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The logistical inefficiencies of dealing with tariffs are arguably a minor component when evaluating free trade, since they account for a small fraction of the

The logistical inefficiencies of dealing with tariffs are arguably a minor component when evaluating free trade, since they account for a small fraction of the total value of goods.

pjc50 8y ago
25% tariffs involved here are not small; larger than most normal profit margins.
- AnthonyMouse 8y ago
  > 25% tariffs involved here are not small; larger than most normal profit margins. Profit margins are set by competition. The customer might pay $5 except that your competitors are charging $1 so you can't even charge $1.10 or the customer buys from a competitor. If everybody's costs increase by 25% then everybody can increase their prices by 25%, because you can't profit at $1 anymore but neither can your competitors. Unless your competitors aren't subject to the tariff, which is kind of the point. Meanwhile the revenue the tariff generates offsets some tax that now doesn't need to be collected somewhere else and would have caused a similar inefficiency or cost increase in some other place. Tariffs suck because taxes suck and tariffs are taxes. But for a given amount of revenue generated, it's better to tax somebody else's economy than yours.
  - antidesitter 8y ago
    Meanwhile the revenue the tariff generates offsets some tax that now doesn't need to be collected somewhere else and would have caused a similar inefficiency or cost increase in some other place. Different forms of taxation can have different economic consequences. it's better to tax somebody else's economy than yours Thinking of tariffs as "taxing somebody else's economy" betrays a misunderstanding of the concept of incidence (as in https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence), since you're raising prices for your own imports.
    - AnthonyMouse 8y ago
      > Different forms of taxation can have different economic consequences. Yes, of course. Car tax has different economic consequences than [real] property tax. But a tariff on cars looks a lot more like a tax on cars than it does a tariff on real property. Actually "tariff on real property" (meaning [high] property tax owed only by foreign nationals and corporations with foreign ownership) might be one of the best possible methods of generating government revenue. > Thinking of tariffs as "taxing somebody else's economy" betrays a misunderstanding of the concept of incidence (as in https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence), since you're raising prices for your own imports. It's not misunderstanding it, it's understanding it perfectly well. It's not that exactly 0% of the burden falls on the domestic economy, it's that it disproportionately falls outside of it. When you have a tariff, there are two ways for a foreign supplier to lose. The first is that there is a competitive domestic market for the same product. In that case the price won't change much if at all (minimal impact on consumers), the production will just shift to domestic suppliers who hire domestic workers. Then the tariff doesn't generate much if any direct government revenue, but it shifts a bunch of domestic citizens from collecting unemployment to earning taxable income, which is great in a different way. The second is any case where the producer has to eat a tax in general, e.g. because there are substitute goods preventing the producer from raising prices, so they can't pass the burden on to the customer. The domestic market only pays if domestic producers can't make [more of] that product and consumers are still willing to pay the higher price for it. But even then, it's not worse than generating government revenue from a purely domestic tax, it's just not any better in that unusual case. And in practice it will typically be some combination -- domestic producers will appear charging slightly higher prices (but more than making up for it by creating domestic jobs), and then the foreign producers have to compete with them (and other substitutes) so they have to eat most of the tariff but not all of it. So the burden falls disproportionately on someone else's economy, as opposed to domestic taxes that fall primarily on your economy.
  - jacquesm 8y ago
    > Profit margins are set by competition. No, profit margins are the end result of all factors that go into a products manufacture and transportation until it reaches the next drop-off in the value chain or the end user. They can even be negative. Competition aka the race to the bottom is what puts an upper bound on profit margins (absent price fixing and cartels). Without competition that upper bound disappears and then you can charge whatever the consumers are willing to pay.
    - AnthonyMouse 8y ago
      I think I said profit margins are set by competition and then you said something like no, profit margins are determined by competition. Is your point that they aren't set by competition in uncompetitive markets? Because in that case the margins would typically be more than 25% to begin with and taxing monopolies and price-fixing cartels is something most people can get behind. What you could be alluding to is that imposing tariffs could reduce competition from foreign suppliers, allowing domestic suppliers to sustain higher margins if there isn't sufficient domestic competition to keep them down. But high margins should attract new domestic competitors absent some high barrier to entry, higher margins for domestic companies is not hard to classify as "benefit" rather than "disaster" anyway, and the maximum increase is still capped at the amount of the tariff or people would go back to the foreign supplier(s).
      - jacquesm 8y ago
        > and then you said something like no, profit margins are determined by competition. No, I did not say that. I said that competition is in some cases a factor but definitely not the major ingredient. Profit margins are not an input into some calculation, they are the result of a calculation.
        AnthonyMouse 8y ago
        I'm just not seeing how the thing you said is supposed to be in conflict with the thing I said. Sure, competition isn't the only factor in margins. But it is a major determinant of how much of the total surplus goes to the consumer rather than the producer. And the point was that if you raise costs for all competitors, it isn't necessarily fatal to the market that the amount is larger than their original margins, as long as it isn't larger than the total producer+consumer surplus. Because when everyone's costs increase by the same amount, the producers may be able to pass some of the cost on to the consumers.

