Comment by garciasn
15 days ago
If the tariffs remained in effect for three decades, or more, there may have been incentive to move manufacturing back to the US; however, with the changing of the guard on the regular, most companies are just going to ignore it for 3.5 more years and hope that someone stops this from continuing.
Because, if you think about it, it took decades to get us to where we are today and it'll take decades to reverse, even logistically. This is a bunch of stupidity and meaningless saber rattling that will do nothing but hurt everyone except the extremely wealthy who can afford the additional taxation on the consumer side because the Republicans will further reduce the taxation on the income side.
> If the tariffs remained in effect for three decades, or more, there may have been incentive to move manufacturing back to the US;
I don't understand why people take this as a given.
Tariffs are a two-way street. What incentive does a company have to move a billion dollar facility to the USA when it will face reciprocal tariffs on any exported goods from the USA?
The calculus is pretty complicated. Economies of scale become a factor - is one large global factory more efficient than separate regional facilities? Also income disparities; Americans can more afford to pay a 25% premium on a good than most of the rest of the world can; so maybe you just make Americans pay more. Or, maybe you do both, have a world-wide facility and a American facility, but still charge Americans the tariff premium, and pocket the 25% as profit instead (steel producers model; also pickup trucks); this works well in conjunction with the USA's low business taxes.
Then there's "hacks" like shipping goods to a country that has lower tariffs with the USA, then using cheap local labor to do the bare minimum to have the goods considered to be produced there. There are some obvious good choices here, supposing the country's leadership is willing to play ball into the ninth inning.
So it's not a given that that long-term effects are increased domestic production. It's just as likely to be a siphon of prosperity and a impediment to wealth generation since it will be hard to start companies in the USA that export products.
> The calculus is pretty complicated. Economies of scale become a factor - is one large global factory more efficient than separate regional facilities?
It's not about efficiency. Companies in the US only build and ship their products from the opposite side of the planet because over there they can abuse the local slave labor and pollute the environment in ways that would never be accepted in the US. Even when they could easily afford to by accepting less profit, they aren't going to move production to the US when it means they can't take advantage of those things.
> What incentive does a company have to move a billion dollar facility to the USA when it will face reciprocal tariffs on any exported goods from the USA?
Access to the richest single market in the world ?
> Access to the richest single market in the world ?
How long do they stay the richest single market in the world if rest of the global world are producing and trading at greater efficiency while the US are facing large short term supply disruptions, higher costs and reciprocal trading tariffs on their exports?
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But that only works if you compare the US with other single countries. The EEA is similar to the US, China will be larger than the US, India will be larger than the US. Any of those combine and you loose by a factor of 2, etc
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Tariffs aren't bans. They still have access to the US market, US consumers are just forced to pay higher taxes for these goods.
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If these tariffs continue for 30 years, it's hard to know if we'd still be the largest single market in the world.
That's not going to be true after your facilities are built.
The answer to your conjecture is simple Darwinist capitalism.
By whatever mechanism, imports are now more expensive, leading to less demand. Demand for those products actually stays constant, but the demand for imports goes down.
Now we have a niche. If you can produce a good locally for less than the net cost of import, you have an entire continent ready to buy from you.
The reason this has historically gone the other way is labor costs. Factoring the entire global supply chain into your product, it makes much more sense to do the work in a country where work costs less. If the additional cost to import is less than the delta on labor, you've won capitalism or something.
Or, take another angle. If the US can no longer import vital goods, what do you think will happen? Will the goods magically stop being vital? Will we sit on our hands for several decades and wait for the problem to resolve?
Or does the market respond to a need and rearrange itself to provide as profitably as possible?
It seems insanely risky to attempt to fill a niche that only opened up because of these tariffs. If they’re removed, congrats you just spent a bunch of capital to make a factory that is suddenly no longer competitive.
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>>Or, take another angle. If the US can no longer import vital goods, what do you think will happen? Will the goods magically stop being vital? Will we sit on our hands for several decades and wait for the problem to resolve?
No - consumers will just eat the cost like they did during COVID.
>> Or does the market respond to a need and rearrange itself to provide as profitably as possible?
You are ignoring the 'Optimus' angle. Maybe Elon's stupid robot can actually do something and he has been whispering this into Trump's ear. That would take care of the labor cost issue. Lets see what happens.
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>Factoring the entire global supply chain into your product, it makes much more sense to do the work in a country where work costs less. If the additional cost to import is less than the delta on labor, you've won capitalism or something.
