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lordadmiralfarsight · 4 days ago

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Tarrifs, shmariffs, what do ?

Grrrrreeeting my dear Tumblr users, it is I, random economy oriented Tumblr User that was onces convinced his blog was gonna be about ships (and not those on water).

I come to you bringing explanations on tarriffs, what they do, what they bring and what their consequences are, since they are kind of a big topic right now, what with Trump and all. "But Mr. Rando, I already know!" you say, and I believe you, and I am proud of you, but much like in my irl class, not everyone has the same knowledge base, so even if it's a bit tedious for you, we have to cover the topic so everyone is on the same page. Alright ? Swell.

So, what is a tarriff ? A tarriff is a tax levied on importations. AKA, you buy something from out-of-country and get it into the country, you pay the tarriff. Many of you will have seen the memes and viral posts, and will triumphantly point at the part where I say the importer pay the tarriffs. And you are right to do that, it's kind of very important. It's the main point, even.

Why is it the main point ? Easy : if outside stuff cost more, inside stuff better choice. Or, in non-caveman speach : the increase in cost on foreign products and resources will either increase the competitivity of domestic products and resources, or level the playing field. At least that's the idea.

"So", I hear you ask, "are you going to be the Nth user here to tell us that tarriffs are going to fuck the average US citizen over? Because we already know that."

Well, yes, but also know. Also, I'm not sure you have the nuance on the topic, and I do love me some tasty, tasty nuance. And custard. But alas, custard is not the topic of today. Economic nuance is. Now, onto the topic :

The main question to ask here is "what is getting hit by the tarriffs ?" Because the impact will vary a lot depending on what gets hit. To give a simplified framework, there's 3 types of economic goods : raw resources, transformed goods and finished products.

Raw resources are ... raw. Iron ore, lumber, clay, wheat grain, lithium ore, water, dirt, raw oil, you get the idea. Those resources tend to have razor thin profitability margins, because so much is produced.

So, what would be the goal of tarriffs on raw resources ? Well, that would be protecting or developping in-country extraction/production facilities, whether those be mines, farms, fishing fleet or lumber mills.

And that's where a tiny little factor comes into play : economic viability, AKA whether a given activity in a specific region is economically interesting.

Like I said, raw resources tend to have razor thin profitability margins, this means that overwhelmingly, raw resources are extracted in regions that allow lower costs.

Some of those costs can be reduced in costlier economies, like environmental or safety costs, with some good ol' deregulation ... up to a point. Even the notoriously protest-averse USA would face some degree of protests if all safety regulations disappeared and industrial accidents jumped 5000%. Poorer countries tend to be more lax on those regulations, and/or not really enforce them, or both.

On the other hand, there are costs that can't be reduced all that much in a given economy, like the cost of manpower. Due to the cost of living, there's a limit to how low you can go with your offered wages. For instance, offering $12 a day in the USA will yield fuck all in terms of recruitment, but $6 a day in the poorer parts of Africa will cause a flash mob of eager-to-work candidates.

And these are the two big factors of the equation : can the reducible costs be lowered enough that the irreducible costs aren't that much of an issue anymore ? And when the answer is inevitably no, can the tarriffs bridge the gap ? Well, uh ... that's gonna depend a lot. But overall, I would lean more on "no". African iron will be cheaper than US iron every day for the foreseeable future, unless you impose a fucking ungodly amount of tarriffs.

Some resources that cost more will see better results from tarriffs, but far from all. Like, tarriffs on iron, copper, tin, etc ? Bad idea. Tarriffs on helium, lithium or other rarer and costlier resources ? Could protect or help the national production indutry.

In the cases where, even with tarriffs, outside product remain more competitive, there's just going to be an increase in cost down the line, and wealth is just going to exist the country more. In the cases where the inside product becomes more-or-as competitive, then perhaps wealth can remain in the country and help the economy. But, well, we'll get to it later.

Raw resources, done. Two more to go.

Transformed goods (henceforth TG for simplicity) ! They are everywhere and they make up the bulk of international trade. Phone parts ? TGs. Flour ? TG, mostly. Tires ? Eyup, TGs. Radars ? TG. Ink? Oh you bet it's a TG.

So, what would be the aim of tarriffs on TGs? Protecting national industry, giving it room to develop or maybe even forcing multinationals to relocate/create the industry inside the country.

