Why Do Domestic Prices Rise with Tarriffs?
marginalrevolution.com
marginalrevolution.com
We now have to raise our prices, but our Made in China competitors have to increase theirs even more. That isn't a net benefit for us, given the product is "nice to have" and does not have an inelastic price.
If my sales drop by 50% and the Chinese competitors drop by 75%, is that winning ? I am still in shock and denial by all this. After 11 years in business, this manufactured/avoidable crisis can't be what ends us.
Your US sales may drop 50% due to the change in price, and your Chinese competitor's US sales may drop by 75%, but their sales in other countries may not change at all. Meanwhile, your sales outside the US are going to drop because not only are your component costs going up driving your price up, you now face tariffs when selling in every other country in the world (if they choose to respond to the tariffs the US is levying on their goods).
The ability of tariffed countries to sell their output elsewhere is understood by the people doing this.
A better way to look at this is the first salvo to economically re-partition the world into spheres of influence. (i.e. circa 1960s)
The principals have all written about how they see political-economic-military alliances as being inherently tied together.
So their intent is to make this a US-dollar-NATO choice, rather than any of those in isolation.
(Agree or disagree with their premise, feasibility, and/or morality, as one might)
Please, just stop steelmanning these actions as anything coherent that would possibly benefit the United States. In the best case, Trump is a demented has-been that only understands the world in terms of bullying. So sure, maybe the "plan" is to keep bullying Europe until they're joyfully professing that Trump's diapers smell just like roses and asking how high he'd like them to jump. But that just doesn't seem very in touch with reality.
You can be curious, or not.
But you shouldn't let the fact that you're angry force you to be incurious.
But I'm not even that incurious. Rather I think the problem is that their claimed plans rhyme with reality, while being utterly preposterous upon deeper analysis. We need to avoid implying there might be any merit to them lest other people read our comments and, not having been as diligent to separate fantasy from reality, get sucked into the fictional universe where Trump is some master negotiator who is going to bring other countries to heel with pure drunk-uncle-on-the-recliner force of will. And if we do analyze their delusions to figure out what destructive thing they might do next, we should be using the same disclaimers as doctors at a mental hospital.
Instead and more interestingly:
- Do you think they'll have any outcomes?
- If so, what do you think those outcomes will be?
Hint: there's plenty of academic literature on the topic
My initial point is that you answered someone's "why EU would tariff China just because they need export" with saying that the US would "ask" the EU to do this - implying that the EU would want to cooperate or is otherwise beholden to the US. That's thinking from within the fictional universe, which is what I called out.
Since you asked, what specifically I think will actually happen is that Trump will continue to alienate our allies, keeping them at the realization they have to go their own way rather than being able to rely on our military backstopping them. To the extent there is leverage Trump can force Europe to put tariffs on China, Europe will only do that as much and as long is required to decrease that leverage. About the only saving grace here is that the EU isn't the type of place that will agree to something de jure and then de facto allow those rules to be skirted.
I think a different administration that was open and friendly to Europe and other allies, reassured our commitment to NATO, increased support for Ukraine rather than turning tail, etc, might have been able to make the case for coordinated international action being necessary to maintain the military advantage enjoyed by the US and its allies. But a savvy administration wouldn't have started with the ham-fisted unilateral blanket tariffs either.
Plus, I get that it makes sense for you to think about it this way. But given the choice to get fucked militarily BUT get a few more euros now, I guarantee every EU government will choose to get fucked militarily. 95% of the EU countries only have to "sacrifice" in that OTHER countries get fucked militarily, so it's not a hard choice.
And that is before you factor in that Russia is not in any shape to attack any European nation of importance right now, not even Poland. In other words: the politicians choosing to act on the military problem or choose a quick buck ... will be out of office by the time their military decision matters!
And, lastly, I put forward the history of the UN. The great forum for international cooperation and making compromises in shared interests. The first 3 things the UN was going to solve with this cooperation-not-obstinate-refusal-to-accept-reality was the "Arab Issue" (now better known as Israel-Palestine), Kashmir (which under UN guidance has lead to such "successes" as the Partition wars, which when combined made more victims than WW2 according to some sources), and the Congo-Rwanda issue (which has raged on, with no-one actually caring after colonialism ended, and is now at risk of turning into a pan-African war involving every country from Morocco to South Africa). I'm glad they got all those issues solved to everyone's satisfaction before they were going to try forcing the US, EU and ... to cooperate because otherwise absolutely no-one would believe they have any chance whatsoever.
