Explain what you know about tariffs, and why you think they’ll work

[Airyaman]

Perhaps this is now an "outdated" subject because more people are catching on, but I wanted to discuss this with my new forum members. I have posted this elsewhere, so the words are my own. I will not link to the original since it comes from another forum.

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I’m not certain people who like the idea of all of the tariffs Trump is implementing know how tariffs actually work, and what they’ll mean in the long run.

Tariffs are pretty simple. They are taxes that are applied at the port of entry from a foreign country. That’s pretty much it. In theory, they will inflate the cost of a good or service for the buyer (domestic), and will make domestic alternatives more palatable as prices equalize or become less for the domestic offering.

For instance, a Canadian steel mill might sell a ton of hot roll to a US buyer for $600/ton. With a 25% tariff the steel will cost the US buyer $750/ton. Therefore, the US buyer might choose to find a domestic source that will cost them $650/ton. However, as US sources start to reach capacity in production, they might choose to raise prices (likely) and lead times will increase.

Now, this means that automatically, the cost for the buyer goes up by $50/ton.

Let’s say that the product the buyer is looking for is only made by a Canadian mill. The buyer will automatically have to pay 25% more because there is no alternative for them. Will a US mill then find a way to make the product? Not likely, as tariffs are seen to be temporary measures, and most smart companies will not make large investments based on temporary government measures.

If the product costs $1000/ton, then the US buyer pays $1250/ton for the product. $250 goes to the federal government, $1000 to the Canadian manufacturer, just as before.

Since the US buyer must pass on the cost, this can lead to lesser demand for anything involving the product if end use decreases. Or if demand is more static, it will simply mean higher prices, with only the federal government reaping the rewards.

So what is your understanding of how tariffs work?

 

[Airyaman]

Another post:

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Well, since no one else will chime in…let’s talk cheap Chinese goods. Like the stuff you see at Dollar Tree and all the cheap stuff at Wal-Mart, Dollar General, Fred’s etc. Most of the cheap goods made in China will continue to be made in China. Unless the Chinese seller lowers prices, they will still make the same amount of money on them. For instance, if they sell cheap good xyz for $0.50 prior to the tariffs, they will still likely sell it for $0.50 after the tariff. However, the US buyer of such goods will then pay the additional percentage of tariff applied. Let’s say it’s 10%. So now the US buyer will pay $0.55 for the same xyz.

Since tariffs are temporary, no US company would be willing to produce their own version of xyz unless they already have the capability to do so. When textiles and other cheap goods started to leave the country decades ago, all capabilities to produce these goods left with them. There are no factories sitting idle, ready to be fired up again. Even if they could, they would still not be able to produce the good for even the same $0.55 and turn a profit. So all that happens is that the cost is passed on to the consumer.

 

[Hawkeye10]

Perhaps this is now an "outdated" subject because more people are catching on, but I wanted to discuss this with my new forum members. I have posted this elsewhere, so the words are my own. I will not link to the original since it comes from another forum.

======================================

I’m not certain people who like the idea of all of the tariffs Trump is implementing know how tariffs actually work, and what they’ll mean in the long run.

Tariffs are pretty simple. They are taxes that are applied at the port of entry from a foreign country. That’s pretty much it. In theory, they will inflate the cost of a good or service for the buyer (domestic), and will make domestic alternatives more palatable as prices equalize or become less for the domestic offering.

For instance, a Canadian steel mill might sell a ton of hot roll to a US buyer for $600/ton. With a 25% tariff the steel will cost the US buyer $750/ton. Therefore, the US buyer might choose to find a domestic source that will cost them $650/ton. However, as US sources start to reach capacity in production, they might choose to raise prices (likely) and lead times will increase.

Now, this means that automatically, the cost for the buyer goes up by $50/ton.

Let’s say that the product the buyer is looking for is only made by a Canadian mill. The buyer will automatically have to pay 25% more because there is no alternative for them. Will a US mill then find a way to make the product? Not likely, as tariffs are seen to be temporary measures, and most smart companies will not make large investments based on temporary government measures.

If the product costs $1000/ton, then the US buyer pays $1250/ton for the product. $250 goes to the federal government, $1000 to the Canadian manufacturer, just as before.

Since the US buyer must pass on the cost, this can lead to lesser demand for anything involving the product if end use decreases. Or if demand is more static, it will simply mean higher prices, with only the federal government reaping the rewards.

So what is your understanding of how tariffs work?

