Tariffs ... help me understand

OrphanSlug said:

MaggieD,

The main reason that tariffs have such a downside is who ultimately pays that 35%.

Not making fun of you, just being straight. The big disadvantage is the net result is raising the price of the import no matter whom owns that imported product to sell to the public. A tariff does not stop with the manufacturer as some exclusive tax only they pay. The bottom line for that business model is impacted. And that part is key, the ultimate goal is to sell that product to the public. Since the tariff raises the price of the import, that increased costs is passed right onto the consumer in higher prices for that product in the marketplace.

In today's world economy the only place a tariff could apply is to two nations producing the exact same product at two different costs (presumably labor in one nation being much higher than another,) so to impact global competition of that final product to the consumer a tariff is implemented to balance that cost to produce difference. However, there is still a downside. Just the idea of a tariff in that scenario suggests kicking off a trade war (which is ultimately a race to more usage of punishment taxation that is all ultimately passed to the consumer.) One nation implements a high tariff for whatever reason, the impacted nation often implements their own in response, and the eventual result is everyone is paying more for everything and we really did not move manufacturing around to compensate for it.

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And lets not forget smuggling. Look at weed in Colorado. They legalized it, but added a tax, which makes it too expensive to buy, so people still sell it on the black market. Tarriff free. Cigarettes in New York, same thing.

MaggieD said:

Why DON'T we equalize the playing field for those companies who move manufacturing to third world countries and then ship their products back to the Unied States for sale? Like, let's say a 35% tariff?

What advantage is it to our country to allow cheap imports into this country?

Even Shark Tank is always saying that whatever it is needs to be made in a China so its cheaper.

Im hoping someone can explain the advantages to me in a way I can understand rather than just make fun of me for not understanding.

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Generally tariffs are bad, well actually it depends on how they are used. Light tariffs are seen in other countries as revenue, while heavy tariffs are seen more as obstruction against their products.

Heavy tariffs were tried before, during the depression and it made the depression far worse and caused it to drag out until ww2. This is because when you jack up tariffs, the opposite side will do the same to your products, leaving both sides with less trade. This eventually leads to a tariff war where trade nearly falls off the face of the earth, and during the depression the diminished trade killed most growth.


In terms of controlling trade, it is simple, england makes cheaper and better shirts, france makes cheaper and better wine, the english buy french wine while the french buy english clothes, both sides get a better product cheaper and a more optimised trade. For some countries like china, it would make sense for tariffs or trade restrictions, but that is because they manipulate their currency and sell products below even their cost as a means to drive down prices to eliminate competition.

Lovebug said:

What if we had the jobs to pay slightly higher prices? What if the companies were not allowed to pass the cost onto the consumers but would find it more cost effective to manufacture in country? Isn't that the idea, to keep jobs here for the same people who ultimately buy the products?

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For alot of things it is not slightly higher prices, it is not cheap wages or high wages, it often comes down to a skilled workforce which other countries have mass excess of, but the bigger one is regulations.

To start a factory here is a beurocratic nightmare no business wants, you could probably fill a 3 bedroom house just with the permits needed to build the factory plus get it operational, plus strict compliance with the epa and osha. Other countries have safety laws and environmental laws, but many do not enforce them or loosely enforce them, plus getting a permit to build there might be a 1 day affair plus a bribe.

Here building a new factory might takes years of planning and beurocratic bs to get done, Then you get the city constantly jacking up taxes because they think you will never leave no matter how much you gouge them, then followed by the people who cry day and night to shut down the factory you took years to get finally approved and built because they think it is too noisy or smelly, city caves shuts it down people cry because they do not have jobs company says screw this and moves to china.

CanadaJohn said:

Not to be facetious, but part of the reason why the US doesn't impose a lot more economic penalties on China is because the Chinese buy up so much of their debt.

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But if someone wanted be facetious, they might observe that that is a lot like having us by the balls.