Besides: your hope that foreign governments will act in the interests of "the citizens of the world" (when the vast majority won't even act in the interest of their own citizens) ... what exactly is that idea based on? 12% of the world are free democracies and mostly do that. What about the rest?
Especially considering most of the consequential decisions and impacts will play out over the next 6+ months.
Maybe people/governments will act one way; maybe another.
You are monsters and the world knows. The thing from the swamp, that is your civilization . A gross, locust like beast, glueing stolen gold and shiny things to its great conquests. Needing war, because western advanced tech saved you from china and the others taking all back. Delenda Moscovia!
Note that the EU is also removing their di minimus loophole (with a longer lead time, announced last month). See the tarriffs on BYD for likely moves on other goods.
And yes, this is a bad idea. But it's the least worst idea available right now.
An old lady in the fashion industry once said "Everything is connected" and if Europe hadn't been mislead for fuck knows how long by dimwitted conservatives and their formidably educated voters, they would have been a proper economic competition with their own social medias instead of a tool to dump and pump stock prices ... which is how you can absorb your losses ... by focusing less on your productivity and more on that of le Wall Street's drivers and handlers of crisis
Additional costs that direct resources to a government are a form of a tax, this includes direct taxes at the point of sale, and it should also include taxes incurred for traversing an arbitrary interface (tariff or toll).
Any form of tax on goods / services proportionately effects those who spend more of their income on those goods / services more. Tariffs on not-luxury goods are regressive taxes on the poor and middle class.
You can’t raise prices beyond value or no one will buy it.
You can’t lower prices below costs (for too long) or you go out of business.
Competition pushes prices down towards costs.
Therefore businesses are always looking for markets with barriers so they can rise prices to value.
Tariffs typically raise costs for all producers, but this only inevitably leads to price increases when competition has driven prices down to near costs.
Unfortunately many staple grocery products fall into this category.
Tariffs eat into consumer surplus and producer surplus not just by raising prices, but also thereby reducing quantity. I think the only times you'd see no effect on consumer surplus via a tax are when the consumers are always going to pay a fixed amount regardless of quantity they can get (perhaps in some budget-constrained scenario), or if the amount of the thing that can be produced is fixed regardless of price; neither of these scenarios describes consumer goods.
In the case of groceries, a few big companies ultimately control nearly all of it. They know you “need” groceries, so they will happily pass along the increased cost. What are you going to do, stop buying food?
Arguably, that's precisely the aim of some of these tariffs. Price the foreign imports out of the market
If you bought your home for $100k in 2000 and sold it today for about $185k, you would be selling it for the same real amount despite the nominal change in price. Its value has not changed in real terms. If you sold the home for $300k, that would exceed the increase from inflation alone and indicate an increase in value (either improvements you've made, the local area has become more desirable, or reflecting scarcity of homes in general).
Or look at your own salary. If your salary is just keeping up with inflation, your employer does not see any increase in value from you over the years. If your salary is dropping relative to inflation, you are, arguably, losing value. If your salary increases faster than inflation, you're increasing in value. (Of course there can also be a lag, the 8% inflation in 2022 may result in depressed salaries for 1-2 years before they catch up. Watch the trend over a longer period of time.)
Even if you have a $10m portfolio you’ll be next, once they’ve drained the $100k and $1m lot.
When other countries disengage their financial systems from ours in favor of the yuan, being a billionaire in American dollars will be about as impressive as being a billionaire in Zimbabwe dollars.
What does this mean, in practical examples? Just trying to understand your point.
Historically, tariffs have led to a widening of currency spread between the tariffed (weakens) and tariffing (strengthens) nation.
Which generally acts in opposition to inflation, ceteris paribus.
E.g. importers pay more in dollars to import goods from a tariffed country, but if the imposition of tariffs causes the dollar to strengthen and the foreign currency to weaken, some competitive exporter will say "You know, I can sell those to you for less, in dollar terms, because my costs are in my (devalued) currency."
Second, the labor / goods&services price ratio itself is irrelevant, as measured in the short term. What is relevant is the long term outlook of this ratio. See eg the Dutch Disease.
