If a product is cheaply produced in another country, and your domestic industry cannot match that price, your domestic industry might disappear. Suppose that other country is subsidizing their industry, then it's quite unfair, and it legitimizes supporting your own industry either by your own subsidies or retaliatory tariffs. As they say, to level the playing field.
If the domestic industry is already dead, tariffs won't magically resurrect it. For example, building a chip industry can take billions of dollars in investments and years of development. All that time, those taxes are basically just costing consumers money. They need to be kept in place up until the new factories come online AND are paid off. This can take decades. Will those tariffs still be there? Will those other countries have ALSO invested? Those uncertainties make it hard to invest in a dead/dying industry, even with tariffs in place.
One feature of tariffs is that it's a tax on consumption, so it's ultimately paid by consumers, and it's a regressive tax; the wealthiest will pay the smallest ratio of their income and/or wealth, while the working Joe will just see stuff getting more expensive - especially in the short term.
Tariffs can work to retaliate against, and discourage, dumping. They can play a role in protecting vital industries. But arbitrarily imposing them for political points is a dangerous gambit.
I don’t think it’s this simple. The wealthy fat cats that are making money producing their stuff overseas or simply operating as middlemen for overseas manufacturers are going to have a reduction of income and profits.
Furthermore, it depends on how the revenue from tariffs were used. If revenue from tariffs is used to lower taxes for lower income citizens, it would be effectively a progressive tax.
If all the middlemen see the same increase in costs, they are not going to be the one to try to keep prices the same. They know everyone is taking the same hit so they can just pass it along together. The consumer decides to buy or not at that level.
The innovation comes in avoiding the tariff. Often companies with sufficient scale of operations can pay additional lawyers and accountants to restructure and avoid tariffs.
Tariffs can dramatically affect specific companies, but squishy middlemen (and multinationals) can often work around them.
For die-cut plastic cards (think custom-shaped gift cards or hotel door hangers), I reached out to several US manufacturers for quotes and most never even responded. The one that did respond basically laughed at me and said my design was impossible to cut. So I went on Alibaba and had tons of quotes instantly and found a manufacturer. Not one of the responses were concerned about the design's manufacturability. And the manufacturer I picked does an incredible job with what is admittedly a challenging die cut design.
As a tiny business, most of my orders end up being under de minimis (which is actually great for helping small businesses avoid the overhead of dealing with tariffs and level the playing field against large players that can be much more efficient at handling regulatory overhead through high volume).
But with the change to eliminate de minimis and increase tariffs another 10% essentially overnight, my COGS is going to increase ~30%, which means either I shut down my business due to losing nearly all of my margin, or I increase prices substantially. It just hurts consumers AND small businesses like mine in the US.
There isn't a US manufacturer I can switch to (again, price wasn't the issue). And the US manufacturers in the space that WERE still selling products despite the international competition will just increase their prices now that competition is more expensive.
Again, knowing how short-sighted the US politicians and the society as a whole (e.g., look at how a majority of corps only care about short-term/quarterly profit) have become, it is not surprising but saddening to observe (because I have been living in the US for a bit over two decades and cannot move back to my home country, which is, at the moment, riddle with civil war).
Is that an immediate win for the consumer and the economy? Probably not. In the long term it could be reversing the globalization which is maybe a good thing (or at least that's the argument).
Seriously though- yes. But it moves the needle a little bit on the expected value. If the tariffs survive for a year it'll move the needle more.
You’d need dramatically higher tariffs for there to be any chance of that. Or a complete trade embargo. And either way, it’s gonna mean much more expensive goods for consumers.
So what would you propose as the proverbial kick in the butt to encourage domestic production? And before you say “subsidies”, remember that a large segment of the population isn’t wild about those either because they perceive it to be some sort of evil tax dodge for big corporations (see: literally every time some state gives a company incentives to build a plant or office).
