As I recently wrote on Cowen's blog, a lot of the electorate doesn't know how tariffs work.
Say I manufacture a widget in [country]. At present, there is no manufacturer of that widget in the USA. We export to the USA, and now the US importer or distributor pays a ~25% tariff on the declared value to Fedgov. Then that US importer or distributor receives the widgets and sells them. Because its margin is down, it raises its price. Who paid first? The US business that imported the widgets. Who pays in the end? The US customer.
Now say I manufacture some specialty aluminum rods in [country]. We export to a heatsink manufacturer in the US. As they need our rods, they pay the tariffs. Their product is now considerably more expensive and there's more friction in their supply chain.
The only way this ends is with Americans paying more for goods. It could be a lot worse than routine inflation.
The right way to go about things would be to shore up US manufacturing capabilities first, and then utilize tariffs selectively. Right now, there's really no way around foreign inputs in manufacturing and/or wholly foreign-made goods, so there's going to be a lot of pain.
Say I manufacture a widget in [country]. At present, there is no manufacturer of that widget in the USA. We export to the USA, and now the US importer or distributor pays a ~25% tariff on the declared value to Fedgov. Then that US importer or distributor receives the widgets and sells them. Because its margin is down, it raises its price. Who paid first? The US business that imported the widgets. Who pays in the end? The US customer.
Now say I manufacture some specialty aluminum rods in [country]. We export to a heatsink manufacturer in the US. As they need our rods, they pay the tariffs. Their product is now considerably more expensive and there's more friction in their supply chain.
The only way this ends is with Americans paying more for goods. It could be a lot worse than routine inflation.
The right way to go about things would be to shore up US manufacturing capabilities first, and then utilize tariffs selectively. Right now, there's really no way around foreign inputs in manufacturing and/or wholly foreign-made goods, so there's going to be a lot of pain.