Third, even the long term labor / goods&services price ratio is irrelevant. Not everything in this world is, or should be, reducible to simplistic financial value.
One way to approach the underlying intuition is in terms of homeostasis, at nation state level.
Yes, profits and growth may not be optimal. But it’s like complaining your 401k isn’t doing as well as it could since you’re paying for healthy food and a gym membership.
That being said the manner trump is implementing these tariffs is ridiculous. They should be slow, meticulous, and announced far ahead of time. These seem optimized for chaos and are likely aimed at political goals (see TikTok and China already) or simply crashing the market (wouldn’t be the first time Bessent has profited off a financial crash).
The main lesson they learned from Trump's first term was that they were better off making big changes and fixing what they broke later. Moving slowly seemed to make it too easy for "the machine" to stop them as it were.
I don't say this as the right lesson to have learned or a good approach, just an observation.
If he would be dictator in 3rd world country, half of his military or personal guard would want to kill him. Then you have lone lunatics or just very motivated people with a good rifle and scope and skill to actually use it for a precise 1km shot. I bet he already pissed off few thousands of those since he very intentionally harms USA as a country and its citizens. Yes millions in gun community, nra etc would eat their shoes before thinking negatively of him, but that's not whole armed community in USA.
I will say, though, that I'm not repeating anything that needs to be acknowledged as fiction. I don't think it is a fiction that Trump and his team learned to move fast and break things because moving slowly will be stopped. That doesn't mean his lessons are learned based in fiction, only that their learning the lesson itself is not fiction.
Tarrifs aren't going to change that.
We don't live every family in a house miles away from work, schools and friends. Many of us live in cities, within flats, with lines of metro or bus close by. Our children go walking to schools. Roads are fine and maintained so regular vehicles can be used instead of 4x4, bikes are respected. Roads have sidewalks to walk.
Also in Europe in the west we have narrow or paved historical roads, and in the east we have many poor quality roads. In both cases smaller (non-huge) car is beneficial.
If you come from somewhere like the USA, Canada or Australia, it's hard to imagine that's even possible. Actually, it isn't possible in the suburbia's those countries have built to house their people. But it turns out it is not just possible if build your cities differently, it's better in some ways. It costs less because there are no cars, you waste far less time in commute, and its healthier because people get more exercise (they use their legs to move around).
"They have ditched cars" is an exaggeration of course. A lot of them still have cars. But most days, they won't use it. Daily commutes are done on foot, or bike. Long distance commutes have a public transport leg. It's hard to get your head around unless you live there for a few weeks.
Car culture is recent and pretty uniquely American. I lived in a pre-car city with a lot of ~8ft lanes and "double lanes" that were converted into one-ways to accommodate modern cars and trucks.
It's true they predate them, but then so do most American cities. When the car arrived the American cities opted to expand their cities, giving everyone their own block of lawn to live on. The European cities could have expanded in the same way too. Utrecht went as far as to build freeways to make it possible. But in the end, they opted not to and Utrecht in particular turned their brand new freeways into canals.
> Car culture is recent and pretty uniquely American.
American certainly has it's own unique culture, but I think we are discussing a specific characteristic of that culture which it shares with other countries like Australia, Canada and New Zealand. The density of most cities in those countries is so low owning a car is mandatory. Existing without one is almost impossible. I know because live in one. Quoting a Japanese exchange student who lives with us for a while - to her surprise even with two cars getting to everywhere we had to be in an average week was a major logistical exercise. In the countries @n3storm is talking about, car ownership is completely optional.
Cities center are transitioning to no-cars, so paved historical roads is not an issue.
Europe is quite a mix also, maybe is an issue in your area, not in Spain.
e.g. London.
And it is a bad thing for cars. It's just not a bad thing for people, because good alternatives to cars exist.
Even among the American general populace, most have traveled to a country besides Canada.
A majority of Americans have traveled to two or more countries:
https://www.pewresearch.org/short-reads/2021/08/12/most-amer...
It became a bit of a discussion point during the ride with the those I visited.
Infact Tesla is (or was) best selling car in Norway and UK too.
European governments may be reluctant to put a tariff on Tesla because of Elon Musk's political association with the Trump government. This is literally how fascism works, and appeasing the bully is distasteful, but that's realpolitik. It will be up to European consumers to reject Tesla because the brand is now toxic.