CanadaJohn said:

I simply note that the expansion of the Chinese economy has allowed for a barrel of cash for the US to dip into on a regular basis to finance its hunger for deficit spending. If the Chinese economy completely crashes, they'll call in the notes, increasing US debt servicing charges and restricting access to money, likely forcing the US to print more and devalue their currency. A lower US dollar and increased import costs would inflate the cost of living for Americans, not something many would appreciate in a time of stagnant wages.

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Oh, there is a downside. Consumption was way too cheap compared to a situation of trade without currency manipulation. Also, investment in the US was lower bringing about fewer low level jobs, while the higher end ones expanded.

We're overdue for a recession. If next year Trump starts throwing around words like 'Tariffs' and 'protectionism' that will push us into that overdue recession.

The days of the US making doodads and the crap we buy in the'Dollar Stores' and 'Big Lots' are over. I've supported(engineering and maintenance), and worked in manufacturing for 40 years. I've seen a lot. It's sad to say, but many manufacturing jobs are gone forever.

StillBallin75 said:

It's about competitive advantage. Let's say I own a firm that makes televisions. For me to produce quality televisions as cheaply as possible and sell them both at home and abroad, I need access to the labor and the parts that will give me the most bang for the buck. Otherwise, once my costs rise, the price of my product may have to rise as well, potentially making my company noncompetitive. Potentially then leading me to have to lay off workers and cut other costs.

On the consumer side, once we start implementing protectionist policies, the price of our goods may inflate as well. I once had a foreign college student tell me that he buys video game consoles from the United States, then ships them back to his home country when family and friends want a video game console. Because due to protectionist policies, a video game console will cost twice as much in Brazil than it does here.

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And I would accept this explanation, but for one tiny detail. The explosion of corporate profit margins and Executive pay since the early 90s.

OrphanSlug said:

MaggieD,

The main reason that tariffs have such a downside is who ultimately pays that 35%.

Not making fun of you, just being straight. The big disadvantage is the net result is raising the price of the import no matter whom owns that imported product to sell to the public. A tariff does not stop with the manufacturer as some exclusive tax only they pay. The bottom line for that business model is impacted. And that part is key, the ultimate goal is to sell that product to the public. Since the tariff raises the price of the import, that increased costs is passed right onto the consumer in higher prices for that product in the marketplace.

In today's world economy the only place a tariff could apply is to two nations producing the exact same product at two different costs (presumably labor in one nation being much higher than another,) so to impact global competition of that final product to the consumer a tariff is implemented to balance that cost to produce difference. However, there is still a downside. Just the idea of a tariff in that scenario suggests kicking off a trade war (which is ultimately a race to more usage of punishment taxation that is all ultimately passed to the consumer.) One nation implements a high tariff for whatever reason, the impacted nation often implements their own in response, and the eventual result is everyone is paying more for everything and we really did not move manufacturing around to compensate for it.

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This ignores competitors. If what you say is true, and we start a trade war, well, guess what? WE are the largest consumer. Someone making TVs or cars NEEDS us as a customer, no matter the location of their base of operations. So, it'll make things cheaper, you say? Only until another competitor undercuts that price.


Remember, corporate profit margins are at all time record highs, even when adjusted for inflation.

Cephus said:

I always thought that instead of tariffs on U.S.-owned companies, we just require every single company that is based in the U.S. to follow U.S. laws, regardless of where they are manufacturing. That means labor laws, health and safety laws, environmental laws, etc. That means they don't get to pay their foreign workers less than they'd pay in the U.S., in fact, those workers are going to be rich. Take away the advantages of going overseas and they will come home. And for foreign-owned companies, there you can impose tariffs.

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I agree with this 100%, but I don't know how we actually DO it? I know the FDA has a pretty intricate network of global inspectors and such, but then, they're an absolutely awful example to follow, IMO.

KevinKohler said:

This ignores competitors. If what you say is true, and we start a trade war, well, guess what? WE are the largest consumer. Someone making TVs or cars NEEDS us as a customer, no matter the location of their base of operations. So, it'll make things cheaper, you say? Only until another competitor undercuts that price.


Remember, corporate profit margins are at all time record highs, even when adjusted for inflation.