What is working? I understand the argument that free trade makes everyone richer which I never believed was proven and it does not matter now because China is taking over and they dont believe in free trade.....they believe that everything that is good for China and its friends is the right thing to do...and we are going to have to live in that world.

Trump is trying to get America ready for the new reality, which is the smart thing to do.

 

[Amelia]

When Trump put his tariffs on aluminum and steel, he increased the price of production, giving a boon to the steel industry but putting additional pressures on many more industries, including ones which replaced the steel manufacturers in some locations.

Communities who saw things were bad for steel and moved on, making investments in such things as robotics manufacturing, now are feeling an unnecessary bite as Trump acts like this is still the 1980's instead of 2018.

 

[Airyaman]

What is working? I understand the argument that free trade makes everyone richer which I never believed was proven and it does not matter now because China is taking over and they dont believe in free trade.....they believe that everything that is good for China and its friends is the right thing to do...and we are going to have to live in that world.

Trump is trying to get America ready for the new reality, which is the smart thing to do.

This response is as vague as the cause of a blind pimple on the ass of a rhino.

 

[Hawkeye10]

This response is as vague as the cause of a blind pimple on the ass of a rhino.

Which means that I am working in hierarchies that you cant access.

 

[Xelor]

Explain what you know about tariffs, and why you think they’ll work

Red:
I haven't enough time to do so; moreover, I haven't the will to do so. I'm willing to point you to some documents that summarize and highlight some of what I know about tariffs, but that's as far as I'll go (given that I've only offered three categories, there's obviously some overlap):

• General:
  • Principles of Economics
    • Import Tariffs - Basic Analysis Diagram
  • The Theory of Tariffs and Quotas
  • Community Economics: Linking Theory and Practice
  • The Structure of Tariffs and Long-Term Growth
• History:
  • A Quick Review of 250 Years of Economic Theory About Tariffs
  • Tariffs and Income:A Time Series Analysis for 24 Countries
  • Why the Tariff-Growth Correlation Changed After 1950
  • Tariff Incidence in America's Gilded Age
  • Tariff Incidence: Evidence from U.S. Sugar Duties, 1890-1930
  • Tariff History Lessons from the European Periphery. Protection Intensity and the Infant Industry Argument in Spain and Italy 1870-1930
  • Trade and Economic Growth: Historical Evidence
• Detailed Tariff Topics and Empirical Research:
  • Basic optimal tariff theory
  • Optimum Tariffs on Final and Intermediate Goods
  • Economics and Politics of Int'l Trade Cooperation
  • What Do We Know about the Incidence of Tariffs?
  • On the Incidence of US Tariffs
  • How large is the bias against exports from import tariffs?
  • GATT
  • The Political Economy of the Smoot-Hawley Tariff

Blue:
In general and absent your, OP-er, having defined what precisely you mean by "work," the stuff I know about tariffs, as applied to the current circumstances of the US, does not indicate they'll "work."

Bless you for asking for something I can respond to and that doesn't take much writing for me to fully answer. LOL

 

[Xelor]

What is working? I understand the argument that free trade makes everyone richer which I never believed was proven and it does not matter now because China is taking over and they dont believe in free trade.....they believe that everything that is good for China and its friends is the right thing to do...and we are going to have to live in that world.

Trump is trying to get America ready for the new reality, which is the smart thing to do.

Red:
Though I suspect you and I may not concur on whether "this or that" works or will work, I absolutely agree with you that "work/works" is too vague a term to respond to any any precise manner. Insofar as this is not my thread, I'll be damned if I'm going to, for the OP-er, define what "works" means.

 

[Hawkeye10]

Red:
Though I suspect you and I may not concur on whether "this or that" works or will work, I absolutely agree with you that "work/works" is too vague a term to respond to any any precise manner. Insofar as this is not my thread, I'll be damned if I'm going to, for the OP-er, define what "works" means.

Seems we are grooving together here....and I made the executive decision that getting America ready for what is coming is the definition of success, so points go to Trump here for trying.

 

[Xelor]

Seems we are grooving together here....and I made the executive decision that getting America ready for what is coming is the definition of success, so points go to Trump here for trying.

...no comment...

 

[Hawkeye10]

...no comment...

"Hey wait a minute!....If we are to have any hope of beating the Chinese we have to be able to make steel....right?"











Right.

 

[Xelor]

"Hey wait a minute!....If we are to have any hope of beating the Chinese we have to be able to make steel....right?"











Right.

Only if no alternative to steel comes to the fore.

