Comment by burfog | Hacker News Reader

Comment by burfog | Hacker News Reader

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Tariffs are taxes on transactions. Like all other taxes on transactions (sales tax, VAT, excise tax, etc.) they are paid by both parties to the transaction, with the share being determined by price elasticity.

It doesn't matter which party hands over the cash for the tax. The price will rise or fall as required to ensure that the tax is effectively paid according to price elasticity.

You get to graph this out if you take an economics class or two. In case you don't want to take a class, I'm pretty sure there is a Khan Academy video of it.

For example, the Chinese have effectively been paying about 5/6 of the tariffs imposed on them. Since the tariff is implemented by having the buyer pay, the price of the goods goes down. (you might ask why the Chinese would reduce their price, but they face lower demand and fixed operating costs, and also consider why the previous price wasn't higher) If the tariff had been implemented by having the seller pay, the price of the goods would go up, but this would be smaller than the amount by which the price has gone down. In other words, the US tariffs have forced a price cut which absorbs about 5/6 of the costs.

In addition to the market effects, the collected tariff can replace other taxes. The US was funded on tariffs during its rise in the 19th century. Our government is now mostly funded from taxes on productivity, which of course discourages productivity. We can return to the strategy that we used prior to World War I. It worked. It has also worked for many other countries pulling themselves out of poverty, including China.

Khan Academy's page about it with the graphs:

https://www.khanacademy.org/economics-finance-domain/microec...

Numerous videos, including one from Khan Academy:

https://duckduckgo.com/?q=tax+elasticity&t=canonical&iax=vid...

None of which actually backs up your claim of 83% being paid by reductions in wholesale cost to the importer.

From https://www.reuters.com/article/us-usa-trade-china-tariffs-e...

> A Congressional Research Service report in February found that the tariffs boosted washing machine prices by as much as 12%, compared to January 2018, before tariffs took effect.

> Steel and aluminum tariffs increased the price of steel products by nearly 9% last year,

So unless washing machines are somehow subject to a 72% tariff, and steel is somehow subject to a 54% tariff, no, the Chinese are not paying "5/6ths" of the costs.

Not all products have the same price elasticity.

There will be cases where the cost is borne 99% by one party or the other. Some products will go one way, and some will go the other way. Products also change in price for unrelated reasons.

Somebody with an ax to grind will pick the most extreme examples to favor one side. The reporter has not reported all examples.

Even with those examples though: 12% and 9% are a lot less than 25%. Clearly, the US buyers are not paying the full cost of the tariffs. That was my point. The portion will change constantly, and will be different for different products. The portion I gave was a all-products average from soon after the tariffs were imposed.

For consumers, the tariffs are frequently reduced further by the fact that the consumer price is not only composed of the wholesale price. The consumer buys from a provider with unchanged costs for advertising, labor, finance, and so on. For example, when I get a new air conditioner installed for $10,000, much of the price is local labor. It is only the importer that could possibly be exposed to the full percentage.

You seem to have a good grasp of this. Do you have any thoughts on the effects this will have?

If China is discounting their goods, and consumers are paying for the tariff as taxes, then there is additional strain on China's ability to compete, which might bring back industry here, but more likely to Mexico, which is now getting the same treatment.

US taxpayers are basically now paying a more efficient form of taxes, since it's a tax on behavior we want to reduce, and it's largely offloaded from the consumer by the Chinese price reduction.

On the other hand, I only like tariffs to offset anti-competitive tactics. Given a little time, government will get hooked on the revenue source and US manufacturers will get soft from having hobbled competition.

I think you see it pretty well. I share your concern about US industry getting soft, but overall I think bringing back industry is a worthwhile endeavor. The jobs are good. The ability to resist supply shocks (for example an embargo, such as when China cuts rare earth access) is important for national independence. The government will be hooked on one revenue source or another, and this is probably one of the better choices.

The US has been in denial of anti-competitive tactics. This has been a problem from day #1 with China. We always get promises of otherwise, and we always get the same anti-competitive tactics, and until recently we do nothing about it.

Mexico is other problems. Getting Mexico to care about the problems has been difficult. Perhaps this will get them to care.

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