So, TGs are where globalization starts clashing really, really bad with tarriffs. Because you see, with globalization, there's been a global dispatching of production facilities. So you'll have part A that's produced in Italy with resources from Greece, part B that's made in Australia with Indonesian resources, part C that's made in Brazil with stuff from Zambia, etc.

the funky stuff happens when you need to combine parts A and C in a US plant, but then have to send the result over to Mexico to weld part B on top. And then you have to get it back into the US. Double tarrifs, you say? Yepperino, my dear student, double tarrifs. On this incredibly simplified exemple. Imagine what that looks like when there's 3 or 4 more parts involved.

At that point the question is : is it cheaper to pay the tarriff conga line or to just send the US parts of the production line overseas ?

"That sounds like the opposite of the stated goal" you say, with the blazé impassivity of someone that saw it coming a hundred miles away. Yes, yes it does. That's why tarriffs have to be manipulated very, very carefully, especially on transformed goods and intermediate steps of the production process, because it can stack up real fast, real bad.

Sometimes though, paying the tarriff conga line IS the better option, especially for sensitive processes that require a well-trained workforce with in-depth theoretical knowledge of very specific fields and access to training for cutting-edge machines, which is only found in the United Staaaaa ... what do you mean, Europe ?

So yeah, very sensitive, tarriff with care. And in either case, expect cost increases, which WILL be recouped with increased sale prices, leading to a domino effect.

And now, the finished products. The end of the line. The consumer targeted stuff. What you buy online and in shops.

What's the aim of tarriffs here ? Same as before, protect native industry, give it room to develop and force multinationals to relocate the production plant into the country.

At this level, you'll see similar considerations as with the TGs, with one tiny added funky detail : the costs of the two previous steps pile up here. Indeed, the tarriffs on TGs and raw ressources are liable to eat up the profit margins of the finished products, and since profit margins are sacred and must be preserved at all costs, well the simple solution is to simply increase the price of the end product in proportion to the other cost increases. And that means shit costs more for people.

"Well, that's awful" you say, and you are right. But we're getting started. It's time for another trip through early 2000s deviantart, say it with me : INFLATION !!! Except instead of your favourite character being turned into a balloon, we're talking about the content of your wallet losing value. And it's going to hit every industry that has to suffer those tarriffs. At which point the entirety of society faces a dillemma : do we increase salaries accross the board (with the associated widespread price increases) or are we chill with a global reduction in the amount of shit people can buy ?

And that's where it starts getting funky (derogatory, fear inducing), because if enough industries are hit with tarriffs, either choice is bad.

Increase salaries ? You speed up inflation and reduce confidence in your money, making exports admitedly more interesting but imports far less so, and when you are a globalized economy where there are imports everywhere at various levels, it gets spiky really fast.

Going the "tough luck fucko" route ? Well first off, rude, second off : congratulations, you are reducing the overall economic activity in your country, creating unemployment and poverty, reducing confidence in your economy and, if things go really, really poorly, starting a recession (WHOOOOO!!! Who wants to sleep under a bridge ?).

Now, is this a doomer prophecy ? No. No it's not. We have to keep in mind that systems, including economic systems, can adjust their course after starting in a new direction. It's rather unlikely that everything will consistently go bad in the worst way possible. But.

A lot of that is dependant on precision political decision-making, and the person soon-to-be in charge of these decisions in the USA has made it clear that he does not intend to listen to outside opinions or do precision. And considering his last go at it, I believe him. So I'm not optimistic. I don't think the US economy will collapse, that would be absurd, but I don't see the US having a good time either.

It's going to be very, very complicated, and it will depend a LOT on what fields are actually affected, in what proportions, etc.

And keep in mind, I haven't even talked about retaliatory tarriffs (from the people whose products you put tarriffs on). Or political tensions inside the US, that's something I don't feel qualified to talk about. Or the non-economic effects on geopolitics. Or the effects on the global economy.

If I had to make a prediction, I would guess that quite a few production lines will be reorganized to either have long stretches inside the USA or to be entirely divorced from them for as long as possible. Some products may become economically non-viable when it comes to the USA. Some US companies may find themselves no longer economically viable due to reliance on tarriff-affected outside goods and resources. It's hard to guess how large the impact will be, but there WILL be an impact, and most of it will likely be felt by the USA. Because tarriffs aren't paid on expedition, they're paid on reception.

So, as a French, all I can say is : bonne chance.

#economy #tarrifs #trump tarrifs #a little lesson in economy #USA #united states #inflation (not the kink)#not as funny as my last economy post #I'm ill so I'll blame that #also it's a bit harder to make jokes on tarriffs #my lungs feel like mince meat #what with my coughing all the time #on the plus side mince meat is less likely to be hit by tarriffs #since the USA produce a lot of meat #on the minus side #that meat is full of hormones #and other chemical shits #that ain't good for you

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