Obviously, there isn't an immediate alternative to steel; however, that condition need not be unalterable. What might alter that condition? Any number of technologies across myriad industries. To wit, must car bodies be fabricated from steel? Not necessarily; carbon is viable alternative, though right now it's too dear to be a mass production alternative. That cost profile can change, either due to rising prices of steel's inputs or of other goods, decreasing availability of steel or its inputs, new technology that makes carbon car body more inexpensive. Those are but some examples. They're not at all only ones.

 

[Hawkeye10]

Only if no alternative to steel comes to the fore.

Obviously, there isn't an immediate alternative to steel; however, that condition need not be unalterable. What might alter that condition? Any number of technologies across myriad industries. To wit, must car bodies be fabricated from steel? Not necessarily; carbon is viable alternative, though right now it's too dear to be a mass production alternative. That cost profile can change, either due to rising prices of steel's inputs or of other goods, decreasing availability of steel or its inputs, new technology that makes carbon car body more inexpensive. Those are but some examples. They're not at all only ones.

The Greeks had to submit to the EU ransom demands because in not very many years they had lost the ability to be self sufficient, even with a couple of years lead time to get ready.

Those who must submit have no bargaining power, and life then tends to suck.

American has lost a lot of time, we dont have much time left.

The New Chinese Empire is coming!

 

[Conaeolos]

What do you mean by "works"? If you mean help with labour transitions, brain drains as well as assisting in negotiating trade deals as I believe Trump intends. I know a fair bit and probably but it's certainly has economic risks and must be done strategically.

Does a tariff policy of politically motivated tariffs work? Never - see Trudeau action to fight back on Trumps steel move.

 

[jnug]

The Greeks had to submit to the EU ransom demands because in not very many years they had lost the ability to be self sufficient, even with a couple of years lead time to get ready.

Those who must submit have no bargaining power, and life then tends to suck.

American has lost a lot of time, we dont have much time left.

The New Chinese Empire is coming!

It has been coming for a 100 years.

The very greed and self absorbed nonsense that Trump exemplifies that Corporations have acquiesced to by knuckling under to Chinese demands of technology transfers in trade for low cost labor have exacerbated China's outright theft of IP. Trump had ZTE dead to rights, as much a lay down case demanding sanctioning as we were ever going to see. It was such a lay down case that even the nutty House of Representatives could not wait to drop the hammer on ZTE. What did Donald do? He squashed the whole thing for the financing of a licensing deal for his personal Trumpian financial interests. Nice Donald, real nice.

Now finally western corporations are whining for somebody to save them from themselves.

Trump is trying to "prepare us" for what is coming? How is that, by lubing us up so that it just does not feel so bad going in?

 

[Beaudreaux]

I keep thinking Smoot-Hawley Tariff Act of 1930 and how it was a major factor in the Great Depression.

 

[sKiTzo]

Perhaps this is now an "outdated" subject because more people are catching on, but I wanted to discuss this with my new forum members. I have posted this elsewhere, so the words are my own. I will not link to the original since it comes from another forum.

======================================

I’m not certain people who like the idea of all of the tariffs Trump is implementing know how tariffs actually work, and what they’ll mean in the long run.

Tariffs are pretty simple. They are taxes that are applied at the port of entry from a foreign country. That’s pretty much it. In theory, they will inflate the cost of a good or service for the buyer (domestic), and will make domestic alternatives more palatable as prices equalize or become less for the domestic offering.

For instance, a Canadian steel mill might sell a ton of hot roll to a US buyer for $600/ton. With a 25% tariff the steel will cost the US buyer $750/ton. Therefore, the US buyer might choose to find a domestic source that will cost them $650/ton. However, as US sources start to reach capacity in production, they might choose to raise prices (likely) and lead times will increase.

Now, this means that automatically, the cost for the buyer goes up by $50/ton.

Let’s say that the product the buyer is looking for is only made by a Canadian mill. The buyer will automatically have to pay 25% more because there is no alternative for them. Will a US mill then find a way to make the product? Not likely, as tariffs are seen to be temporary measures, and most smart companies will not make large investments based on temporary government measures.

If the product costs $1000/ton, then the US buyer pays $1250/ton for the product. $250 goes to the federal government, $1000 to the Canadian manufacturer, just as before.

Since the US buyer must pass on the cost, this can lead to lesser demand for anything involving the product if end use decreases. Or if demand is more static, it will simply mean higher prices, with only the federal government reaping the rewards.

So what is your understanding of how tariffs work?

