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> who did you think would pay? The general premise of tariffs is that a foreign product costs e.g. $100 whereas a domestic product costs $120. If you then put

> who did you think would pay? The general premise of tariffs is that a foreign product costs e.g. $100 whereas a domestic product costs $120. If you then put a 50% tariff on the foreign product, it would cost $150, and then people would prefer the domestic product and only be paying 20% instead of 50%. Moreover, they might prefer the domestic product in general (e.g. higher quality and/or patriotism) and only buy the foreign product if it's actually less expensive, and then the foreign manufacturer would have to lower their price from $100 to $70 so that the tariff only raises the price to $105 because any higher price than that and they lose the business. The result, in theory, is that you would pay $5 more rather than $50 more. Meanwhile the government collected $35 in tariffs on the foreign product, $30 of which came from the manufacturer rather than you, and that allows the government to lower your other taxes by $35 at the same level of government spending and borrowing. There are essentially two things required for this to work in your favor on net: 1) the tariffs cause the foreign manufacturer to lower their pre-tariff prices at all, and 2) the government uses the tariff revenue instead of some other taxes they would have collected directly or indirectly from you, so that your net tax burden stays the same. It can also be some mix of these, e.g. the foreign manufacturer lowers their price by $10, you pay $15 in tariffs and get a $10 reduction in other taxes, and then you're ahead by $5. Ironically, the primary way domestic taxpayers end up paying more is if the tariffs succeed in causing people to buy domestic products, because then there is no tariff revenue on the domestic products and people pay the higher price for the domestic products without a reduction in other taxes.

deleted 10mo ago
[deleted]
kshri24 10mo ago
> whereas a domestic product costs There is hardly anything that is made domestically in the US. So the premise falls apart almost immediately. This premise works great for India where domestic production exceeds exports by massive margins and the economy depends mostly on domestic economy. It does not work for US where there is hardly any domestic production and is totally import driven economy.
- AnthonyMouse 10mo ago
  The US has the second largest manufacturing base in the world after China. It's larger than India and is even slightly larger than the EU. It used to be the largest. Moreover, if the premise is that you're trying to bring back manufacturing capacity, it doesn't matter if something is currently made in the US, what matters is what it would cost if it was, because a tariff in excess of the difference would then make that cost effective. Obviously in the latter case you would then have to wait until that manufacturing capacity comes back online, but "customers switch to a domestic product" isn't the only thing that can cause foreign manufacturers to have to lower prices. They could also switch to substitute products or reduce consumption and then foreign manufacturers would still have to lower prices to limit the extent to which that happens.
  - danaris 10mo ago
    While in the abstract and academic sense this is true, in practice there are two big problems that make it an utter non-starter*: 1) Due to the absolutely massive supply chains that have been built up in East Asia (not just China, but many other countries around there), and lack of same in the US, even for products where it's physically possible to produce it all domestically, from the raw materials on up, it would take decades of sustained investment without return before actual consumer products could be made on anything other than a one-off basis. Any step that can't be done in-country gets the tariffs slapped on again. And there are a fair number of raw materials we just don't have, at least not in the kinds of amounts that, um, the entire rest of the world does, that are required for mass production. 2) Trump isn't applying tariffs in a strategic manner to get domestic manufacturing to come back. He's applying tariffs as his personal punishment stick, and to all appearances that's the best he's actually capable of doing with them. In order for any of what I described in #1 to happen, ever, the tariffs need to be applied consistently, predictably, and for a long time. Trump doesn't want to do any of that. He's just found a magic stick that makes people kowtow to him, and he's going to use it however he pleases. * Not that I think you're unaware of these, based on your post; to a large extent I'm just expanding upon your second paragraph here.
    - 10mo ago
readthenotes1 10mo ago
"The general premise of tariffs is that a foreign product costs e.g. $100 whereas a domestic product costs $120." The analysis following seems to think that the tariff is placed upon the retail price of the goods as opposed to the production cost, which excludes marketing, final transportation, storage, r&d, domestic staff costs, profit, etc. A more important aspect not mentioned is getting rid of the de minimis exemption that allowed people to ship stuff tariffs-- free into the US as long as they declared the value less than $750.
- AnthonyMouse 10mo ago
  > The analysis following seems to think that the tariff is placed upon the retail price of the goods as opposed to the production cost, which excludes marketing, final transportation, storage, r&d, domestic staff costs, profit, etc. No, it's just using the wholesale price of the product as imported as the basis for comparison. What happens to it after that is unrelated to the tariff and doesn't care whether you paid the same money for a foreign product + tariff or a higher priced domestic product without tariff.
  - readthenotes1 9mo ago
    But people don't buy at the wholesale price. Your analogy could be: Both products cost $300 at checkout.
vannevar 10mo ago
I think we all understand how tariffs are intended to work. The problem is that we also know from experience that this is not how they work in practice, and historically are associated with negative economic outcomes overall. The findings described in the article appear consistent with past negative experience. One correction regarding the tax impact: since tariffs are a flat tax and not progressive, to the extent that they displace progressive income tax, the net tax burden on the average taxpayer would increase, not remain the same.
- AnthonyMouse 10mo ago
  > The problem is that we also know from experience that this is not how they work in practice, and historically are associated with negative economic outcomes overall. In general taxes are associated with negative economic outcomes overall, and tariffs are taxes. But displacing other taxes with them doesn't inherently bring a net cost. > One correction regarding the tax impact: since tariffs are a flat tax and not progressive, to the extent that they displace progressive income tax, the net tax burden on the average taxpayer would increase, not remain the same. The net tax burden on the average taxpayer would always be the same for any change which is revenue-neutral. Whether the median taxpayer would pay more or less depends on who is buying the things being imported and what the alternate tax system looks like. For example, if the middle class is paying ~20% in practice and the rich pay >30% on paper but <20% in practice, that isn't actually a progressive tax system as implemented. Likewise, if the tariffs are on e.g. phones, but the top quintile buy a $1000 phone every two years and the bottom quintile buy a $100 phone every five years, the tariffs are being imposed on something the rich buy 25 times as much of. Meanwhile things like food and shelter are largely produced domestically.
duskwuff 10mo ago
There's a third requirement which you've glossed over somewhat: a domestic manufacturer of that product needs to exist. For many of the products which are currently the subject of US tariffs, domestic manufacturing is nonexistent, or is itself impacted by tariffs on imported materials.
- mastermage 10mo ago
  in a globalized world might I add there is no such thing as a product only created in one country.
  - addandsubtract 10mo ago
    Good luck creating Bordeaux outside of France.
  - duskwuff 10mo ago
    I don't know about "only created in one country", but there are certainly products which are only made in a few countries. One example is LCD and OLED panels - virtually all are made in China, Taiwan, and South Korea. As far as I'm aware, there is no large-scale fabrication of these parts in the Americas or Europe.
- AnthonyMouse 10mo ago
  > a domestic manufacturer of that product needs to exist. It doesn't have to currently exist. If the tariff causes it to cost less to make it domestically to avoid the tariff then companies start making the product domestically, which is kind of the point.
  - duskwuff 10mo ago
    That doesn't really work in situations where the industrial base doesn't exist for local manufacturing, and where building that would be likely to take much longer than the tariff will be in place (to say nothing of the costs). The example I used in a sibling reply - LCD manufacturing - is a perfect example. Existing companies can't simply start producing those on a moment's notice - building the necessary facilities would take years, and would likely require a $1B+ investment. It's extremely hard to justify that when it's likely that the tariff situation would change before production even started, let alone before the costs were recovered.
maxerickson 10mo ago
What happens if you avoid conflating cost and price and also assume that pricing is vaguely competitive, rather than cartoonishly favorable to tariffs?
- AnthonyMouse 10mo ago
  Assuming that pricing is vaguely competitive is conflating cost and price, since competition would cause margins to be thin. The general issue is that domestic production often has a higher cost, e.g. because domestic labor is more expensive, or because foreign production has already amortized some long-term fixed costs over past sales that a new domestic manufacturer would yet have to recover over future sales. It then needs a higher price, at least temporarily, in order to be competitive, which is what tariffs do.

