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Comment by Borealid | Hacker News Reader

Let's imagine, hypothetically speaking, that demand is perfectly inelastic. The price of a good is $10, and buyers will absolutely refuse to pay more than $10 under any circumstances.

Before a tariff is imposed, the seller sells the good for $10 and keeps $10 in revenue.

If a tariff of $1 is imposed under these hypothetical circumstances, does the buyer pay more? Does the exporter get paid the same as before?

Clearly, it's neither guaranteed that the buyer will "pay more" nor that the export will "get paid the same as before". In reality because demand is neither 100% elastic nor 100% inelastic, what tends to happen is that the cost of the tariff is split in some ratio between the buyer and seller.

I find it mildly amusing that there are so many people claiming that it's 100% on one side or other, when it's trivially easy to see why that can't be GUARANTEED TO BE the case.

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You can go into hypotheticals, but unfortunately for you the data exists.

And the data shows that American buyers are not paying their international supplies less for goods than they were before. In fact, if anything, they are paying slightly more, which maj be explained by general inflation and the fact that tariffs mean American buyers are placing smaller orders and therefore getting smaller percentage volume discounts.

That opens up greater margin for local production. Not everything is elastic, but as long as the producer side cheats in term of local subsidies, less regulation, slave labor etc, implementing tariffs seem a good choice.

you cannot just carbon tax everything locally and then let the other corner of the word produce at a fractional price polluting the same world, exploiting worker etc, without wrecking your internal labor market.

What you see as customer paying more is cause by government letting this shit go on for too long, and now the correction is ugly. But it not like its not needed, and at some point needs to happen before it reaches the breaking point.

I'm not in favor of the current round of tariffs as used by current administration which seem a baseless negotiating tactic, but the effect of outsourcing to bad faith actors has pushed the working class out of balance, they simply have no way of competing internationally unless by accepting a step downgrade in working and living conditions

> That opens up greater margin for local production

My country mostly produce pine wood (and other soft wood). I like hardwood furniture, but its only imported stuff because we have very few producers. Putting a tariff on hardwood furniture could be a good idea to increase local production, as long as hardwood is not tariffed. If both hardwood and hardwood furniture get taxed, i will have to pay more, and local production will never have greater margin, as those will be hit by base material tariffs.

(To be clear: I live near on of the biggest hardwood harbour in Europe, and buy my wood directly out of the sawmill, but my point stands)

Yeah and thats where I was going with the last point about tariff needing to be integrated with the rest of the economic system as a tool and not arbitrarily as a tool for negotiation. Tariff are a damper to any economic system and reduce efficiency, they need to be proportional, predictable and non escalatory (well, as much as possible)

> That opens up greater margin for local production.

It opens up a larger profit margin for local producers for sure. Production? Maybe. Maybe not. Because there is no incentive to produce more or better. Because the cheap bad faith actor is gone and prices can now match the export price or be just slightly below it.

>but the effect of outsourcing to bad faith actors has pushed the working class out of balance, they simply have no way of competing internationally unless by accepting a step downgrade in working and living conditions

> What you see as customer paying more is cause by government letting this shit go on for too long, and now the correction is ugly. But it not like its not needed, and at some point needs to happen before it reaches the breaking point.

You don't seem to see the contradictions in both these statements. If the prices go up and working class isn't paid as much for their effort then it is for naught. The failure hasn't been to continue outsourcing, failure has been to improve wage conditions - because market was supposed to correct it or worst case it is "socialism" to even try and raise wages.

But as always people want to test economic theories for themselves and they should. See if their lives improve under a capitalist government which is going to trample on their rights.

The exporter may sell less to the US, but typically they will then sell the difference into non-US markets, reducing the impost. This is exactly what happened in a lot of (not all) markets a few years ago, when China tried to intimidate Australia with trade restrictions [1]. When Chine dropped the restrictions, they found that they were now competing with more buyers and so paying higher prices.

[1] https://www.ussc.edu.au/chinas-trade-restrictions-on-austral...

Losing sales isn't the same as paying the tariff. The person importing the item pays the tariff. Their item won't be released from customs if they don't pay. They pay to the US government.

