I guess I need more background. It would seem to me that higher input costs would lead FIRST to lower profits/margins, THEN to higher prices, and from THERE, presumably, to slower export growth.
Maybe it should have been OUTPUT growth? Back to the books.
Tariffs are a national security tool that should be used for military tech and little else. Trump's game of chicken with other countries is that "my country can deal with the deadweight loss more than yours" which is certainly true but why is it necessary to force either country to go through that?
The purely economic arguments that assume cetris paribus ignore the fact that (geo-)politics create another set of considerations when evaluating the benefits of tariffs. This is not a blanket endorsement of tariffs. Rather, it is a recognition that to dismiss them purely on economic math misses many other purported benefits.
The workers in China get one eighth of the salary of American or European workers. The Chinese government control their workers and their environment so how does the West maintain any industry in which China wishes to participate in, without tariffs to provide a level playing field. It used to be mobile phones, now it is Solar Panels, where will it stop. We had this problem with the Japanese workers during the 1950’s and 1960’s who eventually simply build their cars and Trucks in Europe and America. I dare say the Chinese will probably do the same.
I agree that the Trade Agreement the US has with Canada and Mexico should prevent tariffs but Trump does not understand economics. He wants to tell both Canada and Mexico to do things he thinks appeals to his supporters so the Trade Agreement will probably have to go. The 25% will probably greatly reduce the value of exports from Canada and increase the price of anything that is exported to the US. Mexico provides a lot of the foodstuffs that Americans eat so I doubt if those tariffs will survive. As for the illegal immigrants, Obama deported two million of them during his time. We will see if Trump will do better.
"It’s like forcing someone to take a longer route to work—the extra gas purchases help the gas station (although it hurts whatever you don’t spend money on). But extra time is simply a wasted resource; no one benefits. So even when tariffs 'succeed' in moving production to the US, they create waste that goes beyond just higher prices."
pointing out these intangibles or non-economic statistics is my favorite part of these pieces and something that often gets lost in these conversations. neoliberals relent that industrial policy via CHIPS is acceptable due to national security, but i don't read protectionists admitting that we'll lose product variety with decreased trade or lack customized commodities with domestic roles mirroring foreign roles
Well tariffs can never create jobs in the aggregate. Only the Fed can do that and then only if there are unemployed people or people not in the LF to fill them. Of course they can't destroy jobs in the aggregate either whether on final goods or intermediates. Again only the Fed can do that with under-target or insufficiently flexible over-target inflation.
And it is really important to show the tariff subsidy to domestic production of the tariffed items is also a tax on the production of substitutes of the tariffed items and of exportable goods. Of course there are deadweight losses on the consumption side of these taxes and subsidies.
The only good tariff/export tax is one that increases the world price of an export or reduces the world price of an import.
"Higher input costs led to slower export growth "
I guess I need more background. It would seem to me that higher input costs would lead FIRST to lower profits/margins, THEN to higher prices, and from THERE, presumably, to slower export growth.
Maybe it should have been OUTPUT growth? Back to the books.
No it's export growth. That's the whole thing. Your costs rise, making you less competitive. https://www.economicforces.xyz/p/econ-101-is-wrong-about-tariffs
Tariffs are a national security tool that should be used for military tech and little else. Trump's game of chicken with other countries is that "my country can deal with the deadweight loss more than yours" which is certainly true but why is it necessary to force either country to go through that?
The problem is that some in government are now using the "national security" argument for everything.
They are even trying to ban garlic under the claim of "national security."
And use them against NATO allies
The purely economic arguments that assume cetris paribus ignore the fact that (geo-)politics create another set of considerations when evaluating the benefits of tariffs. This is not a blanket endorsement of tariffs. Rather, it is a recognition that to dismiss them purely on economic math misses many other purported benefits.
The workers in China get one eighth of the salary of American or European workers. The Chinese government control their workers and their environment so how does the West maintain any industry in which China wishes to participate in, without tariffs to provide a level playing field. It used to be mobile phones, now it is Solar Panels, where will it stop. We had this problem with the Japanese workers during the 1950’s and 1960’s who eventually simply build their cars and Trucks in Europe and America. I dare say the Chinese will probably do the same.
What does that have to do with tariffs on Canada?
I agree that the Trade Agreement the US has with Canada and Mexico should prevent tariffs but Trump does not understand economics. He wants to tell both Canada and Mexico to do things he thinks appeals to his supporters so the Trade Agreement will probably have to go. The 25% will probably greatly reduce the value of exports from Canada and increase the price of anything that is exported to the US. Mexico provides a lot of the foodstuffs that Americans eat so I doubt if those tariffs will survive. As for the illegal immigrants, Obama deported two million of them during his time. We will see if Trump will do better.
"It’s like forcing someone to take a longer route to work—the extra gas purchases help the gas station (although it hurts whatever you don’t spend money on). But extra time is simply a wasted resource; no one benefits. So even when tariffs 'succeed' in moving production to the US, they create waste that goes beyond just higher prices."
pointing out these intangibles or non-economic statistics is my favorite part of these pieces and something that often gets lost in these conversations. neoliberals relent that industrial policy via CHIPS is acceptable due to national security, but i don't read protectionists admitting that we'll lose product variety with decreased trade or lack customized commodities with domestic roles mirroring foreign roles
Well tariffs can never create jobs in the aggregate. Only the Fed can do that and then only if there are unemployed people or people not in the LF to fill them. Of course they can't destroy jobs in the aggregate either whether on final goods or intermediates. Again only the Fed can do that with under-target or insufficiently flexible over-target inflation.
And it is really important to show the tariff subsidy to domestic production of the tariffed items is also a tax on the production of substitutes of the tariffed items and of exportable goods. Of course there are deadweight losses on the consumption side of these taxes and subsidies.
The only good tariff/export tax is one that increases the world price of an export or reduces the world price of an import.