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Comment by WillPostForFood | Hacker News Reader

to the surprise of absolutely no-one with even the most basic grasp of how economies function.

No, it is surprising, as noted in the article, because basic economics suggests that suppliers will adjust pricing, and eat some of the tariff to keep their products competitive. Page 5:

This finding was initially surprising to some observers. Standard economic models suggest that the incidence of a tariff depends on the relative elasticities of supply and demand. If foreign exporters face highly elastic demand (meaning buyers can easily switch to alternatives), they might be expected to absorb part of the tariff to remain competitive.

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What that view ignores is the opposite which is what happens if sellers can easily switch to new alternatives?

ie what happens if global demand exceeds supply and a lot of companies have never tried to find other markets because of the inertia required to do so - but if they are pushed by tariffs they find there are alternative customers out there.

As an example - Canada appear to replaced trading food for cars with the US, to food for cars with China.

https://www.facebook.com/TechXnew/posts/canada-has-made-a-de...

that assumes that external suppliers were not already at their cheapest price point and that they were not competing with each other already

it also assumes that there are no other alternative markets to sell to or that supplier capacity is equally elastic; the US might be a high margin market to sell to, but if you only have a fixed amount of product to sell then it makes no sense to eat the high cost of a tariff to keep selling a low margin product when you can instead sell your product at a medium margin in europe

building out more supply for a product is often capital intensive if you want to make it at an economically efficient price point in these times; efficiencies of scale are hard to overcome and a rapid shift of economic policies makes anyone uncertain about future investment so it takes a very long time for these supply chains to rebalance, if they ever do

> If foreign exporters face highly elastic demand (meaning buyers can easily switch to alternatives)

That's a huge 'if'.

Yes, however the next paragraph outlines why it wasn’t surprising to other observers. Summarized, low competition and structural constraints.

Yes, so turns out people with a basic grasp of how economies function can have different models of how things work. This a great paper, and important in that it shows who is paying the tariffs in the examples they looked at. What it still leaves unaddressed is the obvious prediction of increase in CPI not really showing up.

Yes, the next paragraph explains why the surprised economists were wrong. I agree with the GP though that the GGP was too quick to say

> to the surprise of absolutely no-one with even the most basic grasp of how economies function.

I'm trying to buy a tool made in Pennsylvania but which for some coincidence is popular in Canada, and to my surprise all the US online suppliers have doubled their prices to match Canadian online suppliers after shipping.

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