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As I recently wrote on Cowen's blog, a lot of the electorate doesn't know how tariffs work. Say I manufacture a widget in [country]. At present, there is no ma

As I recently wrote on Cowen's blog, a lot of the electorate doesn't know how tariffs work. Say I manufacture a widget in [country]. At present, there is no manufacturer of that widget in the USA. We export to the USA, and now the US importer or distributor pays a ~25% tariff on the declared value to Fedgov. Then that US importer or distributor receives the widgets and sells them. Because its margin is down, it raises its price. Who paid first? The US business that imported the widgets. Who pays in the end? The US customer. Now say I manufacture some specialty aluminum rods in [country]. We export to a heatsink manufacturer in the US. As they need our rods, they pay the tariffs. Their product is now considerably more expensive and there's more friction in their supply chain. The only way this ends is with Americans paying more for goods. It could be a lot worse than routine inflation. The right way to go about things would be to shore up US manufacturing capabilities first, and then utilize tariffs selectively. Right now, there's really no way around foreign inputs in manufacturing and/or wholly foreign-made goods, so there's going to be a lot of pain.

llm_nerd 2y ago
>The right way to go about things would be to shore up US manufacturing capabilities first The US has basically "full employment" (the economic measure when more employment is inflationary). In a vacuum the idea that you're "bringing home the jobs" makes sense, but it makes zero sense when you simply don't have the capacity to build more. If Americans thought inflation was unacceptable under Biden, they're in for a real shock now. Americans have no idea how good they have it. They're the biggest consumer of goods on the planet, and basically want their cake and to eat it too. It doesn't work like that. And really, the US essentially has balanced trade with Canada, and if you exclude oil the US has a massive trade surplus with Canada. So when Canada and Mexico both "shore up" their own capabilities and stop buying the $1T of goods from the US, where does that leave the US? It enjoys a massive internal economy -- an irrationally large one -- but much of that is illusory and built on a myth. Liberal trade is the reason the US became the richest country on Earth. Trump thinks everything is easy and is about to crash it to the ground.
- toomuchtodo 2y ago
  This also pushes long term bond rates higher to price inflation into the yield, pushing both government borrowing and long term consumer borrowing (mortgages) costs higher. https://www.cnbc.com/2025/01/31/us-treasury-yields-investors-await-feds-preferred-inflation-gauge-.html https://www.cnbc.com/2025/01/31/us-treasury-yields-investors... https://www.usbank.com/investing/financial-perspectives/market-news/interest-rates-affect-bonds.html https://www.usbank.com/investing/financial-perspectives/mark...
- pwarner 2y ago
  Americans have no idea how good they have it.
  - tossandthrow 2y ago
    The issue is the rampant inequality in the US. The below median American does not have it that well, even if they work their assets off.
- dinkumthinkum 2y ago
  I don't know why the left always presents this "full employment" thing when defending the Biden administration when they know full well how misleading that is and who are not counted in those numbers and the fact that it does not account for "under-employment", it's kind of intellectually dishonest. You can make these implications that inflation will get much worse under Trump but I doubt anyone on the left will come back with any admission or credit when it turns out to be false, surely they will just say "it was really Biden's economy that got better" or something to that effect.
B-Con 2y ago
The simpler way to explain it is that a traffic is literally just a tax. "Trump imposes an N% tax on goods from X" would be just as accurate but likely get a different reaction from the populace.
dismalaf 2y ago
There's basically nothing that's manufactured only in Canada... The vast majority of our exports are raw materials, and of our manufactured goods most are foreign multinationals that set up shop to take advantage of our cheap(er) labour versus the US... They can and will move to the US because of these tariffs. This will decimate our economy and it really feels like Trudeau simply wants someone to blame our shit economic performance on...
- fspeech 2y ago
  Unless the world demand for these raw material goes down or production elsewhere goes up someone will still buy these raw materials. If tarriff is high enough to force US to source from and Canada to sell to more distant places the world will be less efficient.
- A_D_E_P_T 2y ago
  I've got one word for you: Potash. Hugely important for agriculture, barely produced in the US at all, mostly imported from Canada. If Canada retaliates by barring or limiting potash exports, it would be so harmful to the American agriculture sector that Trump would go ballistic. > They can and will move to the US because of these tariffs. That's a lot easier said than done, and as US policies might change at any time -- it's a coin-flip what'll be the case in four years -- they'll probably just decide to wait it out and let US consumers eat the tax. Seriously, you might think it's easy to relocate, e.g., a car manufacturing plant, but it sure ain't...
  - dismalaf 2y ago
    Potash is important yes. Canada also imports a majority of our fruit and vegetables from the US. Over 90% of our leafy greens come from the US. We already have a massive cost of living crisis. And I'm not sure if American commentators have been paying attention to our economy or not but Canada's GDP per capita has gone down for 6 straight quarters. And here's the analysis from the Bank of Canada: https://www.bankofcanada.ca/publications/mpr/mpr-2025-01-29/in-focus-1/ https://www.bankofcanada.ca/publications/mpr/mpr-2025-01-29/... I know commentators want to stick it to Trump but Canada's economy has been in a bad place for years and this isn't good for us at all...
aborsy 2y ago
[country] may have no other place to sell to, at least immediately, and at the same transportation cost. Moreover, unlike US, [country] may not have diversified its trade. The US may be able to control inflation like last time, by buying some of these goods from elsewhere and through interest rates etc.
- dutchbookmaker 2y ago
  It is also through the exchange rates. USD to CAD has front ran a lot of this already. 1.45 is crazy. The idea Canada can so easily re-route trade is absurd. Especially when the trade is going to be settled in USD. I have been trying to understand the point of all this and come up empty this morning. I would have to assume it is for enormous leverage in the trade deal that ultimately ends all this. The leverage this gives the US in a trade deal, especially with Canada is pretty incredible. 25% is just so insane that it probably does cause Mexico and Canada to concede to whatever Trump wants in a trade deal and in short order. I think this is why Trump won't even take a call from Trudeau right now. It is a leverage tactic and then when they do talk what leverage does Trudeau have? Basically zero.
  - nightowl_games 2y ago
    Yes, the USA has massive leverage over Canada on basically every front. We are a small child standing next to a massive person with a gun. But what is the point of destroying us? Our economy is already down. All of our tech elite move to Silicon Valley. Our energy infrastructure cant get off the ground. The USA dictates so much of what Canada is able to do. What is the point of squeezing us more? We have so little we can offer you. We've already given you the lives of our soldiers as we follow you into pointless wars. What more do you want? The pennies in our pockets?
    - ModernMech 2y ago
      > What more do you want? The pennies in our pockets? Pretty much yeah. US wants to tax you, subject you to their religious laws, and take your oil. What are you willing to do about it?
dinkumthinkum 2y ago
So, when Trump threatened Columbia with up to 50% tariffs, did the cost of coffee go up for the consumer, or is it about to, or did the Columbian president offer his presidential plane to pick-up people?