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It's not as if our manufacturers, with their all-time record profit margins, couldn't, with a little help from tariffs, crush overseas competition like cockroaches if they so chose.

RAMOSS said:

The thing is.. even if production came back to the U.S., there wouldn't be nearly as many jobs as there were before. Rather than people doing cheap work, there would be robots. The challenge we face as a society is to be able to provide jobs that pay a living wage without relying on things that are being automated.

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I agree, this is a very temporary solution.


The ONLY reason jobs are being outsourced, is because foreign labor IS cheaper than robots.




For now. For maybe another 10 years or so.

MaggieD said:

It's not as if our manufacturers, with their all-time record profit margins, couldn't, with a little help from tariffs, crush overseas competition like cockroaches if they so chose.

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I mean, think about it.


Have the cost of cars gone UP, or DOWN, since we started making em all in Mexico?


Simply can't try to sell me on a sad story about how **** will get more expensive....make it TOO expensive, and we simply won't buy it.


Don't know very many people, even rich people, who would rather make 100% of nothing, instead of 50% of 20 million.

KevinKohler said:

This ignores competitors. If what you say is true, and we start a trade war, well, guess what? WE are the largest consumer. Someone making TVs or cars NEEDS us as a customer, no matter the location of their base of operations. So, it'll make things cheaper, you say? Only until another competitor undercuts that price.

Remember, corporate profit margins are at all time record highs, even when adjusted for inflation.

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We are the largest economy, that is accurate by both GPD measure and consumption measure.

However, we no longer (and really never did in totality) operate in an economic void. The problem with tariffs is how they are applied and why, the other problem is the plausible impact.

It does not really matter if we are talking about labor, or a product or service, or otherwise as in market economic terms undercutting price is common. As you point out someone is making cars or TVs so long as there is demand for those products, our issue for the subject of tariffs is why they are applied.

If the idea is to apply a tariff to ensure better market share from higher priced domestic production in competition with lower priced foreign competition the natural progression is the nation facing the tariff to apply the same thing to whatever they import. No matter if the nation facing the tariff bites or not, the product that went through the tariff created a price point for that product that is not market based. It is manipulated to protect the higher costs of domestic production. That cost is passed right to the consumer.

That is what kicks off the trade complication, and keeps things artificial. A tariff is not a market based principle, it is protectionism and adds to the planned elements of protecting domestic production of something. If another competitor (foreign or domestic) undercuts the price after the tariff is applied then the tariff gets revisited, which keeps things in the hands of politicians to determine. And again that is not market economics, it is planned economics.

KevinKohler said:

I mean, think about it.


Have the cost of cars gone UP, or DOWN, since we started making em all in Mexico?


Simply can't try to sell me on a sad story about how **** will get more expensive....make it TOO expensive, and we simply won't buy it.


Don't know very many people, even rich people, who would rather make 100% of nothing, instead of 50% of 20 million.

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Regulations on new cars have gone up, which makes them more expensive to produce. The govt mandates better gas mileage, rear view cameras, crash tracking computers. Then there is all the tech that has become standard. Transmissions, hundreds of airbags, nav and integrated computers. Add in the losses from making EVs. Other countries, make cheaper, smaller, plainer cars, but we cant import them due to govt safety standards being different.

KevinKohler said:

The ONLY reason jobs are being outsourced, is because foreign labor IS cheaper than robots.

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About 10 years ago or so I remember reading an article about 1 of the foreign car manufacturers opening a factory down South, Tennessee I think. It was a State of the Art factory. It created 3000+ jobs. Very good news right? But the article mentioned if this factory opened 20 years earlier it would have created 20,000+ jobs. But because of automation and robotics, that number was now 3,000. Nice that 3,000 jobs were created, nothing wrong with that. But thanks to robotics that number was much lower than it would have been in years past.

And as you mentioned robotics is only going to get cheaper and more common in the future.

KevinKohler said:

I agree with this 100%, but I don't know how we actually DO it? I know the FDA has a pretty intricate network of global inspectors and such, but then, they're an absolutely awful example to follow, IMO.

