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100 sats \ 4 replies \ @Undisciplined 12 Mar \ on: Effects of Tariffs on U.S. Economy Pile Up econ
Will they? Who knows
How might they? The US is such a large consumer of global goods that tariffs drive down the global price of imported goods. That means foreign countries end up paying a significant share of the tariff revenue, rather than US consumers. The reduced foreign competition then makes US producers more profitable, which leads to greater economic growth.
The big assumption buried in there is that the revenue isn't put to counterproductive uses by the government, which it likely will be.
The other way they might help is if other, more destructive taxes, are reduced accordingly. Tariffs are bad, but they aren't as bad as most of the other taxes we pay.
The US is such a large consumer of global goods that tariffs drive down the global price of imported goods. That means foreign countries end up paying a significant share of the tariff revenue, rather than US consumers.
Can you explain this part better? I’m not getting it. Thanks!
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This is just a couple of generic tax incidence graphs
Tariffs introduce a spread between what the consumer pays and what the producer receives. That spread reduces the amount consumers are willing to buy and the amount producers are willing to sell. Fewer units sold means lower prices received for producers.
Small countries are more like the graph on the right. They don't consume enough for the reduced quantity to have much effect on global prices, which means most of the tariff will be paid by the consumers.
The US is more like the graph on the left. It's such a large share of global consumption that the reduction in sales significantly reduces the global price that producers can sell at.
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Looks like the big question mark is how supply and demand are gonna shake out!
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Yes, we'll learn a lot about the shapes of these curves.
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