deleted 10mo ago

[deleted]

kshri24 10mo ago

> whereas a domestic product costs There is hardly anything that is made domestically in the US. So the premise falls apart almost immediately. This premise works great for India where domestic production exceeds exports by massive margins and the economy depends mostly on domestic economy. It does not work for US where there is hardly any domestic production and is totally import driven economy.

AnthonyMouse 10mo ago
The US has the second largest manufacturing base in the world after China. It's larger than India and is even slightly larger than the EU. It used to be the largest. Moreover, if the premise is that you're trying to bring back manufacturing capacity, it doesn't matter if something is currently made in the US, what matters is what it would cost if it was, because a tariff in excess of the difference would then make that cost effective. Obviously in the latter case you would then have to wait until that manufacturing capacity comes back online, but "customers switch to a domestic product" isn't the only thing that can cause foreign manufacturers to have to lower prices. They could also switch to substitute products or reduce consumption and then foreign manufacturers would still have to lower prices to limit the extent to which that happens.
- danaris 10mo ago
  While in the abstract and academic sense this is true, in practice there are two big problems that make it an utter non-starter*: 1) Due to the absolutely massive supply chains that have been built up in East Asia (not just China, but many other countries around there), and lack of same in the US, even for products where it's physically possible to produce it all domestically, from the raw materials on up, it would take decades of sustained investment without return before actual consumer products could be made on anything other than a one-off basis. Any step that can't be done in-country gets the tariffs slapped on again. And there are a fair number of raw materials we just don't have, at least not in the kinds of amounts that, um, the entire rest of the world does, that are required for mass production. 2) Trump isn't applying tariffs in a strategic manner to get domestic manufacturing to come back. He's applying tariffs as his personal punishment stick, and to all appearances that's the best he's actually capable of doing with them. In order for any of what I described in #1 to happen, ever, the tariffs need to be applied consistently, predictably, and for a long time. Trump doesn't want to do any of that. He's just found a magic stick that makes people kowtow to him, and he's going to use it however he pleases. * Not that I think you're unaware of these, based on your post; to a large extent I'm just expanding upon your second paragraph here.
  - 10mo ago