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We manage to have fire departments and health inspectors go around and verify compliance, it can't be that hard to do it on an international scale, simply have the companies pay for it as part of their licensing.

Cephus said:

We manage to have fire departments and health inspectors go around and verify compliance, it can't be that hard to do it on an international scale, simply have the companies pay for it as part of their licensing.

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Right. We do that with the FDA. And those company funded inspectors have a real bad habit of not seeing the rat ****, right here in the US, let alone abroad.

KevinKohler said:

Right. We do that with the FDA. And those company funded inspectors have a real bad habit of not seeing the rat ****, right here in the US, let alone abroad.

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They're not company funded, they're U.S. inspectors, paid for by the licenses that these companies have to pay as U.S.-based businesses.

MaggieD said:

Why DON'T we equalize the playing field for those companies who move manufacturing to third world countries and then ship their products back to the Unied States for sale? Like, let's say a 35% tariff?

What advantage is it to our country to allow cheap imports into this country?

Even Shark Tank is always saying that whatever it is needs to be made in a China so its cheaper.

Im hoping someone can explain the advantages to me in a way I can understand rather than just make fun of me for not understanding.

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Economic common sense - consumers want to pay the lowest price - foreign production allows this to happen.

MaggieD said:

Why DON'T we equalize the playing field for those companies who move manufacturing to third world countries and then ship their products back to the Unied States for sale? Like, let's say a 35% tariff?

What advantage is it to our country to allow cheap imports into this country?

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It lowers our cost of living, which increases our standard of living.

A high tariff (say, 35%) is a way of transferring wealth from domestic consumers to moneyed interests who can effectively lobby government for tariff protection. The net effect is to reduce growth, which over time reduces wages (which are also now struggling against a higher cost of living). Sugar is a great example.

We also ran a test case during the Obama administration - when they decided to slap a tariff on tires from China. We "saved" 1,200 jobs.. At a cost of about $900,000 per job, per year, and another 2,531 jobs which we then lost. That, of course, is before we score China's retaliation (they slapped tariffs on our Chicken exports), which resulted in the collapse of 90% of our chicken exports to China, a cost of about $1 Billion on top of the $1.1 Billion that the higher tire prices had already cost us.

The big winner in the debacle wasn't even domestic tire producers - it was other foreign tire producers who could produce more expensively than China, but less expensively than the U.S.

So, by slapping tariffs and thinking we were Super Duper Saving Jobs And Getting Them, we in fact cost ourselves thousands of jobs, and billions of dollars.

The last time we decided to start slapping high tariffs around like Trump suggests was the Smoot-Hawley Tariff. It kick-started a global trade war, and helped lead to the Great Depression.

Hope that helps !

MaggieD said:

It's not as if our manufacturers, with their all-time record profit margins, couldn't, with a little help from tariffs, crush overseas competition like cockroaches if they so chose.

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Sure. But they wouldn't do so with large numbers of blue-collar non-college factory labor. They would do so with small numbers of educated technicians and machines.

cpwill said:

Sure. But they wouldn't do so with large numbers of blue-collar non-college factory labor. They would do so with small numbers of educated technicians and machines.

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Which is going to happen, regardless of tariffs, trade deals, etc.

KevinKohler said:

Which is going to happen, regardless of tariffs, trade deals, etc.

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Hm.

1. No, not as much. When you increase the relative incentive for something, you increase its incidence.

2. However, that sort of defeats the claim that we can at least "get the jobs back" by spiking consumer prices, now, doesn't it?

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cpwill said:

Hm.

1. No, not as much. When you increase the relative incentive for something, you increase its incidence.

2. However, that sort of defeats the claim that we can at least "get the jobs back" by spiking consumer prices, now, doesn't it?

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The jobs were never coming back, at least, not permanently. This was always ever a temporary solution to a long term problem.

KevinKohler said:

The jobs were never coming back, at least, not permanently. This was always ever a temporary solution to a long term problem.

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It's not a solution for anything, unless you happen to be the owner of an uncompetitive but politically connected industry, and want government to steer money from consumers pockets to your own.

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