The correct thing to say is that the tariff has an effect on demand because of the impact of adding a tariff on top of the price.

It's not a person, it's a company. The company pays 100% of the tariffs, they are passing it to the consumer who is a person.

The one importing pays the tariffs. If that is a person, say buying directly from AliExpress or some other site, then that person pays.

If it's a company, the company pays and might pass it on.

Edit: to be accurate, the importer is legally responsible for the customs declaration and the tariffs, regardless of who does the declaration and who pays. Typically someone else does the declaration on your behalf, and typically they forward any tariffs to you.

companies are persons. see: Santa Clara County v. Southern Pacific Railroad Co.

> In reality because demand is neither 100% elastic nor 100% inelastic, what tends to happen is that the cost of the tariff is split in some ratio between the buyer and seller.

That is the argument of the Administration:

>> Kevin Hassett's theory of tariffs: "China has got to sell a lot of stuff to us to maintain political stability. And so if we put a tariff on their stuff, then they cut the price so that our consumer is basically still able to demand as much stuff as they need to sell to be politically stable."

> If he were right, the import price index (which measures pre-tariff prices) would have fallen by enough to offset the sharp tariff hike. It didn't.

> [graph of said index]

* https://twitter.com/JustinWolfers/status/1981928861547041162...

This is all true, but in practice end consumer demand tends to be much more elastic for almost everything else in the chain. You don't get to decide not to buy toothpaste for more then $2.50 when you run out, you need a new phone when your old one breaks (and not when the price goes back down), etc... Consumers buy products to fill needs, and *needs* are the inelastic part.

In particular your "Let's imagine" case is sort of ridiculous. There are no such goods, nor anything even comparable. The very existence of inflation disproves the idea (since if those inelastic goods existed, they'd see demand drop to zero if the price needed to inflate).

>I find it mildly amusing that there are so many people claiming that it's 100% on one side or other, when it's trivially easy to see why that can't be GUARANTEED TO BE the case.

Yup. And it can't be guaranteed that the sun will rise tomorrow.

As such, want to bet on it?

Finally. It’s not a cut and dry as one side or the other. People have lost their minds. It’s case by case for every product and every consumer.

Some companies might chose to loose the margin (few but still passable ). Some might try to pass some or all to the sale price (which creates all sorts another dynamics) and finally the customer does not have to buy that product. There are many note breakdowns that all adjust who pays and when they pay.

>I find it mildly amusing that there are so many people claiming that it's 100% on one side or other, when it's trivially easy to see why that can't be GUARANTEED TO BE the case.

To be fair most people on one side think they know better than Adam Smith and the people on the other side usually never opened a book, so it's a tough bargain.

One way 100% to get people to see your viewpoint is to insult them. Which side are you talking about?

If you read carefully you'll notice I did both sides.

I noticed that what you wrote was neither true nor fair.

That's like, your opinion, man.

I assume you have citations you are holding off on for dramatic effect?

People can just say things, it's not all a big plot.

Well yes, I too can pull stuff out of my ass, but I wouldn't usually then call people talking about reality "but that's like your opinion man".

Would it have been better if I had asked for sources instead? How backed up was the talking about reality? What you agree with is reality and what you don't is out of people's ass when everyone was just sharing opinions!

It's pretty clear who pays the tariffs. the buyer pays the manufacturer. the manufacturer ships the product. the product gets held in customs until the buyer pays the tariff.

I assume the left know more than Adam Smith, given his ideas have been tried for few hundred years, while the right can't read

The underlying motivations regarding trade imbalances are Keynes' works. If you go back to Bretton Woods you'd find actually alot more support.

Yeah we can literally see it happening in real time. If you have a product with competitors in the market and you are a foreign entity you will eat some of the cost to try to stay competitive in the market. Your only other option is to leave the market. A good example of this is Brasil who tariffs a ton of stuff.

The other thing that happens is that a buyer doesn't buy anything at all. Deadweight loss.

Sounds like he made America great again - people can't afford the food they like anymore.

Isn't your example actually perfectly elastic? It does not change the conclusion at all, of course.

One problem with this analysis is that I can't imagine Trump doing it, or even understanding it. Well, it's not a problem with the analysis, but with the overall situation.

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