llm_nerd 2y ago

>The right way to go about things would be to shore up US manufacturing capabilities first The US has basically "full employment" (the economic measure when more employment is inflationary). In a vacuum the idea that you're "bringing home the jobs" makes sense, but it makes zero sense when you simply don't have the capacity to build more. If Americans thought inflation was unacceptable under Biden, they're in for a real shock now. Americans have no idea how good they have it. They're the biggest consumer of goods on the planet, and basically want their cake and to eat it too. It doesn't work like that. And really, the US essentially has balanced trade with Canada, and if you exclude oil the US has a massive trade surplus with Canada. So when Canada and Mexico both "shore up" their own capabilities and stop buying the $1T of goods from the US, where does that leave the US? It enjoys a massive internal economy -- an irrationally large one -- but much of that is illusory and built on a myth. Liberal trade is the reason the US became the richest country on Earth. Trump thinks everything is easy and is about to crash it to the ground.

toomuchtodo 2y ago
This also pushes long term bond rates higher to price inflation into the yield, pushing both government borrowing and long term consumer borrowing (mortgages) costs higher. https://www.cnbc.com/2025/01/31/us-treasury-yields-investors-await-feds-preferred-inflation-gauge-.html https://www.cnbc.com/2025/01/31/us-treasury-yields-investors... https://www.usbank.com/investing/financial-perspectives/market-news/interest-rates-affect-bonds.html https://www.usbank.com/investing/financial-perspectives/mark...
pwarner 2y ago
Americans have no idea how good they have it.
- tossandthrow 2y ago
  The issue is the rampant inequality in the US. The below median American does not have it that well, even if they work their assets off.
dinkumthinkum 2y ago
I don't know why the left always presents this "full employment" thing when defending the Biden administration when they know full well how misleading that is and who are not counted in those numbers and the fact that it does not account for "under-employment", it's kind of intellectually dishonest. You can make these implications that inflation will get much worse under Trump but I doubt anyone on the left will come back with any admission or credit when it turns out to be false, surely they will just say "it was really Biden's economy that got better" or something to that effect.