Horrible parent, horrible boss, racist spoiled nepo kid out of touch with reality with gigantic ego, who grew up in apartheid and evidently took not so good lessons from it... I could go on, it was out there for all who cared to look. Most didn't due to his stellar successes.
Edit: relevant links
https://apnews.com/article/trump-tariffs-electric-vehicles-a...
Datacenter space in Canada is now suddenly very appealing, you can put machines there directly from Asia without paying tarrifs, but still get good network latency into the US
This could explain why, for instance, poor countries use tariffs on goods that have no chance of building a local industry.
Tariffs may work towards an isolationist goal of producing and consuming our own goods. Tariffs are an attempt to unwind globalization though and disconnect our markets from the rest of the world.
Whether it makes us more competitive globally is really a non-goal. It could happen if our resources, labor, and manufacturing costs are lower than other countries but that's extremely complex to predict even if you wanted to try.
Free trade has its own set of negative consequences. Namely that it’s good for owners of the means of production but not for the workers.
What’s interesting to me is that tech is effectively the last “American made manufacturing”, and the relative lack of outsourcing (compared to other forms of manufacturing) has kept tech workers powerful.
The same logic of h1b workers weakening the American citizen tech worker, applies to free trade.
Its at least the largest industry manufacturing here, I'd expect.
I have friends that work in manufacturing in the US though, it does happen.
One, for example, runs a family business making steel buildings and storm shelters. They use American made steel if I'm not mistaken, I'm less certain about other inputs like the paint or equipment used (certainly the welders, heavy equipment, etc are foreign).
Another works in the automotive industry. Parts come in from overseas and we largely just assemble vehicles here today, but I'm not so sure how different that is from software.
I write code on foreign hardware that runs in someone else's server farm also running foreign hardware.
Hell, when Microsoft was still shipping software on CDs you may have noticed a little fine print mentioning the Caribbean island on which the disc was technically manufactured. US employees designed the software, but for tax purposes the manufacturing technically happened offshore.
Software is a huge industry, but it is still heavily dependent on globalization.
I don't recall this at all. What software was it?
Going through my box of ancient software, they all either say made in the US either on the CD/DVD or on the packaging, except for a copy of Office 97 and Office 2007 which says made in Puerto Rico (which is the US).
They certainly had CDs pressed in other countries for foreign markets. I imagine some foreign made laptops might have come with CD/DVDs pressed in those countries.
I don't recall if Windows discs were printed outside the US, though I do believe binaries were compiled and signed outside the US.
All six versions of Office I have seemed to be made in the US. They're all retail copies however.
At this point I'm not even sure that is true. I think instead we'll just see the "cost of doing business" passed along to us consumers.
In addition it’s precisely because of tariffs (of which there have been many on cars and SUVs long before all this) that we have tons and tons of foreign brands actually building cars in the US.
Do European car makers build in the US? Yes. Is that going to change? I don't think so.
Do US cars sell good in Europe? No. Is that going to change? I don't think so too.
> Europeans don't tend to buy American cars because…
Wait until you realize that the EU tariff on American cars has been 4x the US tariff in EU cars for awhile.
(GM also used to have a couple of European brands, but again they were rather different to GM’s big US sellers.)
Can you share the specifics of this lets say end of 2024?
I could find for example: EU has 10% on cars from US while US has 2.5% in general and 25% on pickup trucks. Important to note in USA the pickup trucks market is the biggest one vs mid size being the biggest one in EU.
When looking at it it seems to me that both entities wants to protect their biggest markets: EU with only 10% protecting midsize and USA with 25% their pickup trucks.
> Wait until you realize [...]
Well, I won't buy am american car (maybe a smaller ford, but not the typical US car) because where I live you won't bring them into most parking lots, and for sure not in parking building. Especially in cities many of them are narrow even with typical EU cars.
The question you should be asking is why American manufacturers don’t target the EU market more aggressively and make cars that fit the formats Europeans buy.
It’s not the only reason but an absolutely crucial factor is that EU states protect their domestic auto industry via tariffs and industrial policies/subsidies.
The same is true for America.