readthenotes1 10mo ago

"The general premise of tariffs is that a foreign product costs e.g. $100 whereas a domestic product costs $120." The analysis following seems to think that the tariff is placed upon the retail price of the goods as opposed to the production cost, which excludes marketing, final transportation, storage, r&d, domestic staff costs, profit, etc. A more important aspect not mentioned is getting rid of the de minimis exemption that allowed people to ship stuff tariffs-- free into the US as long as they declared the value less than $750.

AnthonyMouse 10mo ago
> The analysis following seems to think that the tariff is placed upon the retail price of the goods as opposed to the production cost, which excludes marketing, final transportation, storage, r&d, domestic staff costs, profit, etc. No, it's just using the wholesale price of the product as imported as the basis for comparison. What happens to it after that is unrelated to the tariff and doesn't care whether you paid the same money for a foreign product + tariff or a higher priced domestic product without tariff.
- readthenotes1 9mo ago
  But people don't buy at the wholesale price. Your analogy could be: Both products cost $300 at checkout.

vannevar 10mo ago

I think we all understand how tariffs are intended to work. The problem is that we also know from experience that this is not how they work in practice, and historically are associated with negative economic outcomes overall. The findings described in the article appear consistent with past negative experience. One correction regarding the tax impact: since tariffs are a flat tax and not progressive, to the extent that they displace progressive income tax, the net tax burden on the average taxpayer would increase, not remain the same.

AnthonyMouse 10mo ago
> The problem is that we also know from experience that this is not how they work in practice, and historically are associated with negative economic outcomes overall. In general taxes are associated with negative economic outcomes overall, and tariffs are taxes. But displacing other taxes with them doesn't inherently bring a net cost. > One correction regarding the tax impact: since tariffs are a flat tax and not progressive, to the extent that they displace progressive income tax, the net tax burden on the average taxpayer would increase, not remain the same. The net tax burden on the average taxpayer would always be the same for any change which is revenue-neutral. Whether the median taxpayer would pay more or less depends on who is buying the things being imported and what the alternate tax system looks like. For example, if the middle class is paying ~20% in practice and the rich pay >30% on paper but <20% in practice, that isn't actually a progressive tax system as implemented. Likewise, if the tariffs are on e.g. phones, but the top quintile buy a $1000 phone every two years and the bottom quintile buy a $100 phone every five years, the tariffs are being imposed on something the rich buy 25 times as much of. Meanwhile things like food and shelter are largely produced domestically.

duskwuff 10mo ago

There's a third requirement which you've glossed over somewhat: a domestic manufacturer of that product needs to exist. For many of the products which are currently the subject of US tariffs, domestic manufacturing is nonexistent, or is itself impacted by tariffs on imported materials.

mastermage 10mo ago
in a globalized world might I add there is no such thing as a product only created in one country.
- addandsubtract 10mo ago
  Good luck creating Bordeaux outside of France.
- duskwuff 10mo ago
  I don't know about "only created in one country", but there are certainly products which are only made in a few countries. One example is LCD and OLED panels - virtually all are made in China, Taiwan, and South Korea. As far as I'm aware, there is no large-scale fabrication of these parts in the Americas or Europe.
AnthonyMouse 10mo ago
> a domestic manufacturer of that product needs to exist. It doesn't have to currently exist. If the tariff causes it to cost less to make it domestically to avoid the tariff then companies start making the product domestically, which is kind of the point.
- duskwuff 10mo ago
  That doesn't really work in situations where the industrial base doesn't exist for local manufacturing, and where building that would be likely to take much longer than the tariff will be in place (to say nothing of the costs). The example I used in a sibling reply - LCD manufacturing - is a perfect example. Existing companies can't simply start producing those on a moment's notice - building the necessary facilities would take years, and would likely require a $1B+ investment. It's extremely hard to justify that when it's likely that the tariff situation would change before production even started, let alone before the costs were recovered.

maxerickson 10mo ago

What happens if you avoid conflating cost and price and also assume that pricing is vaguely competitive, rather than cartoonishly favorable to tariffs?

AnthonyMouse 10mo ago
Assuming that pricing is vaguely competitive is conflating cost and price, since competition would cause margins to be thin. The general issue is that domestic production often has a higher cost, e.g. because domestic labor is more expensive, or because foreign production has already amortized some long-term fixed costs over past sales that a new domestic manufacturer would yet have to recover over future sales. It then needs a higher price, at least temporarily, in order to be competitive, which is what tariffs do.