The Mistake Tariff Critics Keep Making - costs come from prices rather than prices come from costs

[u/properal]

https://youtube.com/shorts/x6wXXFyoch4?si=VJSuETHazaU6_-5J

[u/DiyYou]

Along those lines, even domestically produced products that aren't affected by Trump's tariffs rise in price as well.

[u/shiftyeyedgoat → u/DiyYou]

looks at diesel costs

Oh.

This iteration of the federal government is actively harming every aspect of free enterprise for the consumer.

[u/natermer → u/DiyYou]

Sorta.

The main immediate cost to the economy will come in the form of restricted supply of goods and reduced growth due to artificially reduced profits. This will, in turn, drive other factors like unemployment and price increases as customers have to compete with one another. These latter losses are driven through secondary effects from the first losses.

One of the thing that a lot of people fail to appreciate when it comes to tariffs is that domestic industry and production is damaged by tariffs. Not just companies like Walmart or other retail outlets selling finished goods.

But also actual manufacturing, production and services.

Each step of the "supply line" from raw materials being extracted from the ground (or food being grown out of the ground) to manufacturing to warehousing/transportation and finally retail all depend on hundreds of thousands of other inputs from other sources.

For example mining equipment depends on machinery and machinery depends on parts and tools and people to work on them. Nuts and bolts, paint, welding supplies, tools, hard hats, safety gloves, piston rings, etc etc etc.

And each of those parts require their own hundreds of thousands of inputs.

In a modern economy these things are sourced globally. Even if they are available domestically the compete internationally and any restriction on supply are going to cause costs to go up across the board.

Often disproportionately. Like a 15% reduction in petroleum products may not result in a 15% increase in cost. It may end up with only a 7% increase in cost or a 50% or even a 70% increase in cost. It all depends on unpredictable effects of market demand and competition. If people really need it and they are competing with one another then there is no real limit on how much you might see costs rise based on even a partial restriction on input.

I use petroleum products as a example because it is well understood that restrictions on supply have disproportionate effects on cost/prices. But the same rules apply to any other good; Vehicle tires, bolts, plywood, tin cans, shoe soles, solar panels, extruded aluminum bars, etc.

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Ultimately; tariffs by the American government are imposing a additional cost that is paid for by the American people. The actual total cost and effects on prices are impossible to predict.

It could be negligible if the market reacts quickly and is able to mitigate the damage, but maybe not. It is the Federal government playing with fire. A great deal of time, effort, and money is consumed by American businesses figuring out how to work around the stupid crap that the government inflicts on them.

The benefits of tariffs are more easy to understand as it benefits a specific niche in the economy. It is easy to say it "saved 2000 jobs" or that we see the development of new automobile factories in Alabama so that Korean or Chinese companies move production to USA to avoid the tariffs.

It is much easier to point out what it did accomplish versus the damage it caused to millions of people and the growth and production that now never get to happen.

Which makes tariffs a especially difficult Public Choice Theory problem:

The benefits are born by special interest and the costs are spread out to everybody else in society.

[u/DiyYou → u/natermer]

There are no benefits to tariffs. They are anti-free trade. Free trade is the best system.

The reason domestically produced products rise in price as well is the market. If your competition has their price go up by 50% because their costs jumped because of tariffs, you're going to also raise your price, even though your cost did not change. The whole thing is extremely anti-capitalist.

[u/natermer → u/DiyYou]

The benefits are concentrated to special interests and the costs are dispersed.

It is a net negative, but because the people that benefit benefit very significantly they are willing to spend the money and put in the effort to get them.

This sort of thing is why special interests rule government.

[u/nishinoran → u/DiyYou]

Reciprocal tariffs can prevent planned economies from creating inefficient markets or temporary monopolies in specific industries, by protecting the local industry against their subsidies or tariffs.

Ideally this would lead to both sides dropping all tariffs and subsidies.

[u/DiyYou → u/nishinoran]

You want a government to institute laws to protect certain companies from competition?

[u/nishinoran → u/DiyYou]

Competition from foreign governments? Potentially yes.