Comment by mattlondon
11 days ago
> effectively raising the profit margin for local production
This is the sad thing for US consumers.
If there is now a tariff on Product X that means instead of costing 100 it will now cost 125, I will guarantee you that the price for a locally produced competitor item will be 124.99 The local producers are not going to leave 25% profit on the table.
Why would it have to be that way? Are you imagining a monopoly on all locally produced goods? Why wouldn't there be competition with a healthyish margin? Seems entirely and 100% cynical.
The point of raising a tariff on a $100 imported good to make it cost $125 is because the US provider cannot profitably sell for less than $125. The tariff doesn't magically fix the domestic provider's cost basis.
If the US provider was able to compete close to the $100 level (as they already have incentive to do!), there would be no complaint and no need for the tariff in the first place.
Well taking that 34% number as reference. You could have been brought from 0% margin to 34% with a penstroke. US manufacturers were ground down just to the level of being unprofitable for the last 4 decades, of course they are close to the break even level.
1 reply →
Yes, but if the profit margin is now higher, it a) permits new competitors, and b) allows breathing room for debts to be paid off, and investments to be made that improve local capabilities. Like most things, tariffs can be good or bad. Yes, they can stifle innovation when there's no additional impetus for improvement, but they can also be necessary to protect local industries that are of strategic importance.
All industry exists in a web, and you can't just excise parts of that web without affecting the whole. The US has de-industrialized while its rivals have grown, and its global dominance is predicated on its technological and military lead. This de-industrialization was purely a function of financial incentives, whereby companies could juice their profit margins by seeking cheaper labor elsewhere, and skilling up foreign populations. But the bill for that is coming due now.