I've heard Trump say that it's always been a one-way street where all U.S. products are taxed going into other countries while countries like China and Canada imports to the U.S. tax-free. Part of becoming great again is getting out of the "bent-over" position and standing tall. This may not be good short term but in the long run not bending over will prove golden.

 

[Nap]

"Hey wait a minute!....If we are to have any hope of beating the Chinese we have to be able to make steel....right?"











Right.

My issue is that steel is a base product that is used by other manufacturers so while it is a boon for the steel industry it hurts other industries. I agree on tariffs on finished products such as cars (admittedly bias as I work for a car manufacturer) as that makes American made cars more competitive without hurting other industries, sadly the victim of those tariffs are the end consumer as essentially they are subsidizing whatever market the tariffs are put in place no differently than taxes placed on domestic businesses. It is weird to me seeing those on the left being so against tariffs when they love other tax imaginable, but at least they have come around on free trade just need them to understand that same logic applies to domestic products as well.

 

[Hawkeye10]

My issue is that steel is a base product that is used by other manufacturers so while it is a boon for the steel industry it hurts other industries. I agree on tariffs on finished products such as cars (admittedly bias as I work for a car manufacturer) as that makes American made cars more competitive without hurting other industries, sadly the victim of those tariffs are the end consumer as essentially they are subsidizing whatever market the tariffs are put in place no differently than taxes placed on domestic businesses. It is weird to me seeing those on the left being so against tariffs when they love other tax imaginable, but at least they have come around on free trade just need them to understand that same logic applies to domestic products as well.

The WW2 War Effort Managers were not wrong....If we want to win we need to be able to make steel.

 

[Airyaman]

Which means that I am working in hierarchies that you cant access.

No doubt. I rarely understand gobbledygook.

 

[Airyaman]

Red:
Though I suspect you and I may not concur on whether "this or that" works or will work, I absolutely agree with you that "work/works" is too vague a term to respond to any any precise manner. Insofar as this is not my thread, I'll be damned if I'm going to, for the OP-er, define what "works" means.

To be honest, this was a copy/paste job from another place I discussed the subject. I initiated it at the beginning of Trump's trade war, when many Trumpsters at that place were claiming they were going to be awesome. So that is what was meant by "why you think they'll work". It was a targeted request of people who actually think tariffs are effective. I personally do not.

 

[Mithrae]

My issue is that steel is a base product that is used by other manufacturers so while it is a boon for the steel industry it hurts other industries. I agree on tariffs on finished products such as cars (admittedly bias as I work for a car manufacturer) as that makes American made cars more competitive without hurting other industries, sadly the victim of those tariffs are the end consumer as essentially they are subsidizing whatever market the tariffs are put in place no differently than taxes placed on domestic businesses. It is weird to me seeing those on the left being so against tariffs when they love other tax imaginable, but at least they have come around on free trade just need them to understand that same logic applies to domestic products as well.

No weirder than seeing those on the right being opposed to the free market and supporting government intervention like that It seems we live in interesting times. Or perhaps there's more nuance to the views of most intelligent folk than we tend to see from the most vocal pundits and forum folk.

 

[jnug]

The WW2 War Effort Managers were not wrong....If we want to win we need to be able to make steel.

Canada makes high grade steel. Perhaps Trump should stop poking them in the ribs every chance he gets. By the way China generally makes lower grades of steel. Maybe we should not be so addicted to everything cheap. A plastic lawn chair might be a fine product for Wallmart to import. Importing China steel for a bridge, probably not so much. But that does not seem to stop us.

As for high grade steel for steel plate, the US companies generally do not want to handle the stuff. The volume requirements are simply not sufficient to interest them. Last I checked there was only one US supplier certified to supply high grade steel plate to the US military.

US special sauce in manufacturing or even raw material processing has always been value and offering value has for the most part brought us right in the middle of the sweet spot for volume especially for our large domestic markets. That was true for autos and its true for steel. We never really existed at the high end of either the auto industry or the iron and steel processing industries. We were never at the low end either, always offering value and reaping the benefit from a domestic market that always had empathy for a value product or a product built around a value proposition. However, much like our domestic auto industry has allowed foreign manufactures to do a better job of interpreting what represents value even in our own domestic auto market, iron and steel processing finds itself in a similar position.

Can we, do we and would we produce higher grade steel than the Chinese produce? the answer is yes. Can we ween ourselves off of the lower grade, cheaper steels that China produces? Probably should especially for some uses. But we likely won't even though we should!

