Friday 8 November 2024

More on trade



Oops. 

"Here's the thing about Trump's tariff plans," explains David Henig, focussing just on the economic vandalism in the States. It will undoubtedly mean it will almost certainly be cheaper to simply manufacture everything outside the US and just import the final product.

He explains that a flat tariff, whether 20% as suggested for most non-US products—or up to 60%, as the moron is proposing for Chinese goods—would be levied in a "non discriminatory [fashion] between intermediate and finished goods. Trump may only be thinking of final consumer goods," if 'thinking'is really even the correct word to use in a context such as this, "but they [finished goods] may only account for 5% of imports." So ...
What does it mean for Trump's tariff plans that nearly all US goods inputs are intermediate goods? Essentially, that if all goods attract a 20% tariff, then it will almost certainly be cheaper to simply manufacture everything outside the US and just import the final product.
What does that mean in plain English?? 

"Intermediate goods" is what economists call stuff that businesses buy to make other stuff. So in that graph above, it means all those capital goods, industrial supplies, and car parts and engines are all intermediate goods. But so too are any consumer products that businesses buy intending to make subsequent salesthey are all, of them, inputs into the "final production" of American goods.
Thus [as Don Boudreaux explains], nearly all imports that are not raw materials are appropriately classified as intermediate components.

And so: 

the percentage of American imports that together comprise the category “intermediate components or raw materials” is far larger than 53%. Indeed, it’s likely well over 95%.
So what does that mean in simple economics? 

In economics so simple that even a moron (or a US president) could understand? 

It means that if tariffs are imposed as the moron intended then "it will almost certainly be cheaper to simply manufacture everything outside the US and just import the final product."

Oops.

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