Competition is… well about competitive. A unilateral Tariff hurts everyone equally.
So if China was selling batteries to the US at $4
Taiwan was selling them at $3.90
You slap a $2 tarrif on both countries.
China raises the price to $6 to compensate, Taiwan to $5.90, Both countries make the same profit per battery sold. Unless there happens to be a US company that can make the batteries at $5 (not likely as we don’t currently have the infrastructure, and a lot of products are dependent on natural resources that we just don’t have).
China raises the price to $6 to compensate, Taiwan to $5.90
Not quite. It’s not the foreigners who pay the tariffs, it’s the locals. The tariff is charged at customs when the product enters the country and the people paying that are the people doing the importing. Tariffs don’t bring more money into the country, they just penalize local people who import goods from overseas. It’s a tax. Back when Republicans were consistent they hated all taxes, heh.
From the point of view of the local consumer it makes no difference - the price rises unless there is a locally made substitute they can buy instead.
It’s worse than that. As the other comment said, it’s the consumer who pays the tarrif but let’s assume today:
China can produce a battery for $4
Twian does the same for $3.90
USA can only make one for $5
Let’s then assume that for all 3 countries 25% of the cost is the raw Nickel that goes into the battery. Let’s also assume that it’s a flat 20% tariffs across the board.
Now your prices become:
China – $4.80
Twian – $4.68
USA – $5.25
Increase it to a 60% tariff:
China – $6.40
Twian – $6.24
USA – $5.75
So no matter what, prices go up even for the US manufacturer as they still have to import raw materials. The tariffs end up making local manufacturing more competitive with overseas at the cost of the consumer. As consumers just saw the price of batteries go from $4.00 to $5.75, a whopping 43% increase. Yay inflation!
The original idea behind tarrifs are just that… To give local businesses a competitive advantage while they catch up to overseas products. Once the US company is established you can then drop the tariff as they no longer need help while they ramp up manufacturing.
So maybe the US manufacturer costs might go down, if they’re able to make more at scale, but they still have to beat the automatic 75c increase because of their own imports. And all of that is still assuming that the tariff is large enough to make the US company the cheapest option. Otherwise it may end up backfiring and cause less sales as consumers end up not paying the increased costs. As you can see above with only a 20% tariff.
USA
Next question.
“Why would China do this?”
It’s like spitting out of a moving car. It’s just going to hit you in the face.
Was going to say, why wouldn’t it be the USA.
Competition is… well about competitive. A unilateral Tariff hurts everyone equally.
So if China was selling batteries to the US at $4
Taiwan was selling them at $3.90
You slap a $2 tarrif on both countries.
China raises the price to $6 to compensate, Taiwan to $5.90, Both countries make the same profit per battery sold. Unless there happens to be a US company that can make the batteries at $5 (not likely as we don’t currently have the infrastructure, and a lot of products are dependent on natural resources that we just don’t have).
Not quite. It’s not the foreigners who pay the tariffs, it’s the locals. The tariff is charged at customs when the product enters the country and the people paying that are the people doing the importing. Tariffs don’t bring more money into the country, they just penalize local people who import goods from overseas. It’s a tax. Back when Republicans were consistent they hated all taxes, heh.
From the point of view of the local consumer it makes no difference - the price rises unless there is a locally made substitute they can buy instead.
The price rises even if there’s a locally made substitute, because odds are that it costs more to make locally, and the price floor is now higher, too
Even if it doesn’t cost more to make it locally you can just hike your prices anyway if your only competitors have tariffs applied.
It’s worse than that. As the other comment said, it’s the consumer who pays the tarrif but let’s assume today:
Let’s then assume that for all 3 countries 25% of the cost is the raw Nickel that goes into the battery. Let’s also assume that it’s a flat 20% tariffs across the board.
Now your prices become:
Increase it to a 60% tariff:
So no matter what, prices go up even for the US manufacturer as they still have to import raw materials. The tariffs end up making local manufacturing more competitive with overseas at the cost of the consumer. As consumers just saw the price of batteries go from $4.00 to $5.75, a whopping 43% increase. Yay inflation!
The original idea behind tarrifs are just that… To give local businesses a competitive advantage while they catch up to overseas products. Once the US company is established you can then drop the tariff as they no longer need help while they ramp up manufacturing.
So maybe the US manufacturer costs might go down, if they’re able to make more at scale, but they still have to beat the automatic 75c increase because of their own imports. And all of that is still assuming that the tariff is large enough to make the US company the cheapest option. Otherwise it may end up backfiring and cause less sales as consumers end up not paying the increased costs. As you can see above with only a 20% tariff.