Simplifying Complexity, One Answer at a Time!
Rules
Let's say you want to sell lemonade for $1 per cup. Due to tariffs you must now pay 50 cents to sell a cup of lemonade. So what do you do about that?
Do you:
A. Take the profit loss and accept that while you still charge $1 you now only make 50 cents per cup
B. Increase costs by 50 cents so your income per cup remains at $1.
They said 'for pleebs' not business patriarchs. For 'pleebs' the answer is:
For each thing you want to buy, ask, 'is this, and and every part that makes it, from my country or one of the ones we don't have tariffs with?' If no, price increase. If yes, no change or maybe a small price increase. (if tariffs push the international product's cost higher than the domestic's, the domestic producer may choose to expand their profit margin rather than maintain previous prices)
The answer is in between depending on profit margin and market conditions...
If nobody buys your shit for 1.50... You will be forced to eat the profit margin
I think you'd be surprised at how many businesses don't like any sort of income loss. So the consumer pays the full tariff every time. The lemonade is now $1.50
If demand is inelastic... Sure... Food rent gas
But people can easily either not buy or find a substitute for lemonade lol... That's bow free markets generally work
Electronics can be used until they break!
Non tariff lemonade is $2 because it's local and "organic". And it's not gross Commie lemonade.
More than 50% of consumer spending in the US is done by top 10% of the income bracket. They are willing to pay that extra $1.50 because they're also the people who own the domestic manufacturers that are reaping massive profits by raising costs commensurate with the tariffs but not having to actually pay the tariffs.
Maybe they lose a little business from low income consumers, but they don't care that much because they make it up from the higher sale price to higher income consumers. The poor get fucked.
The "deal" under neoliberalism was that some workers would feel pain as factories closed, but every worker would see a better lifestyle from cheap imported consumer goods.
They're taking away the cheap consumer goods. The point, they say is to bring the factories back, but I'm going to need someone to explain to me how that's supposed to work. Especially since Trump is trying to kill the 'Chips' act that was specifically designed to onshore a vital industry.
So there's the way a tariff is meant to work in theory, and then there's the way they actually work in practice.
In theory:
The whole supposed purpose of a tariff is to make foreign manufactured goods more expensive than domestic competition so that domestic consumers have a price incentive to buy from domestic manufacturers. To that end, the point of a tariff is to raise prices on foreign goods. The government imposes a tax on the company which imports the foreign product, making the importer's costs go up. That importer passes on the cost of the tariff to the wholesaler/retailer by increasing their sale price of the imported product. The retailer then passes that higher cost on to the consumer in the form of a higher retail price. The consumer then has to pay more for the foreign product.
The goal here is to raise the price of the foreign product above that of the domestic competition so that people buy domestic. Overtime, the increased sales for the domestic product is supposed to increase revenue enough that the company expands operations, hires more workers, builds more factories, etc.
Following the theory, in the short-term the effect on common people is to raise prices of foreign goods. Since most people aren't looking at where their products are made, they just buy whatever is cheap, the effect is to raise prices on the cheapest goods. The lowest priced option in that product category gets more expensive. Over the medium-to-long term, the domestic manufacturers expanding operations is supposed to create more jobs and increase revenue for government. More jobs is supposed to create a more competitive labor market, which is supposed to raise wages. This is also supposed to increase government revenue. With more revenue, the government should be able to provide more/better services..
HOWEVER, Tariffs almost never work out in practice how the theory suggest they should.
In practice:
There's one giant flaw to the whole theory behind tariffs. It presupposes that domestic manufacturers will keep their prices unchanged from before the tariffs are introduced AND make large capital investments to expand operations. But this almost never happens. Before the tariff is introduced, there's a (relatively) stable economic equilibrium. All manufacturers have set up their operations for their share of the market. If they are currently selling 10,000 widgets per day, their operations are set up to produce roughly that amount. If their competition's prices jump because a tariff has been imposed, they don't have the capacity to rapidly increase production. If orders jump from 10,000 per day to 100,000 per day, they can't easily fill them all. And expanding operations is an expensive prospect without guaranteed payoff. What if the tariff is dropped in 6 months and the competition's price drops back down. Now you're set up to produce 100,000 widgets per day, but sales have dropped back down to 10,000. Now they're stuck with new factories, more employees, etc geared towards producing a quantity of product they can't sell.
It's safer and easier to NOT expand operations. So what happens almost every single time is that the domestic manufacturers increase prices a similar amount as the foreign competition. They don't have to pay a tariff tax, though, so the domestic companies just pocket the increased revenue resulting from charging higher prices. Everyone's market share stays the same, but consumers end up paying more and the rich get richer.
To get around that flaw, government has to invest in / subsidize domestic manufacturing which Trump's government has made no meaningful effort at.
Skipping that step is akin to ejaculating prematurely without foreplay, an uncomfortable experience for all involved.
That doesn't even really get around the flaw. It's a band-aid which might help in the short-term. Even if the government pays to build you a new factory and subsidizes your labor force, unless the tariff is permanent and/or the government subsidies are permanent, your market share is still going to drop once the tariffs are removed or changed. And even if the tariffs and subsidies are promised to be permanent, you can't rely on that.
You're correct though the hope / theory is that by subsidizing the upfront expenditure of building a new factory it will eventually become cheaper to build domestically than to import foreign parts, such that the artificially boosted market share due to tariffs will persist even after tariffs are removed.
The flaw in that is that the cost of labor in countries like China, Mexico, Brazil and India is a significant factor as to why importation is cheaper. The cost of American labor is never going to be competitive against those countries unless the average worker in the US accepts substantial concessions in standard of living.
Global / multinational capitalists look at the cost of labor in those countries and figure that if a job can be done remotely, why not have it done where there are limited labor protections and you only have to pay an employee $1/hour (or less).
Also you kinda need to have those domestic companies producing Widgets. If not you are just making Widgets more expensive with no payoff.
Exactly! Imposing a tariff with the expectation that will cause the domestic market to just spawn a new manufacturer is even more asinine than expecting tariffs to increase already existing domestic production.
Some assumptions: Bob, makes the most delicious dumplings.
You make a great curry.
Your wife plays poker with Bob's wife once a week.
You and Bob trade dumplings and curry weekly through these poker games. Unfortunately, your wife wants some of the dumplings before giving them to you. You get less dumplings per curry now. (Your wife imposes the tariff)
Unfortunately, Bob's wife sees this and thinks she wants in on this also, so eats some curry at poker night, now Bob is getting less curry per dumpling.
You and Bob lose.
(This does not quite make it to the level of international trade, but I'm always thinking about food)
For each thing you want to buy, ask, 'is this, and and every part that makes it, from my country or one of the ones we don't have tariffs with?' If no, price increase. (You have to pay the 'bought from foreigners tax.)' If yes, no change or maybe a small price increase. (if tariffs push the international product's cost higher than the domestic's, the domestic producer may choose to expand their profit margin rather than maintain previous prices)