Can we suddenly convert more steel processing to high grade, plate steel? We can but probably won't because the combination of volume and value propositions are not there sufficiently for US makers to move off their traditional sweet spot even while being challenged there and the cost of conversion would be prohibitive for a limited market.

So there you go. Once again, we have sort of backed ourselves into this position. Though I would offer that the way Trump frames the discussion is laughably ridiculous as are most things Trump. It is not nearly as dire a circumstance as Trump paints and as usual he is speaking to the wrong end of the horse. The right end of the horse is the US producers that USE steel to produce finished products. They are much much larger than any favorable treatment ala' tariffs etc would produce in jobs for a contemporary, revitalized US ore and steel processing industry. Hurting US producers of products made from steel even in the short run is flat stupid if the expectation is that you make it up on the back end in increased US ore and steel processing capacity and the jobs that would be inherent to it.

Probably the smartest thing we could do is force feed usage away from the lower grade, cheaper China steels toward the traditional value proposition of the US ore and steel processing industry where appropriate to do so. But that would mean the ugly R word unless one wants to permanently tariff imported steel which makes absolutely no sense whatsoever. As many have stated, using tariffs for this issue even if temporary is inefficient and will generally prove ineffective. Its like using a road grader to try to do a shovel's job. Mr Deregulation would likely have to regulate his way to a "solution" to this issue by demanding the higher grade steels our domestic ore and steel processors want to make for particular kinds of applications. I would ask the audience to guess the likelihood of Donald Duck coming to that conclusion!

Personally, I am more concerned with our lack of aluminum processing capacity. We no longer produce any Alum Ingots in this country. Currently, US policy seems to favor Rusal, the large Russian producer of Ingots. You can decide for yourselves what drives that.

 

[Airyaman]

What do you mean by "works"? If you mean help with labour transitions, brain drains as well as assisting in negotiating trade deals as I believe Trump intends. I know a fair bit and probably but it's certainly has economic risks and must be done strategically.

Does a tariff policy of politically motivated tariffs work? Never - see Trudeau action to fight back on Trumps steel move.

See post https://www.debatepolitics.com/gene...ey-ll-work-post1069390897.html#post1069390897

I do not believe tariffs are effective. Perhaps a few targeted tariffs that help keep a certain sector viable are necessary, but I really can't think of any, at least as far as the United States is concerned.

When tariffs on steel were being talked up, I told people that prices would go up for domestic steel as well. That is exactly what happened.

Disclaimer: I work for a US steel manufacturer. I still do not like the idea of tariffs. But I must say I don't dislike that I got my first ever end of year bonus (we typically get one around April) after 27 years working for the company. So I just got a bonus because everyone who buys steel in the US is now paying more for it than before the tariffs.

 

[Grokmaster]

Perhaps this is now an "outdated" subject because more people are catching on, but I wanted to discuss this with my new forum members. I have posted this elsewhere, so the words are my own. I will not link to the original since it comes from another forum.

======================================

I’m not certain people who like the idea of all of the tariffs Trump is implementing know how tariffs actually work, and what they’ll mean in the long run.

Tariffs are pretty simple. They are taxes that are applied at the port of entry from a foreign country. That’s pretty much it. In theory, they will inflate the cost of a good or service for the buyer (domestic), and will make domestic alternatives more palatable as prices equalize or become less for the domestic offering.

For instance, a Canadian steel mill might sell a ton of hot roll to a US buyer for $600/ton. With a 25% tariff the steel will cost the US buyer $750/ton. Therefore, the US buyer might choose to find a domestic source that will cost them $650/ton. However, as US sources start to reach capacity in production, they might choose to raise prices (likely) and lead times will increase.

Now, this means that automatically, the cost for the buyer goes up by $50/ton.

Let’s say that the product the buyer is looking for is only made by a Canadian mill. The buyer will automatically have to pay 25% more because there is no alternative for them. Will a US mill then find a way to make the product? Not likely, as tariffs are seen to be temporary measures, and most smart companies will not make large investments based on temporary government measures.

If the product costs $1000/ton, then the US buyer pays $1250/ton for the product. $250 goes to the federal government, $1000 to the Canadian manufacturer, just as before.

Since the US buyer must pass on the cost, this can lead to lesser demand for anything involving the product if end use decreases. Or if demand is more static, it will simply mean higher prices, with only the federal government reaping the rewards.

So what is your understanding of how tariffs work?

Clueless, we see. The President's use of tarriffs is designed to force other nations to REDUCE TARRIFFS ON OUR GOODS and SERVICES. He is for ZERO TARRIFFS, by anyone, if it were up to him.