Yes, you've won capitalism, but sometimes, profit is a lower priority. Resiliency and the ability to avoid critical supply chain dependencies are important too. We learned that during COVID, when we only had one facility to make baby formula in the U.S., and we had a dire shortage of masks, gloves, etc. because we imported it all from China.
Another aspect of resilience is avoiding long attenuated supply chains, even if it is cheaper...for now. Why? Because there is a finite amount of fossil fuels (necessary in greater amounts for non-domestic maritime and air transit). Also, lower fossil fuel usage due to in-country sourcing would be better for the climate. I realize that the Trump administration isn't concerned about that! But it is true regardless.
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>The calculus is pretty complicated. Economies of scale become a factor - is one large global factory more efficient than separate regional facilities? Also income disparities; Americans can more afford to pay a 25% premium on a good than most of the rest of the world can; so maybe you just make Americans pay more. Or, maybe you do both, have a world-wide facility and a American facility, but still charge Americans the tariff premium, and pocket the 25% as profit instead (steel producers model; also pickup trucks); this works well in conjunction with the USA's low business taxes.
25% margins are huge. Sounds like that margin is someone else's opportunity....which is exactly what the Administration hopes will happen.
There is an opportunity here: Cozy up to Trump, have him give you a ton of government money and spin up a company that will take those margins.
It is an interesting and somewhat macabre parlor game to play at a large gathering of one’s acquaintances: to speculate who in a showdown would go Nazi. By now, I think I know.
https://harpers.org/archive/1941/08/who-goes-nazi/
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Wait 3.5 years? Look at the situation with Canada, you might just need to wait 3.5 days when he changes his mind and reverses the tariffs for some reason. The uncertainty must drive manufacturers nuts.
> you might just need to wait 3.5 days when he changes his mind and reverses the tariffs for some reason.
That reason will be that he and his pals have already bought up all the stocks that are crashing or the businesses that start failing all at insanely low prices which they can sell off for huge profits once the tariffs are reversed and their value returns to normal.
I think this, more than anything else, has been the real issue ( and I even think there was a recent Marketwatch article that basically said the same thing ): 'erratic decision making process'. There is an argument to be made about the direction of the policy, but the crazy back and forth, where it is not entirely clear 'who/how/why' and so on that people who do have to make decisions about future moves are left guessing. No one likes uncertainty.
Manufacturers operate on a much longer timeline than 3,5 days. But your point is totally valid, about the flip-flopping. One reason might be because Trump is using tariffs as an economic weapon. Once he gets the concessions he wants (I don't know exactly what those are for... e.g. Canada) he then can say, okay, I won't tariff you after all.
> If the tariffs remained in effect for three decades, or more, there may have been incentive to move
In 3 decades, the US won't be the biggest market for most products - sooner if the harebrained economic decisions somehow persist.
Capital knows no borders, and American companies will "do the needful" to maximize profits wherever they may be found.
<< Capital knows no borders
Those statements are offered as truism ( and they do sound true enough ),but are they anything more than a hopeful assertion? I won't go into too many details, but I think it is not exactly axiomatic. It may be have been 99% accurate in the post-world war new world order, but, needless to say, that has shifted.
We can argue over whether it is a temporary pit stop or a longer term change that is likely to remain its place, but 'capital knows no borders' has its place along other otherwise useful phrases such as 'bet you bottom dollar that tomorrow there'll be sun'. As in, sure, but it is more of an expression of our wants, not an if/then scenario.
> Those statements are offered as truism ( and they do sound true enough ),but are they anything more than a hopeful assertion?
For the US / Euro, yeah you can just digitally wire say $ 150 million no problem. You just can't physically fly out with a suitcase of $100 bills.
This is not true for something like China [1].
The counter-topic is usually Labor. You very much cannot just go to the US and work but you could from China invest in a US company. So Capital knows no borders while Labor does.
[1]: https://www.tradecommissioner.gc.ca/china-chine/control-cont...
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> I won't go into too many details, but I think it is not exactly axiomatic.
The Panama papers, the Double Irish sandwich, and the US government pressuring the EU not to tax American tech companies all say otherwise. More prosaically, the average non-resident, non-American has a much easier time registering a Delaware LLC than attempting to get an American work visa.
> It may be have been 99% accurate in the post-world war new world order, but, needless to say, that has shifted.
Trump has proposed a green-card-inspired "Gold Card" for rich Russians^w investors to skip the immigration queue. Lot's of countries have investor visa with fewer hoops to jump than work visa. I don't see this changing any time soon. If you have the capital, and hint that you're interested in investing $1M+, most countries will roll out the red carpet for you.