That's a simplification beyond what's truthful. Import taxes are different on different types of cars, both in the EU and the US. There's certainly some type of car where the above is true, maybe some type of gas guzzling pickup truck or something, but over the total amount of sold cars it is not. Trade-weighted differences simply aren't that great, which is not a coincidence because a) both the US and the EU are developed economies which are likely to benefit from free trade, b) taxation works in nudging the market what to buy which evens out the differences further, and c) we have had trade agreements where this was an explicit goal.
I don’t go to my doctor for a discussion on urban planning. And if I do.. not at their medical office.
It’s a blog. Not a practice of economics, this one article notwithstanding.
And it isn’t even by Cowen.
EDIT: The comment section on MR is pretty awful too.
The foundations of economics are built on school boy style maths errors.
They have famous "paradoxes" and results that are just bad maths.
It's a ridiculous joke of a research field.
Despite what social media stoics say.
(It is the intersection between domains where wisdom and innovation shine.)
I think the Professor Cowen fancies himself in the way of the “public intellectual,” so that he takes the liberty to write on a range of topics outside the domain of his academic focus. He does seem extraordinarily well-read; and in many topics he writes about, I have no way of judging his contribution to those fields. While I occasionally read MR, it strikes me as quite technocratic in the way that most libertarian writing is; and this sort of socioeconomic analysis detached from human values of empathy and concern for the wellbeing of the collective isn’t appealing to me personally. But I’m sure it fills an important niche.
Their money is probably a large reason his content gets well promoted.
The Kochs got into politics in the 1980s because of a series of fights with the EPA whom they thought were getting in the way of their chemical company's right to pollute. If you've ever heard a morality play written about hairdresser licensing and why it means Regulation is Bad - that was them, and it leaks on to hacker news sometimes. E.g.
https://news.ycombinator.com/item?id=42982578
https://news.ycombinator.com/item?id=31765644
https://news.ycombinator.com/item?id=31382755
https://news.ycombinator.com/item?id=18798111
They also really like using their money to bludgeon American economics departments into teaching economics the way they "like" it: http://bridgeproject.com/research/koch-impacts-florida/koch-...
https://bsky.app/profile/atrupar.com/post/3lm5p4tdc6a2c
So many screws that we should have human American workers installing screws in iPhones? And this is how we make American workers wealthier?
They think we're stupid or they want us to be stupid. This isn't an economic policy. It's a way to reward fealty and punish disloyalty, to a specific person.
That's it. That's all you need to do to explain this to people. It's amazing to me how many have fallen for this ridiculous lie that the other country somehow pays the tariff AND there will be no increase in cost to the consumer.
I used to think these lies were cynical, like how Mexico was going to pay for the border wall. But I'm not convinced now. I think there's a not-insgificant chance the president doesn't know this is how tariffs work. And that's terrifying. I would respect a cycnical lie way more.
You buy $1000 in t-shirts from China. The government places a 30% import duty on them. The importer pays $300 to the government. Those t-shirts now cost you $1300. Whoever sells them retail will be charging up to 30% extra to recoup that. It blows my mind that this even requires explanation.
Basically, market distortions like that are never paid exclusively by one party or the other; instead, it moves the equilibrium point. Both the buyer and the seller are worse off.
Granted, that does take some time.
Presumably the same effect applies if it were tariff between towns, then counties, then states, and finally countries.
Then what, we are missing interstellar trades to lower the prices on earth?
Too bad interstellar trade will probably never be economically viable. But it would lower prices, yes.
What about economies of scale, though? If you can triple production while only doubling your cost, the unit price should drop.
Say, we can have a single company in Taiwan running insanely capital intensive chip factories making chips for the entire world.
One downside of this being resiliency; what happens to the global electronics supply chain if China one day decides to invade Taiwan? Something not taken into account in typical economic models.
For similar reasons developed countries still try to have things like domestic agriculture, despite that being a low value add industry where poorer countries might have a large comparative advantage in a hypothetical free trade scenario.
Do it again with a factory that puts on a double shift with the unemployed and see what happens.
Do it again with the Chinese sovereign wealth funds, the likely source of mercantile intervention, offering 14 CNY per USD rather than the current 7.
It’s unlikely that any production will move. What’s more likely to change is the quantity and location of financial savings. The distributional impact of that change is probably unknown.
