suppliers can turn on you and raise prices. I think the money you make during peacetime by not putting tariffs will let you buy more weapons and bribe more allies so that the foreign suppliers don't try anything too awful with the supply chains. Stockpiles can buy a lot of time to restart industry in an emergency or at least find a different foreign supplier.
Take a look at Russia, they are sanctioned by half the planet and they still keep going on a reduced industry because they had huge stockpiles of tanks, artillery and so on. Imagine something like that but with a military that doesn't suck. Nobody would even dare try a sanction.
Losing your industrial base and giving it away to a geopolitical competitor is almost certainly an error in the long run.
Large industrial bases also are correlated with healthier middle class societies, according to Vaclav Smil, and in my experience, he’s exactly right.
So losing the industrial base is fine for you, a service sector worker, but it’s bad for the country and it’s bad for society, if you want it to have a healthy middle class.
The ones who are most hurt by tariffs, most affected by higher prices, are the working class. Sure, the workers of the specific industries that are lucky enough to be protected, the ones with the most persuasive lobbies, will certainly benefit. But every other worker will be a little worse off.
If you are concerned about the people who got hurt by globalization, maybe the government should collect money from people like us and spend it on people like them. They can set up the tax in such a way that rich people pay the most.
But if you use tariffs to help the people who got hurt by globalization, you cannot set it up in such a careful way. It's a blunt instrument that hurts productivity across the board and increases the prices to the end consumer. It becomes an implicit tax that poor people pay the most. An actual explicit tax would hurt much less.
Perhaps in the short to medium term, the people who had their livelihoods decimated and partially compensated for the decline in their standard of living by buying cheap imported products, will be most affected.
But tariffs should be a component of a longer term plan of tradeoffs to revitalize the protected industries.
> If you are concerned about the people who got hurt by globalization, maybe the government should collect money from people like us and spend it on people like them.
That idea is past its sell-by date. It's the neoliberal Democrat's response to the economic damage done by globalization: put the losers on welfare indefinitely. IMHO, that money should be
Should be...?
> Should be...?
Sorry. Should be used to offset any short-term difficulties caused by tariffs, that occur as part of a longer term plan.
You don't see the point of building up, say, your domestic chip building capacity? Really?
>Take a look at Russia, they are sanctioned by half the planet and they still keep going on a reduced industry because they had huge stockpiles of tanks
Russia can "keep going" because they have vast reserves of fossil fuels that Europe, currently, can't live without.
The net effect is merely a net transfer from the foreign government to the domestic one.
Tariffs that go BEYOND the subsidies in the foreign country has a net protectionist effect. This CAN cause stagnation in the industry in question. But less so if there is still healthy domestic competition.
Subsidies are potentially the most destructive measure. This is especially true for protectionist subsidies, and less so for export subsidies. But in general, subsides sets up a cash transfer facility between a government and local industry, often removing incentives to innovate. In turn, this means that the subsidies need to increase year by year to have the desired effect.
This can lead to the subsidized industry dying a sudden death once public patience for the growing subisides (and so the subisides themselves) come to an end.
The book calls it “export discipline”, that is, you keep the subsidised firms on their toes by demanding them to be exporters and win the global market, thus making them remain competitive.
I wouldn't say it's unfair, if other countries actually value domestic manufacturing then they'll provide the subsidies and incentives to cultivate it.
Incentivize it by…taxing imported manufactured goods, for example, to make the domestic manufacturers more competitive?
That’s the plan.
Even if the US lost capacity to build, EVs arent such advanced technology that manufacturing couldn't return if the conditions were right.
Manufacturing isn't something you can just turn on like a computer program. It takes time develop the infrastructure, talented labor and product designs. For something like cars we're talking about many years. It took China decades of concerted effort and heavy subsidies to get where they are now. Without subsidies, starting this process takes even longer and may even be impossible.
Accordingly, if you already have this industrial capacity it would be mind blisteringly moronic to let it slip away from you. What can be destroyed in a few years will take many more years to build back, and won't be built back at all unless you reverse the moronic policies that let it get away from you in the first place.
Then one generation later it all bloes up in your face, destroying your democracy .. but you get to pretend your actions where innocent . its just like the weather , cant do anything about that ..
I'd like my critical supply chains to be in North America. Ideally, I'd have a free trade zone with Mexico and Canada. Tariffs, two-sided, reduce trade, and bring me closer to that reality. I'm okay paying slightly more for that security.
I'd like the same thing in the EU too, and in other major world blocks.
There's a slight efficiency gain from specialization, where each country brings a skillset, but it's totally not worth it to me versus the brittleness which comes with it.
Remember how the Covid supply chain disruptions cascaded? That's a tiny fraction of a really bad natural disaster.
Because the US is a huge market, and if you can't sell your goods here competitively (because tariffs price you out), it hurts your business. It's a negotiating tool.
That pretty much sums up all economic policy honestly. It will always be tit for tat since one aide can only respond to the other and doesn't directly control their economy.