B-Con 2y ago

The simpler way to explain it is that a traffic is literally just a tax. "Trump imposes an N% tax on goods from X" would be just as accurate but likely get a different reaction from the populace.

dismalaf 2y ago

There's basically nothing that's manufactured only in Canada... The vast majority of our exports are raw materials, and of our manufactured goods most are foreign multinationals that set up shop to take advantage of our cheap(er) labour versus the US... They can and will move to the US because of these tariffs. This will decimate our economy and it really feels like Trudeau simply wants someone to blame our shit economic performance on...

fspeech 2y ago
Unless the world demand for these raw material goes down or production elsewhere goes up someone will still buy these raw materials. If tarriff is high enough to force US to source from and Canada to sell to more distant places the world will be less efficient.
A_D_E_P_T 2y ago
I've got one word for you: Potash. Hugely important for agriculture, barely produced in the US at all, mostly imported from Canada. If Canada retaliates by barring or limiting potash exports, it would be so harmful to the American agriculture sector that Trump would go ballistic. > They can and will move to the US because of these tariffs. That's a lot easier said than done, and as US policies might change at any time -- it's a coin-flip what'll be the case in four years -- they'll probably just decide to wait it out and let US consumers eat the tax. Seriously, you might think it's easy to relocate, e.g., a car manufacturing plant, but it sure ain't...
- dismalaf 2y ago
  Potash is important yes. Canada also imports a majority of our fruit and vegetables from the US. Over 90% of our leafy greens come from the US. We already have a massive cost of living crisis. And I'm not sure if American commentators have been paying attention to our economy or not but Canada's GDP per capita has gone down for 6 straight quarters. And here's the analysis from the Bank of Canada: https://www.bankofcanada.ca/publications/mpr/mpr-2025-01-29/in-focus-1/ https://www.bankofcanada.ca/publications/mpr/mpr-2025-01-29/... I know commentators want to stick it to Trump but Canada's economy has been in a bad place for years and this isn't good for us at all...

aborsy 2y ago

[country] may have no other place to sell to, at least immediately, and at the same transportation cost. Moreover, unlike US, [country] may not have diversified its trade. The US may be able to control inflation like last time, by buying some of these goods from elsewhere and through interest rates etc.

dutchbookmaker 2y ago
It is also through the exchange rates. USD to CAD has front ran a lot of this already. 1.45 is crazy. The idea Canada can so easily re-route trade is absurd. Especially when the trade is going to be settled in USD. I have been trying to understand the point of all this and come up empty this morning. I would have to assume it is for enormous leverage in the trade deal that ultimately ends all this. The leverage this gives the US in a trade deal, especially with Canada is pretty incredible. 25% is just so insane that it probably does cause Mexico and Canada to concede to whatever Trump wants in a trade deal and in short order. I think this is why Trump won't even take a call from Trudeau right now. It is a leverage tactic and then when they do talk what leverage does Trudeau have? Basically zero.
- nightowl_games 2y ago
  Yes, the USA has massive leverage over Canada on basically every front. We are a small child standing next to a massive person with a gun. But what is the point of destroying us? Our economy is already down. All of our tech elite move to Silicon Valley. Our energy infrastructure cant get off the ground. The USA dictates so much of what Canada is able to do. What is the point of squeezing us more? We have so little we can offer you. We've already given you the lives of our soldiers as we follow you into pointless wars. What more do you want? The pennies in our pockets?
  - ModernMech 2y ago
    > What more do you want? The pennies in our pockets? Pretty much yeah. US wants to tax you, subject you to their religious laws, and take your oil. What are you willing to do about it?

dinkumthinkum 2y ago

So, when Trump threatened Columbia with up to 50% tariffs, did the cost of coffee go up for the consumer, or is it about to, or did the Columbian president offer his presidential plane to pick-up people?