Chamber of commerce says:
>Understanding America’s Labor Shortage
>We hear every day from our member companies—of every size and industry, across nearly every state—that they’re facing unprecedented challenges trying to find enough workers to fill open jobs. Right now, the latest data shows that we have 8 million job openings in the U.S. but only 6.8 million unemployed workers. https://www.uschamber.com/workforce/understanding-americas-l...
which doesn't look that promising.
> Beijing has previously said it won't go down the FX depreciation road, preferring to keep the yuan relatively "stable". But that was before Trump's self-styled "Liberation Day". Beijing's first response might be to try and negotiate with Washington to get the tariffs lowered. But if that fails, FX devaluation becomes a real option to offset the shock.
They didn't take the negotiation route. We'll see what's next.
Preferably with problem sets and solutions to test understanding. (In fact I'd argue books without those are almost useless outside of a university classroom.)
Or perhaps I should say comparative "advantage" because cheap labor is actually bad from society's point of view!
It used to be that a person in the US could graduate from high school and get a factory job that provided enough income to have a house with a yard, a non-working spouse, and children.
Then the factories moved overseas to exploit the comparative advantage of cheap labor.
If you have a tariff, it undoes the advantage that cheap labor used to provide.
Operating in a society that pays its workers well is ultimately to business's advantage. Workers who have more money spend more money, they generally buy more products at higher prices and higher margins. Social and political stability happens when most people feel the system is working for them, they have a stake in the status quo, and they have something to lose.
I don't dispute the OP article's thesis, that tariffs cause some loss of economic inefficiency. The question is whether the gain is worth the cost.
This is more mythology than reality. The areas where it came the closest to being true excluded over half the population (women, non-white men) and were in industries and times where the U.S. had an enormous advantage over bombed out, financially precarious European competitors while our high upper-bracket tax rates and large numbers of government jobs provided strong support for the economy.
Tariffs can’t get us back there, and alone they can’t even get close because what you really need are investments in a support web of infrastructure, education, and policy over time. That looks more like what Biden did with the CHIPS act where they invested in the factories, employees, committed to doing so long enough to make a multibillion dollar investment safe, and there was no talk of tariffs before alternatives existed. In the cases where tariffs make sense, they’re a limited part of a larger strategy.
We're going to be paying a steep price for trying to shove the (outsourcing real manufacturing) genie back in the bottle. Either we put it all on the National Debt IoU or we cold turkey our cheap good addiction.
Don't get me started on the CHIPS act.
I was a true believer in it when it passed. Finally -- finally! -- people outside MAGA were recognizing the problem and trying to do something about it.
I made a medium-sized bet on INTC when Gelsinger, an engineering prodigy, took the helm after decades of business leaders who only cared about the money let the company's technical capabilities rot. The stock had a pretty attractive dividend yield, the new CEO was energetically reversing that trend. I was extremely enthusiastic when I heard the company was building a factory right in the Rust Belt (Columbus, Ohio), with a massive infusion of capital from the CHIPS act.
We now know how things turned out.
Intel continues to erode desktop market share to AMD, completely missed the AI boom, and doesn't seem to have a chance at the mobile or Apple ecosystems.
That factory is now on pause. As a taxpayer, I'm not sure whether my tax dollars were wasted or not. As a shareholder, I just have to look up the ticker to know my bet lost a significant amount of money. In fact, /r/wallstreetbets was making fun of somebody who made a similar bet when he inherited his Grandma's life savings.
I am absolutely livid that in Intel's 2024 annual report, Intel's leadership couldn't even put the location of their multi-billion-dollar chip factory in the correct country [1].
I wanted the CHIPS Act to work. Right now, it's very much looking like it didn't. Is more such investment really going to help us, or would it just be throwing away more money chasing a bad bet?
[1] It sounds unbelievable, but it's right there on Page 14: the dot labeled "Ohio Future Sight (Wafer Fab)" is clearly in Canada. https://www.intc.com/filings-reports/annual-reports/content/...
Another counter-argument to the article: due to long-term reliance on trading partners for goods, production has likely been “turned down” for some goods/services to a point that there’s less opportunity cost than this article posits. For example the widely-quoted stat that almost one-quarter of Americans are functionally unemployed suggests trade has created new equilibria that leave capacity on the table. Especially when considering China’s well known policy of making the RMB cheaper against the USD than if it were allowed to float.
If tariffs have the potential to drive employment up by bringing latent capacity online (through investment & after a lead-time), you can see how people are okay with experimenting.
