Why Do Domestic Prices Rise with Tarriffs?

And it gets worse for you. That's primarily considering the US market. Your Chinese competitors aren't simultaneously being shut out of non-US markets (since this is a unilateral trade war, not the US + allies).

Your US sales may drop 50% due to the change in price, and your Chinese competitor's US sales may drop by 75%, but their sales in other countries may not change at all. Meanwhile, your sales outside the US are going to drop because not only are your component costs going up driving your price up, you now face tariffs when selling in every other country in the world (if they choose to respond to the tariffs the US is levying on their goods).

it probably won't end you but maybe try to make sure your neighbors don't vote Right and support ultra-nationalist racists in Eastern European countries.

An old lady in the fashion industry once said "Everything is connected" and if Europe hadn't been mislead for fuck knows how long by dimwitted conservatives and their formidably educated voters, they would have been a proper economic competition with their own social medias instead of a tool to dump and pump stock prices ... which is how you can absorb your losses ... by focusing less on your productivity and more on that of le Wall Street's drivers and handlers of crisis

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This is too simple. Prices float somewhere between cost to produce and value to consumers.

You can’t raise prices beyond value or no one will buy it.

You can’t lower prices below costs (for too long) or you go out of business.

Competition pushes prices down towards costs.

Therefore businesses are always looking for markets with barriers so they can rise prices to value.

Tariffs typically raise costs for all producers, but this only inevitably leads to price increases when competition has driven prices down to near costs.

Unfortunately many staple grocery products fall into this category.

Obviously it’s a tax increase on working people to fund even more tax cuts for the already insanely wealthy, allowing them to buy up even more assets.

Even if you have a $10m portfolio you’ll be next, once they’ve drained the $100k and $1m lot.

You left out exchange rates and therefore purchasing power.

Historically, tariffs have led to a widening of currency spread between the tariffed (weakens) and tariffing (strengthens) nation.

Which generally acts in opposition to inflation, ceteris paribus.

E.g. importers pay more in dollars to import goods from a tariffed country, but if the imposition of tariffs causes the dollar to strengthen and the foreign currency to weaken, some competitive exporter will say "You know, I can sell those to you for less, in dollar terms, because my costs are in my (devalued) currency."

First, prices per se are irrelevant. The ratio of labor price to goods&services price is relevant.

Second, the labor / goods&services price ratio itself is irrelevant, as measured in the short term. What is relevant is the long term outlook of this ratio. See eg the Dutch Disease.

Third, even the long term labor / goods&services price ratio is irrelevant. Not everything in this world is, or should be, reducible to simplistic financial value.

One way to approach the underlying intuition is in terms of homeostasis, at nation state level.

Tariffs make sense to protect industry critical to the independence of a country. Imagine how different the Ukraine war would look if the EU wasn’t dependent on Russian (or US) energy.

Yes, profits and growth may not be optimal. But it’s like complaining your 401k isn’t doing as well as it could since you’re paying for healthy food and a gym membership.

That being said the manner trump is implementing these tariffs is ridiculous. They should be slow, meticulous, and announced far ahead of time. These seem optimized for chaos and are likely aimed at political goals (see TikTok and China already) or simply crashing the market (wouldn’t be the first time Bessent has profited off a financial crash).

Europeans don't tend to buy American cars because they're too big for smaller older roads and are inefficient (Europe has no domestic petroleum source, so fuel prices are much higher and volatile).

Tarrifs aren't going to change that.

Trunk whines that American cars aren’t bought in. Europe. Americans cars are “big as bars”, a “compact” is larger than my “big car”, let alone the small one. Their trucks literally won’t fit down the road.

Ironically I believe I've seen that U.S. EV manufacturing has already started to slow down & projects being cancelled.

Edit: relevant links

https://archive.ph/J1wSt

https://apnews.com/article/trump-tariffs-electric-vehicles-a...

I'm not going to quibble with you on this, because I think you're right, but I can think of a secondary use. A country with weak governance could use tariffs to raise money because it's easy to manage at the point of entry, rather than requiring more sophisticated systems such as income or property value reporting.

This could explain why, for instance, poor countries use tariffs on goods that have no chance of building a local industry.

Tariffs will make them less competitive, mainly because the inputs are also being tariffed whereas international competitors can buy tariff-free inputs. These blanket tariffs will destroy any potential for internationally competitive manufacturing.

Is anyone expecting tariffs to improve global competitive advantage?

Tariffs may work towards an isolationist goal of producing and consuming our own goods. Tariffs are an attempt to unwind globalization though and disconnect our markets from the rest of the world.

Whether it makes us more competitive globally is really a non-goal. It could happen if our resources, labor, and manufacturing costs are lower than other countries but that's extremely complex to predict even if you wanted to try.