The reason we’re in this mess in the first place is because we chased cheaper means of production and once everything at home was gone, we just threw our hands up and went “well it’ll be too painful to fix it, anyone who tries is an idiot.”
We dodged this in the 90s, but we need massive training programs to move those displaced workers to new jobs + resettlement assistance to get them to where the jobs are.
You're conflating two things here, the subsidies are one issue but the bigger issue is the ability for large companies to "shop around" states looking for the most favorable tax incentives. Our government shouldn't be bidding against ourselves.
Yes, it should, because that's how individual companies (and governments for that matter) find their optimal operating points.
That is the explicit central dogma behind the United States' system of government. It works pretty well for the most part. If all the states had the same laws, policies, and taxes, there would be no need for federalism at all.
Certainly not when tariff policy changes every few days on a whim. That doesn't make you want to build a chip resistor plant in the US. Or even a smartphone plant.
Or when you have trade agreements in place, but then use emergency powers granted to you in 1977 to push aside those agreements and add tariffs
It doesn't engender trust.
Businesses within and without are not a fan of constantly shifting sands.
In the EU we pay full taxes on every import, it's really not that complicated once you explain to the Chinese guys to not mark it as "gift" like its 2005.
Eg. https://www.quora.com/Do-I-need-to-pay-California-sales-tax-...
Now tariffs are different because they are applied in addition to the above and only affect imports specifically.
Buy hey, now you,'ve got trarrifs, congrats on your election.
I'm not saying the primary objective of a de minimus policy is to help small businesses, but in practice it can make a huge difference to correct for economies of scale to promote competition. I can't afford a team of lawyers and lobbyists to creatively classify my products to avoid tariffs like the big companies do; regulatory burden disproportionately hurts smaller players, so it's typically considered good policy to promote competition to phase in regulations based on size/volume/revenue etc.
And an industrial entrepreneur, such as yourself, might start a new business, making these products at a cheaper price in the US due to the new inefficiencies of simply raising prices by existing manufacturers. It takes time for these things to move through the system.
The companies who moved manufacturing abroad and pocketed the savings for their investors and CEOs aren’t likely to just say “oh well” and take a big hit to their margins—they’ll just mark up their products to make up the difference. Maybe, eventually, domestic competition will emerge but it’s not a given and likely takes time. In the meantime, consumers are paying the increased costs.
I'd love this to be true, but where is there recent evidence this will happen? When Trump put tariffs on washers in 2018, LG and Samsung (importers of machines) didn't lose profits, their prices went up: https://youtu.be/_-eHOSq3oqI?t=130
https://finance.yahoo.com/news/higher-prices-extra-jobs-less...
Prices went up in short term, but imports went down and jobs increased due to manufacturers bringing jobs to the United States. Seems like it worked.
I think that kind of logic only applies to iPhones.
Companies simply add the cost of the tariff into the price of the final good to the consumer. It does not eat into the margin.
To wit, every tax a business pays today is included in the cost of the final good sold, there is no reason to believe these tariffs won't be as well.
First, there are not necessarily increased margins, the margins may stay the same or even decrease. Some companies may choose to keep their margins the same, in which case profit would increase.
But importantly your _profit_ will not decrease, you'll defend that as the seller even if that means your margins decrease.
Second, small companies are _more_ sensitive to taxes (costs), not less sensitive. Existing, large players are better able to absorb costs _and_ command stronger pricing power relative to new entrants to the market.
But overall, your view of the "market" just doesn't play out in reality. You can go look at any industry that encountered tariffs in Trump's first term, you may also look at any consolidated market in the last twenty years. Market power has been heavily concentrated, regulatory capture has gone up, and the result is that markets aren't working as you may expect.
I posted this link separately and it fully demonstrates what I would expect: more jobs in the US to compensate for the increased cost to import. In this case, the jobs were provided by existing manufacturers like LG and Samsung; however, these jobs could also be produced by new competitors entering the space.
https://finance.yahoo.com/news/higher-prices-extra-jobs-less...