This is a variant of the Import Substitution idea. Unfortunately, it doesn’t have a great track record. Instead of investment in innovation, sheltered industries tend to become less competitive and increasingly reliant on the shelter granted to them. Indeed, even if innovation occurs, it often becomes very hard to undo the sheltering once it’s no longer needed.
Far better to allow countries with comparative advantage in growing grapes to use their land to make wine compared to investing in hydroponics. The irony of that very example is the vertical farming sector has recently learned this very lesson and is undergoing a market realignment after hopes of improved productivity have been found to be less than expected.
This post is assuming that a sizeable domestic industry still exists, and also that demand is relatively elastic. This is sensible for wine and maybe sugar, but not for the myriad of equipment and supplies it would actually take to create new factories. If the goal is to paralyze and destroy the country, the high import taxes that Trump is pushing are a great way. That people continue to "4D chess" this buffoon "for the cause" continues to astound me.
What’s even more bizarre is the mental gymnastics on both sides. Some argue that tariffs somehow benefit CEOs and the wealthy, even though stock market reactions consistently show that tariffs hurt corporate profits. Others on the right now frame tariffs as a fundamentally “Republican” principle, despite decades of GOP support for free markets and globalization.
Here’s my prediction: many CEOs and wealthy individuals will gravitate toward the Democratic Party. Why? Because tariffs reduce profits, and Trump’s policies seem designed to benefit a narrow segment of the rich rather than the broader business class. Over the next 8 to 16 years, we may see the GOP fully reposition as the party of the working class, while Democrats become the party of the affluent elite.
Personally, I’ve always favored genuine free trade, which is why I’ve leaned Republican. But now, I’m not so sure. I used to argue with my liberal friends that tariffs are essentially a regressive tax—they raise prices for everyone, especially hurting lower-income consumers. The counterargument, of course, is that tariffs could incentivize companies to bring production back to the U.S.
But let’s be honest: that’s not happening. Tariffs raise prices, but they don’t magically bring manufacturing back home. From my conservative perspective, companies should have the flexibility to offshore production—especially if they face pressure from unions or rising domestic costs.
Can you provide a source for this one? On the front of free trade, NAFTA comes to mind where there was some support and some oppositions within both parties. And of course there was TPP which Obama was championing (to no avail -- every major presidential candidate in 2016 opposed it).
Is this a reference to the chicken tax during the LBJ era? Nixon had also placed a 10% global tariff on all dutiable imports when we got off the gold standard, so I don't see it as being obviously a single-party issue.
And of course, Smoot-Hawley was a heavily partisan bill championed by the Republican side of the house. The Republican fascination with tariffs goes all the way back to at least 1861 with the Morill Tariff (and even further back if you consider their predecessors in the Whig party).
I do remember this speech by Bernie Sanders: https://www.youtube.com/watch?v=RzpmhBEA9Ok
In case you're wondering, the resolution in question failed with large margins in both parties (although it garnered a somewhat larger share of D votes -- 23% versus 17%).
https://clerk.house.gov/Votes/2005239
Outside of a few limited occurrences, from 1980 up to the early 2010s, both Republicans and Democrats generally supported free trade and lowering tariffs. (This may extend all the way back to 1934, but I haven't checked all the votes in Congress to see, for instance, if this sentiment extended beyond Eisenhower to the rest of his party in the 1950s.)
I don't think there's been a Democratic platform that's advocated increasing tariffs or trade barriers in living memory.
Most have outright called for free trade, though in recent years also "fair" trade which meant trying to push for worker protection/environmental/etc laws and end foreign subsidies and barriers onto other countries to level the playing field rather than increasing trade barriers.
There is a more protectionist wing of the Democratic party that has advocated for increasing trade barriers (or in some cases, ceasing trading altogether), but despite sometimes being quite loud, they've never had a majority.
It was the American left that were anti-globalization, like with the protests WTO conference in 1999. Their flip has been... weird.
There are two types of taxes:
- Domestic taxes are levied by congress
- International tariffs are controlled by one person (the president)
So if the president wants to control people via taxes, they use tariffs. By this theory it has nothing at all to do with financial policies or political parties: it's just another tool we've given the president and we shouldn't be surprised if it gets used. By the same theory, if the president had full control over domestic taxes we'd see exactly the same thing.
