Comment by mywittyname
17 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;
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?
The majority of countries have a negative birth rate. The US is doing "OK" (stopping immigration is why I put it in quotes).
This is going to catch up to most countries very soon. The US will be in a small group of the ones last standing.
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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
EEA, despite decades of EU efforts, is not a single market. China and India are nowhere near in terms of purchasing power or individual consumption and won't be for decades.
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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.
It's government eating into your margins - unless there's no domestic substitutes.
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.
Don't worry, that's the kind of thing that would only happen in a country with a fickle, mercurial government that doesn't value certainty and the rule of law.
>>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.
Leaving only the "there is nobody who can afford to buy anything because there are no jobs left" issue.
If you reply with "but surely BASIC INCOME" then I must ask, what are you personally doing to help make that happen?
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Hahahaha. Wait. Are you serious? Elon has been promising all kinds of things AI that are "just around the corner" for at least a decade now. It's always in the next year or two. There is no chance they cracked autonomous robots with those puppet bots they were showing off not long ago.
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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.
I seem to recall the shortage being "dire", but short-lasting. The market adapted and supplied the needed materiel. Is there any evidence or theory showing that a more protectionist system would fare any better?
>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/
That was an interesting read, thank you for the link