Item — HN Reader

I haven’t paid attention to the politics here much, but isn’t driving up the price the point?

If you charge Canada a 25% tariff then products sold in the U.S. and shipped from Canada should cost U.S. consumers about 25% more. That, in turn, makes U.S. products look more attractive. A U.S. business pays taxes at the federal and state levels. A U.S. business also hires U.S. employees, who pay taxes as well and spend into the economy.

I’m sure I’m way over simplifying this, to the point of stupidity, but tariffs raise prices on foreign goods to encourage the sale and/or development of local goods, don’t they?

14 comments

> I’m sure I’m way over simplifying this, to the point of stupidity

This is, to an extent, the problem, yes.

There are plenty of problems, but here's one very obvious one; your own industry almost certainly depends heavily on imports, particularly if you're a developed country. If you basically only have primary industry, then this sort of protectionism can _theoretically_ work and allow development of secondary industry (though in practice there aren't many examples of this), but for a developed country it really makes very little sense.

You're also assuming that local industry _will_ compete on price, versus just accepting the newly-set tariff-induced base price. That will happen in some cases, but not all; in particular for near-monopolistic industries (cars, a lot of heavy consumer goods like kitchen appliances), really, it makes a lot of sense for them to raise their prices under such circumstances.

> I’m sure I’m way over simplifying this, to the point of stupidity, but tariffs raise prices on foreign goods to encourage the sale and/or development of local goods, don’t they?

What about all the businesses that export products or the ones that rely on imports. Businesses go bankrupt, prices go up for everyone and less people have jobs.

We had to bail out soy bean farmers last time to the tune of $25B. That's just one instance of how they backfired and did more harm than good

Way over simplifying.

A study was done on washing machine prices during tariffs of the previous Trump administration. Rather than undercutting foreign goods on price, local manufacturing raised their prices to absorb extra profit. As a kicker, the price of dryers also went up even though they were not subject to tariffs.

The US and Canadian economies have become deeply intermingled over generations. Many materials cross the border multiple times on the way to becoming finished goods and will be subject to tariff each time. There will be 2nd, 3rd, and 4th order effects for a long time even if these tariffs go away quickly, not to mention the poisoning of the closest relationship between nations the world has ever seen.

My fellow Canadians are horrified and enraged at the tariffs that amount to economic warfare and the continuous violations of our sovereignty. I have never seen the whole country this united on anything before. Canadians are furious and every grocery store has American produce rotting on shelves. We will not forgive and forget quickly.

https://www.aeaweb.org/articles?id=10.1257/aer.20190611

>Rather than undercutting foreign goods on price, local manufacturing raised their prices to absorb extra profit.

For another source on this point quoted above- (and for people that prefer video explainers) the wall street journal covered how domestically produced washers/dryers went up in price after those tariffs: https://youtu.be/_-eHOSq3oqI?t=102

Depending on elasticity of demand and supply it will drive up the US made products (if they exist) at the same time.

Also encouraging people to produce the stuff locally only works if they can rely on the stability of the market.

Plus there's an intrinsic advantage that exporters in lower wage zones have over the domestic market. US workers are paid more than Canadian, and certainly paid a hell of a lot more than Chinese ones. So whatever is made domestically is just intrinsically more expensive.

You can make an argument for protectionism and self-sufficiency on various basis. But you can't make a good argument for erratic and sudden and unreliable protectionism.

50% of fruit sold in US, and 60% of vegetables come from Mexico. How is US going to replace that in winter?

That is the theory. But there is no incentive for US manufacturers to compete on price. If the product from China costs $100 (including the tariff), the same product from US will be $99.99. Selling it any cheaper would be stupid.

That would only be conceivable if there was a single domestic manufacturer. You don't need a foreign product to keep prices honest in a competitive domestic market.

You do, actually. Countries that have succeeded with tariffs to "build an industry" eventually forced their companies to compete in the foreign market (look at Japan and South Korea) so that they would not be fake leaders.

These markets produced actually competitive businesses that thrived and outcompeted the market leaders (US and European companies) in multiple industries. So if you keep tariffs forever you end up with Russia or some other backwater where people are forced to buy shitty goods because you have no access to external markets.

The computer market in Brazil, for instance, was like that. Most of what we had were pirated hardware, because there was never an effort to create a real industry in the country, they would just copy and paste whatever was available out there and "launch" in the local market, so even with years of tariffs and protectionism the country did not produce any player in the computer manufacturing market.

See the Soviet and East German automobile industries, and to a large extent the British one pre-European accession. Hideously outdated and uncompetitive, years behind the rest of the world, and both vanished practically completely when the protectionist systems which kept them alive collapsed. When the government more or less makes people buy your shit no matter how bad it is, on the basis that it is the only option that isn't taxed into oblivion, there is little incentive to make it good, and in practice this does seem to hold up to a large extent even when there are a few local competitors.

This isn't 'wrong' but only accounts for a two party market.

That's interesting, so, prices might not drop to pre-tariff levels, until not just one, but many, manufacturers appear in the US, and start competing on price (well, obviously, I guess some would say)

The economic answer is 'it depends'.

The other replies missed a big issue with the tariffs - which is that you're not wrong, but tariffs basically guarantee counter-tariffs, which means that while you're no longer buying imports, you're also no longer able to competitively export. In the case of Canada, if you don't include raw resources, the US has a trade surplus, so tariffs make the inputs of your value-added-over-raw-resources local goods more expensive while also cutting down the export market.

It's stupider than that - a lot of people believe that the manufacturer will just eat a 25% hike in tax. Build a tariff wall and make China pay, as it were.

Don't forget retaliatory tariffs impacting exporters. See

From "Donald Trump’s tariffs will bring ‘nothing but pain’ to rural America, farmers say - " https://www.ft.com/content/ba4569d3-3c54-47d9-90af-125751434...

"Trump’s last trade war, with China in 2018...led to $27bn in losses for US agriculture, according to estimates by farming groups..farms received as much as $23bn in compensation from the federal government"

If tariffs are such a great idea, should California slap tariffs on Florida oranges to protect its domestic orange growers?

Oh they would have tried if it wasn’t for that pesky commerce clause in the constitution

They also raise the price of local foods because the materials they import cost more.

The time and expense to set up a manufacturing line for anything nontrivial is large. And Trump's policy volatility makes the risk completely not worth it.

Yes, but with Trump you have to wonder if the tariffs will be reversed in three weeks when he has a change of mood. So it may not drive long-term investment in factories and supply chains, just a short term advantage for companies that already have local product.

> That, in turn, makes U.S. products look more attractive.

Unless they raise prices to get better margins since their competition has higher prices now. This is exactly what happened with Trump 1.0 tariffs: foreign product prices went up and so did domestic ones.

> A U.S. business also hires U.S. employees, who pay taxes as well and spend into the economy.

It takes time to on-shore, and until that happens the public is paying higher prices, potentially for a few years. So you take the total higher prices, and divide by the number of jobs created, and you can get the price per job. For washing machines it was $800K/job:

* https://www.nber.org/papers/w25767

There is an argument to be made that production capacity is strategic asset of course:

* https://www.noahpinion.blog/p/manufacturing-is-a-war-now