With so much of American goods coming from China, it's kind of hard to see how the US could win a war with them without, for example, improved domestic production of bandages
https://natlawreview.com/article/can-president-impose-tariff...
https://www.globaltrademag.com/adhesive-bandage-import-in-un...
So the "emergency" is a possible war with China? But how does that justify taxing (for example) Canada, or Mexico (or Lesotho)?
"Today, President Donald J. Trump declared that foreign trade and economic practices have created a national emergency"
https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-pr...
https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-pr...
That said, it's true that a selective reading of his statements and legislative actions could be used to support almost any position.
But here’s something worth considering from a broader policy perspective:
Ronald Reagan cited three prominent 19th-century champions of free trade as his heroes: Richard Cobden and John Bright, founders of England’s Anti-Corn Law League, and Frédéric Bastiat, a renowned French economic writer. Reagan specifically praised Cobden and Bright for their efforts to eliminate tariffs on imported grain in the 1840s.
Throughout his presidency, Reagan consistently expressed support for free trade. In his July 1981 “Statement on U.S. Trade Policy,” he pledged to reduce government-imposed barriers on international trade and investment.
One of his strongest affirmations came during a January 1988 speech in Cleveland, where he framed America’s trade deficit as a sign of economic strength. On several occasions—often in response to protectionist moves by congressional Democrats—Reagan reiterated his free-trade stance. For instance, he vowed to veto the House trade bill if it included a restrictive amendment sponsored by Representative Richard Gephardt (D-Mo.).
I mean... in theory they would if the numbers work out i.e. if tariffs offset the additional labor/regulatory costs. The problem is they are hard to trust to stick around long enough for the capex to pay off.
Targeted tarrifs. Not blanket ones on the entire planet (including, you know, the uninhabited island full of penguins). Hell, Biden kept some of Trump's.
AOC: https://thehill.com/homenews/house/5108287-donald-trump-alex...
> “To ‘punish’ Colombia, Trump is about to make every American pay even more for coffee,” the New York Democrat said on the social platform X. “Remember: WE pay the tariffs, not Colombia,” she added. “Trump is all about making inflation WORSE for working class Americans, not better. He’s lining the pockets of himself and the billionaire class.”
Bernie: https://x.com/SenSanders/status/1908221908954263821
> Our trade policies should benefit American workers, not just corporate CEOs. That includes targeted tariffs to stop corporations from outsourcing American jobs & factories. We do not need a blanket, arbitrary sales tax that will raise prices on products that Americans need.
The fact that you thought Bernie and AOC were quietly supportive of his tarrifs perhaps indicates the value of this opinion.
Tarrif rates have been steadily dropping to near-zero, since the 1930s, under both political parties. We're now returning to a rate not reached in over a century. https://www.statista.com/chart/34236/average-effective-tarif...
This is a very (neo)liberal viewpoint. It’s economic liberalism. There’s nothing “conservative” about it at all.
> the repeal of the Corn Laws benefitted the bottom 90% of income earners in the United Kingdom economically, while causing income losses for the top 10% of income earners.
Obviously it’s not hard to see why the wealthiest like tarrifs.
It is considered "conservative" because it has been the status quo for a rather long period, and they advocated conserving it.
Convince people that the colleges are full of crazy liberals and you should go into the trades instead.
Now that you’re in the trades, don’t join a union. Unions are bad (unless it’s the police union).
Don’t look now but the Mexicans are coming for your job. The trans/gay people are coming for your children. Nevermind that the GOP is openly corrupt and has a pervert in the White House.
Think back to the aftermath of 9/11 and the Bush Admin’s constant fear campaign that successfully pushed the US into two wars.
Now imagine if Bush had instead built out a massive train network, like China did with close to the same amount of money.
https://bigthink.com/articles/how-tribalism-overrules-reason...
My understanding is that America has a lot of low-information voters. They don't watch debates. They share cat videos on Facebook. They certainly never comment on HN, they don't even know HN. On the election day, they think "The eggs are too damn expensive!" and vote accordingly.
All the rhetorical offensives, counteroffensives, contortions, and motivated reasonings won't reach these people, when they go to the grocery and find everything getting more expensive.
(Some of them might even have 401K and IRA. Yeah, I know, boomer stuff.)
We'll see.