The logistical inefficiencies of dealing with tariffs are arguably a minor component when evaluating free trade, since they account for a small fraction of the total value of goods.

pjc50 8y ago

25% tariffs involved here are not small; larger than most normal profit margins.

AnthonyMouse 8y ago
> 25% tariffs involved here are not small; larger than most normal profit margins. Profit margins are set by competition. The customer might pay $5 except that your competitors are charging $1 so you can't even charge $1.10 or the customer buys from a competitor. If everybody's costs increase by 25% then everybody can increase their prices by 25%, because you can't profit at $1 anymore but neither can your competitors. Unless your competitors aren't subject to the tariff, which is kind of the point. Meanwhile the revenue the tariff generates offsets some tax that now doesn't need to be collected somewhere else and would have caused a similar inefficiency or cost increase in some other place. Tariffs suck because taxes suck and tariffs are taxes. But for a given amount of revenue generated, it's better to tax somebody else's economy than yours.
- antidesitter 8y ago
  Meanwhile the revenue the tariff generates offsets some tax that now doesn't need to be collected somewhere else and would have caused a similar inefficiency or cost increase in some other place. Different forms of taxation can have different economic consequences. it's better to tax somebody else's economy than yours Thinking of tariffs as "taxing somebody else's economy" betrays a misunderstanding of the concept of incidence (as in https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence), since you're raising prices for your own imports.
  - AnthonyMouse 8y ago
    > Different forms of taxation can have different economic consequences. Yes, of course. Car tax has different economic consequences than [real] property tax. But a tariff on cars looks a lot more like a tax on cars than it does a tariff on real property. Actually "tariff on real property" (meaning [high] property tax owed only by foreign nationals and corporations with foreign ownership) might be one of the best possible methods of generating government revenue. > Thinking of tariffs as "taxing somebody else's economy" betrays a misunderstanding of the concept of incidence (as in https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence), since you're raising prices for your own imports. It's not misunderstanding it, it's understanding it perfectly well. It's not that exactly 0% of the burden falls on the domestic economy, it's that it disproportionately falls outside of it. When you have a tariff, there are two ways for a foreign supplier to lose. The first is that there is a competitive domestic market for the same product. In that case the price won't change much if at all (minimal impact on consumers), the production will just shift to domestic suppliers who hire domestic workers. Then the tariff doesn't generate much if any direct government revenue, but it shifts a bunch of domestic citizens from collecting unemployment to earning taxable income, which is great in a different way. The second is any case where the producer has to eat a tax in general, e.g. because there are substitute goods preventing the producer from raising prices, so they can't pass the burden on to the customer. The domestic market only pays if domestic producers can't make [more of] that product and consumers are still willing to pay the higher price for it. But even then, it's not worse than generating government revenue from a purely domestic tax, it's just not any better in that unusual case. And in practice it will typically be some combination -- domestic producers will appear charging slightly higher prices (but more than making up for it by creating domestic jobs), and then the foreign producers have to compete with them (and other substitutes) so they have to eat most of the tariff but not all of it. So the burden falls disproportionately on someone else's economy, as opposed to domestic taxes that fall primarily on your economy.
- jacquesm 8y ago
  > Profit margins are set by competition. No, profit margins are the end result of all factors that go into a products manufacture and transportation until it reaches the next drop-off in the value chain or the end user. They can even be negative. Competition aka the race to the bottom is what puts an upper bound on profit margins (absent price fixing and cartels). Without competition that upper bound disappears and then you can charge whatever the consumers are willing to pay.
  - AnthonyMouse 8y ago
    I think I said profit margins are set by competition and then you said something like no, profit margins are determined by competition. Is your point that they aren't set by competition in uncompetitive markets? Because in that case the margins would typically be more than 25% to begin with and taxing monopolies and price-fixing cartels is something most people can get behind. What you could be alluding to is that imposing tariffs could reduce competition from foreign suppliers, allowing domestic suppliers to sustain higher margins if there isn't sufficient domestic competition to keep them down. But high margins should attract new domestic competitors absent some high barrier to entry, higher margins for domestic companies is not hard to classify as "benefit" rather than "disaster" anyway, and the maximum increase is still capped at the amount of the tariff or people would go back to the foreign supplier(s).
    - jacquesm 8y ago
      > and then you said something like no, profit margins are determined by competition. No, I did not say that. I said that competition is in some cases a factor but definitely not the major ingredient. Profit margins are not an input into some calculation, they are the result of a calculation.
      - AnthonyMouse 8y ago
        I'm just not seeing how the thing you said is supposed to be in conflict with the thing I said. Sure, competition isn't the only factor in margins. But it is a major determinant of how much of the total surplus goes to the consumer rather than the producer. And the point was that if you raise costs for all competitors, it isn't necessarily fatal to the market that the amount is larger than their original margins, as long as it isn't larger than the total producer+consumer surplus. Because when everyone's costs increase by the same amount, the producers may be able to pass some of the cost on to the consumers.