The McKinley Years
jasonsteinhauer.substack.com
jasonsteinhauer.substack.com
> "A tariff is, essentially, a tax on foreign goods that makes them more expensive relative to similar items made domestically. In theory, this helps boost and protect local industry. The tariff—paid for by the foreign entity—also generates revenue for the government."
> Taxing foreigners was superior to taxing Americans, McKinley rationalized. A tax on foreign products would also protect American businesses
I don't know how it worked in the late 19th century, but today the tariff is always paid by the importer. If a US-based manufacturer needs tariffed sheet steel, and has it imported, that manufacturer -- not the foreign steel mill -- owes the tariff to US Customs when the import is processed at the port or border.
Today, a tariff is quite literally the same thing as taxing Americans, though it could be said that it might shift patterns of consumption and incentivize domestic production. (Which, however, takes time to spin up -- and there are better ways to do that, on display throughout Asia: Subsidies and government investment.)
In the short term it will just be basically a sales tax. And I bet corporations will add a few more percent to the price increase caused by tariffs. Same as in the last years with high inflation.
But on the other hand screeching about every little thing is just as stupid.
At the end of the day you can't use brain dead rules of thumb to alleviate the need to actually think things though. You actually need to consider the political and economic realities the various moves that various parties might make.
This is unfortunately a fact that’s easily obscured by the “clarity” of retrospection, through which big things look like obviously big things.
You don't do it to the whole economy at once because the negative economic effects of the tariffs will impede the very development you're hoping for, and because there's just not enough free labor, expertise, and funding to simultaneously develop domestic production of everything.
It almost becomes an across-the-board thing. Practically every American-made product that contains aluminum is going to go up in price, for instance, as there's not nearly enough US aluminum production to satisfy demand. (And, even if there were, US aluminum tends to be considerably more expensive than foreign aluminum, even with the 25% tariff applied...)
Only if the market will bear such expense. If your product sells at $100 and the tariff is $15, what makes you think the importer will be able to sell the same number of units at new price of $115? Depending on the demand, the $15 cost will be born by a combo of the importer and consumer.
There's a reason no economist these days is in favour of tariffs.
Also on display throughout the United States during the Biden administration.
Not just a tax, but a subsidy as well:
> Executives from U.S. steel companies were enthusiastic backers of the 2018 tariffs and have urged Trump to deploy them again in his second term. They have called for the elimination of tariff exemptions and duty-free import quotas, saying those carve-outs allow unfairly low-price steel to enter the U.S. and undermine the steel market.
[…]
> Higher prices for imported steel are often followed by domestic suppliers raising their own prices, which then get passed through supply chains, manufacturing executives said. For consumers already reeling from rising retail prices and inflation, pricier steel and aluminum could further lift costs for durable goods like appliances and automobiles, as well as consumer products with aluminum packaging, such as canned beverages.
> “The issue with tariffs is everybody raises their prices, even the domestics,” said Ralph Hardt, owner of Belleville International, a Pennsylvania-based manufacturer of valves and components used in the energy and defense industries. Steel and aluminum are Belleville’s largest expenses.
* https://www.wsj.com/economy/trade/trump-tariffs-mexico-canad...
Why not just go directly to the subsidy and skip taxing the public?
Tariffs are very weak subsidies; they're more of a penalty for domestic end-users. Going directly to the subsidy would get the government what it wants -- more steel, aluminum, or whatever -- and spare end-users the pain.
Direct investment in small and nascent business is also a powerful lever. At trade shows, I've personally spoken with more than a few Chinese factory owners, and many of them mentioned that they got their start with an $_M investment by the government, and that the government is a minority shareholder in their business. This is how you get lots of factories in sectors you want to see, and you can force them into competition to keep end-user prices low.
Just imagine the US doing this for drones, AI, mining and metals production, etc. It would be like mega-YC.
Assuming Americans cannot change their spending habits. I'd rather assume that most Americans are smart enough to make choices to their advantage, though.
Why do Americans not drive more EVs from BYD? Because the Biden administration put a 100% tariff on Chinese EVs. Nobody accused Biden of unduly taxing Americans, only of making BYD unaffordable.
Have you seen how much aluminum the US produces?
> https://en.wikipedia.org/wiki/List_of_countries_by_aluminium...
It's roughly on par with Iceland and a little bit less than Saudi Arabia. There's no way to meet the demands of industry with domestic aluminum production. What's more, US production and processing of aluminum focuses on "high-end" aerospace grades that are not always suitable for things like household appliances & can be far more expensive than foreign alternatives.
Now let's do steel:
> https://en.wikipedia.org/wiki/List_of_countries_by_steel_pro...
Not so bad, but only 8% of China's production and 4.25% of global production. Again, no way to meet domestic demand with entirely domestic steel. Further, US steel is in the opposite position described above: Most US steel grades come from very old mills and are "low-end." A lot of tool steels, automotive steels, and specialty steels are simply not made in the US, and must be imported.
What's interesting is that the most high-end steels come from Japan and Germany. (Also, increasingly, China.) What happened, to simplify things a little bit, is that their steel mills were bombed into oblivion during WWII, so, after the war, they built new and much more modern mills. Whereas the US kept using its far older pre-war mills. Over time this developed into a durable advantage on the high-end.
As for BYD -- a 100% tariff is practically a de facto import ban. Try a 100% tariff on everything, or on steel and aluminum, and see what happens. It'll make periods of normal inflation seem like a Golden Age.
https://www.dancarlin.com/product/hardcore-history-49-the-am...
It is truly visionary as it is the perfect picture of the Golden Age the current administration seems to long back to.
Related:
Google Maps now shows the 'Gulf of America'
For example: A tariff on clothing pegged to the difference in median salary for a garment worker in their country versus our country.
I guess I'm thinking of something that is the equivalent for economic goals to what sanctions are for foreign policy goals.