4 ms·

I could imagine, maybe, that if tariffs were 100% here to stay, that then, after some period of pain, lasting a few years, investors would have built replacemen

I could imagine, maybe, that if tariffs were 100% here to stay, that then, after some period of pain, lasting a few years, investors would have built replacement infrastructure domestically. (The word 'maybe' is doing a lot of work here, but let's roll with it, for the sake of argument.) But this administration is already using tariffs as a negotiating tool, a cudgel. "If country X does Y, maybe the administration will cut them a break." That means, as an investor, there is simply no certainty that makes it safe enough to invest in domestic US infrastructure. What if I build a factory and then the tariff evaporates?

steveBK123 2y ago
Precisely. He is erratic and changes his mind, announcing plans via tweet. Who is going to make multi year capital commitments in that context?
nick238 2y ago
Sure, a loom works anywhere, but a banana plant doesn't. Raw materials are sometimes only available in some regions too, though this is a weaker argument because sometimes that is just because labor and complying with dumping regulations are cheaper in poorer countries.
- steveBK123 2y ago
  There is probably no level of tariffs that make US labor competitive with $2-3/hr all-in with benefits China wages. That's before you even get into workers rights/legal/safety/conditions/etc. Note China is already hinting at devaluing their currency further as well. And again with generationally low 4% unemployment and promises/attempts at mass deportations, who exactly are supposed to be staffing all these factories that are going to sprout up here? Maybe the plan is fire enough people & make Americans poor enough they'll accept $3/hr?
dexterlagan 2y ago
Precisely, and more worrying, it may mean that tariffs implemented that way may only be effective if they are permanent. But once Trump is gone, the next administration will most likely drop the tariffs or at least scale back significantly. Which means that the market could be set for a much harder, much more durable crash. Tariffs are also a double-edged sword in the sense that all other nations will also boost their domestic production. This boost in production will remain even while tariffs are dialed back. Momentum alone will create uncertainty as to the nature of the world economy. We're in for a very rough ride.
- dexterlagan 2y ago
  To finish my thought: right now the market reaction is extreme, but it's fake in the sense that if tariffs were lifted tomorrow, the market would most likely go back to its former glory. In 3-4 years, once both domestic and foreign infrastructure has been built, it may not. If supposed massive investments are actually being made in US infrastructure, and that tariffs force companies to bite the bullet and stop producing abroad with cheap labor, what will happen when these incentives vanish? Will they go back to cheap labor? People will always prefer a 1k iPhone to a 2k iPhone. Especially if purchasing power has halved in the mean time. I'm expecting an extreme rubber band effect either way.
sirspacey 2y ago
There wouldn’t be any safety for that anyway. A tariff as a negotiating tactic wouldn’t be worth much if it was known to be temporary.

steveBK123 2y ago

Precisely. He is erratic and changes his mind, announcing plans via tweet. Who is going to make multi year capital commitments in that context?

nick238 2y ago

Sure, a loom works anywhere, but a banana plant doesn't. Raw materials are sometimes only available in some regions too, though this is a weaker argument because sometimes that is just because labor and complying with dumping regulations are cheaper in poorer countries.

steveBK123 2y ago
There is probably no level of tariffs that make US labor competitive with $2-3/hr all-in with benefits China wages. That's before you even get into workers rights/legal/safety/conditions/etc. Note China is already hinting at devaluing their currency further as well. And again with generationally low 4% unemployment and promises/attempts at mass deportations, who exactly are supposed to be staffing all these factories that are going to sprout up here? Maybe the plan is fire enough people & make Americans poor enough they'll accept $3/hr?

dexterlagan 2y ago

Precisely, and more worrying, it may mean that tariffs implemented that way may only be effective if they are permanent. But once Trump is gone, the next administration will most likely drop the tariffs or at least scale back significantly. Which means that the market could be set for a much harder, much more durable crash. Tariffs are also a double-edged sword in the sense that all other nations will also boost their domestic production. This boost in production will remain even while tariffs are dialed back. Momentum alone will create uncertainty as to the nature of the world economy. We're in for a very rough ride.

dexterlagan 2y ago
To finish my thought: right now the market reaction is extreme, but it's fake in the sense that if tariffs were lifted tomorrow, the market would most likely go back to its former glory. In 3-4 years, once both domestic and foreign infrastructure has been built, it may not. If supposed massive investments are actually being made in US infrastructure, and that tariffs force companies to bite the bullet and stop producing abroad with cheap labor, what will happen when these incentives vanish? Will they go back to cheap labor? People will always prefer a 1k iPhone to a 2k iPhone. Especially if purchasing power has halved in the mean time. I'm expecting an extreme rubber band effect either way.

sirspacey 2y ago

There wouldn’t be any safety for that anyway. A tariff as a negotiating tactic wouldn’t be worth much if it was known to be temporary.