They can also make sense where you largely have primary industry (that is, extractive; mining and forestry and so on). There’s a reason that pretty much all high-tariff countries are low-income developing countries; it _does_ make more sense there.

We need a cross-cutting examination of how bad 'economics' is as a science, outside of a narrow defined set of measurable parameters

Alex Tabarrok has co-authored Marginal Revolution with Tyler Cowen for a decade.

I bet doctors have many compelling thoughts about urban planning. If they were enthusiastic, I'd curiously listen to what they have to say.

(It is the intersection between domains where wisdom and innovation shine.)

> particularly when economics isn’t even invoked in the discussion…

I think the Professor Cowen fancies himself in the way of the “public intellectual,” so that he takes the liberty to write on a range of topics outside the domain of his academic focus. He does seem extraordinarily well-read; and in many topics he writes about, I have no way of judging his contribution to those fields. While I occasionally read MR, it strikes me as quite technocratic in the way that most libertarian writing is; and this sort of socioeconomic analysis detached from human values of empathy and concern for the wellbeing of the collective isn’t appealing to me personally. But I’m sure it fills an important niche.

And then there's this idiot talking about screws in iPhones. Is this even how iPhones are built? Piles of hidden screws?

https://bsky.app/profile/atrupar.com/post/3lm5p4tdc6a2c

So many screws that we should have human American workers installing screws in iPhones? And this is how we make American workers wealthier?

They think we're stupid or they want us to be stupid. This isn't an economic policy. It's a way to reward fealty and punish disloyalty, to a specific person.

If anything, economies of scale are a powerful argument for free trade.

Say, we can have a single company in Taiwan running insanely capital intensive chip factories making chips for the entire world.

One downside of this being resiliency; what happens to the global electronics supply chain if China one day decides to invade Taiwan? Something not taken into account in typical economic models.

For similar reasons developed countries still try to have things like domestic agriculture, despite that being a low value add industry where poorer countries might have a large comparative advantage in a hypothetical free trade scenario.

I believe they are referring to marginal costs. Yes, with economies of scale can become cheaper to produce, but they still require capital to reach that scale.

https://en.m.wikipedia.org/wiki/Marginal_cost

Only if there's competition.

The smaller the polity, the less practical it is to produce everything. Most towns aren't going to be growing wine grapes or olives at all, so tariffs would just raise local prices and lower imports rather than shifting local production. But they could also induce people to drive to the next town over for shopping.

See also Krugman's paper on the theory of interstellar trade https://www.princeton.edu/~pkrugman/interstellar.pdf

Yes.

Too bad interstellar trade will probably never be economically viable. But it would lower prices, yes.

>...the current unused and underused labour in the economy.

Chamber of commerce says:

>Understanding America’s Labor Shortage

>We hear every day from our member companies—of every size and industry, across nearly every state—that they’re facing unprecedented challenges trying to find enough workers to fill open jobs. Right now, the latest data shows that we have 8 million job openings in the U.S. but only 6.8 million unemployed workers. https://www.uschamber.com/workforce/understanding-americas-l...

which doesn't look that promising.

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lmao you think this is going to make the USD worth more? What are you smoking and can I have some?

> It used to be that a person in the US could graduate from high school and get a factory job that provided enough income to have a house with a yard, a non-working spouse, and children.

This is more mythology than reality. The areas where it came the closest to being true excluded over half the population (women, non-white men) and were in industries and times where the U.S. had an enormous advantage over bombed out, financially precarious European competitors while our high upper-bracket tax rates and large numbers of government jobs provided strong support for the economy.

Tariffs can’t get us back there, and alone they can’t even get close because what you really need are investments in a support web of infrastructure, education, and policy over time. That looks more like what Biden did with the CHIPS act where they invested in the factories, employees, committed to doing so long enough to make a multibillion dollar investment safe, and there was no talk of tariffs before alternatives existed. In the cases where tariffs make sense, they’re a limited part of a larger strategy.

> What if, for example, tariffs incentivize technology development that allows hydroponic wine - making previously unviable land suddenly productive?

This is a variant of the Import Substitution idea. Unfortunately, it doesn’t have a great track record. Instead of investment in innovation, sheltered industries tend to become less competitive and increasingly reliant on the shelter granted to them. Indeed, even if innovation occurs, it often becomes very hard to undo the sheltering once it’s no longer needed.

Far better to allow countries with comparative advantage in growing grapes to use their land to make wine compared to investing in hydroponics. The irony of that very example is the vertical farming sector has recently learned this very lesson and is undergoing a market realignment after hopes of improved productivity have been found to be less than expected.

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The best explanation I’ve seen is that tariffs are a stick that can be used to enforce compliance with other policies, and selectively lifted when companies bend the knee.