Worse than that... you also need all the other things in the "ecosystem" that support them chips, such as discrete components, circuit board fabrication, assembly, etc.
My customers pay me for product. Some of that pays employees. The assembly house. And for parts are are imported. The tariffs basically means I have to pay extra to the government so they can give it to bunch of wealthy financial parasites.
Thus, they save the US 25% + 10% tariff off, and whatever symmetric 25% response trading partners inflict on the US exports. i.e. one would save 60% off, avoid an economically hostile customs process, and may shop around for better tax systems. If the US market is isolated from a multi-origin product, than just collect the 35% markup on all products before shipping into the US like the new programs already require.
Best of luck, I don't think people have really thought about this very much... =3
People respond to actions rather than posturing, and business people view the political process very differently. We'd be fooling ourselves to think it is about anything other than profit. Many people are likely about to lose their jobs, and there is nothing funny about that... Best regards =3
These tariff threats are so broad. They are not aimed at encouraging this or that local industry. (And for the US you would need much more than a few percentage points of margin to encourage that.)
It feels like they are (1) threats. very crude threats. to get entire countries to change their policies a little this way or that - favoring the US a little more in exchange for dropping the threat. and (2) a source of govt revenue that doesn't look to the voters like income or capital gains tax. Although obviously it is - in the US everything ends up there.
This is all very simple. There is no plan, there is no us, there is no future. There is only him, now, and a revolving list of people trying to ride his coattails to more power for themselves.
Entirely logical response from a normal person used to think and act in a normal, decent way.
Criminals break into a museum. There is an artwork there, 4000(!) years old. The thieves wreck the artwork and smelt the gold that is inside it for a €225 profit.
Have you seen the kids of the president ridicule the dying people in Ukraine? We are inclined to think that if you inherit almost the whole earth, you would be very grateful, kind and compassionate.
Instead, they see the world in terms of just a handful of peers with the rest as resources to be extracted. We live in a world where we are brainwashed to think it is normal for corporate to call human beings "Human Resources".
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As soon as people learn to see what hides behind Trump and Doge, the networks that finance and selects people, they will lose the war. The theater is there to distract you, media will pick it up as bait but will not do the investigation of what it is. And so we are paralyzed by the news of the day.
What society needs to do is to not accept abnormal and egregious behavior as normal. We all know what is decent human interaction, and the few can only take power over the mass, if the people consent to it -- be it actively or passively.
Why would you be inclined to think that?
Absolute power corrupts absolutely.
Being greatful is not manufactured by having stuff.
Being kind has nothing to do wtih what you have.
I'm inclined to think that if someone inherit the whole earth you are
1. A person who sought after that, which is bad
2. Even if you were magically a good person before, will be ruined by it at a minimum the way winning the lottery ruins a person.
3. Even if you survive 1-2 you will become famous and will have to cope with that insanity.
See the number of people arguing that a billionaire can obviously be trusted with their money because he has a lot of it and clearly wouldn't want more.
We know it. We don't believe it. We cannot grasp. For those few, we are nothing but a resource. Why share power with the powerless? Might makes right!
See the number of people who say they voted for trump because they think he's a successful business man.
That's why democracy was invented. :-)
That, perhaps, is the reason they are so cruel: because they have been so lucky so far, they do not understand human suffering and are incapable of feeling the pain of fellow humans.
If they are even able to satisfy the needs of the customer, either in quality, price or supply.
Add in that you are then almost certainly limited to a domestic market since your goods are only affordable when the competition has to pay a whacking great penalty.
You may also want to double check the plan. Yes there are income taxes cuts included to make the little guy feel like they got something, but as usual the bulk of the cuts will go to the top.
The more detailed answer boils down to if you as a business can save 1% producing a product by buying a widget you need from overseas, that's what you'll do. So instead of a domestic company paying employees in your country all through it's supply chain, it all goes overseas. This costs you as a business 1%, but in theory has a large enough economic impact to benefit the country overall.