> As in, sure, but it is more of an expression of our wants, not an if/then scenario.
To be clear I don't want labor to be more restricted than capital.
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Even if we did keep the tariffs long enough to reshore there's so many problems:
1) The resulting industries are only viable under the tariff regime so we have to keep it forever or until the production costs somehow equalize.
2) Who's going to work all these new jobs with the plan of reducing immigration drastically or practically eliminating it? We're only at 4.1% unemployment today. Are we supposed to baby boom our way to enough workers? While costs are jacked through the roof due to the tariffs?
The US has a very high standard of living as a whole. In order for it to compete with others, it must become "as poor" as others. You simply can't undermine your trading partners and not disrupt your privilege as the global reserve status.
Why is “global reserve status” more important than building stuff?
Instead of barter, everyone in the world buys and holds YOUR money so that they can trade with others. Everyone else's trade = trade deficit = free money (because you are basically selling your dollars, not a product) that you can spend on stuff.
You are too smart to actually not get this. You call it fake as if money isn't just made up 100% fake 'value units' we all agree to pretend (thus making it real) is real.
It's only one of the key levers of power of the USA. No biggie. You give people money represented by paper but mostly bits/bytes in exchange for other peoples materials and labor. Can you unpack what kind of stuff you're talking about? Are we talking about nascent industries? This stuff, who are you going to sell it to ?
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I think there's going to be a major reallocation of corporate contributions over to the other party so they can fix this in less than two years via impeachment.
"incentive to move manufacturing back to the US"
Only for the internal market. America will never again manufacture steel or cars for the rest of the world. The days of America being the factory of the world (which really only lasted a few decades) are forever gone.
> If the tariffs remained in effect for three decades, or more, there may have been incentive to move manufacturing back to the US;
That's the European Union, with no tariffs within the EU, moderately high tariffs at the EU border, and few policy shocks. The EU plugs along, with somewhat protected industries, moderately high prices, good quality, and some export business.
> moderately high tariffs at the EU border,
I've this assertion made here multiple times. The LLM's tell me the average tariff on goods coming into the EU is 2-3%. That's not what I would call "high". The tariffs imposed by the current USA administration start at 10%, and range up to 54% for nation it imports most from (China). Now that's what I would call "high", although if you are going to call 2-3% moderately high then you need a better superlative - perhaps "extreme".
> The LLM's tell me
Actual sources of information give you 1.39% [1]
[1]: https://data.worldbank.org/indicator/tm.tax.mrch.wm.ar.zs
Leaders from both parties in US government agree that global trade needs to be rebalanced behind closed doors; I have videos of Pelosi and Schumer supporting tariffs to balance trade deficits with China specifically. For all of the talk about “reserve currency” it doesn’t really seem like sitting back and doing nothing will prevent global trade in RMB, euro, or some BRICS currency, which is increasing every year. So if we’re going to get to that state eventually anyways, might as well start preparing for it now.
For all of the whining about the previous tariffs from the first Trump term, or the TCJA, neither were repealed when democrats had the opportunity, although there were small adjustments. That should really tell you all that you need to know.
It turns out that manufacturing jobs are better for supporting a family than service jobs, hollowing out our economy so there are far less good paying manufacturing jobs turned out to be a huge mistake, originally pushed by CFR, Cato, Brookings, etc. so the only people who are doing well are the rich, because the benefits of global trade accrue almost exclusively to them (although many CPI advocates will make the argument that you’re better off now because you can own a nice cell phone even though you can’t own a house)
The public BSing goes the other way too of course. Imagine getting worked up over classified stuff on a private email server and then letting your cabinet use signal and Gmail.
> It turns out that manufacturing jobs are better for supporting a family than service jobs,
Why? I hear this implied, or outright said in your case, frequently with no backing for it. It seems like a truism.
https://www.bls.gov/charts/employment-situation/employment-a...
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https://x.com/_PeterRyan/status/1907879785151475801 Protectionism is like child rearing. You're trying to protect the young (industry) so they survive to adulthood. The tarrifs are too broad. How the hell are you going to sell goods from HCOL area to the rest of the less affluent world? Even if some countries could afford it, how are you going to get goods across burned bridges?
Even if tariffs remained for decades reciprocal tariffs mean that no matter where you're located you pay a penalty when you buy manufacturing inputs and when you sell outputs.