An Irony on Trump's Tariffs

I was thinking about Trump's reciprocal tariffs and a thought occurred to me. Almost all products are made of things, like cars. Car parts are made here, there, everywhere. So when these things enter and leave the US, it is costing more money due to tariffs. So... if a company needs to sell Product A made from parts B, C, and D, it will be cheaper to make B, C, and D overseas, assemble them overseas, and then sell that final product, with the tariffs, once it gets into the states.

In a way, Trump's tariffs encourage people to not make anything in the United States. As even producing stuff in the US will be exposed to tariffs on imports to build things with.

From purely an economic perspective, Trump's tariffs are as wrongheaded as possible. Regardless of his assertions to the contrary, tariffs generally cause the prices of the taxed items to rise. Maybe not as much as the entire tax, but any increase in the price to user is an increase in price. If the items are intermediate goods, any increase in price has two effects - direct increase in cost of production and increases in demand for substitute items (which tends to increase their price).

In the end, tariffs may boost investment and production in the US for some industries, but the cost is higher prices and lost of production due to higher prices.

I can't believe how many people think companies will return and think those that don't will eat the costs of the tariffs. Coming back costs too. And given the uncertainty of this administration or upcoming elections, paying the tariffs may be the better option. Those costs will get passed on to customers and investment returns will shrink as demand drops.

Econ 101 stuff.

I'm working on a power plant and the gas turbines are being built in Germany. The contract is years old as these things take time to build. The tariff will add around $80 million to the end cost. Then we get to all the construction steel, pumps, piping, wiring, ..... likely another $100-200 million. Who knows yet? The study we're doing needed the recently released tariff rates to complete.

The added costs will be paid by our customers who use electricity. We can't eat costs as a public utility.

Our overall O&M budget will need to be raised for replacements and spare parts at all facilities and for all the distribution hardware.

Jimmy Higgins said:

I was thinking about Trump's reciprocal tariffs and a thought occurred to me. Almost all products are made of things, like cars. Car parts are made here, there, everywhere. So when these things enter and leave the US, it is costing more money due to tariffs. So... if a company needs to sell Product A made from parts B, C, and D, it will be cheaper to make B, C, and D overseas, assemble them overseas, and then sell that final product, with the tariffs, once it gets into the states.

In a way, Trump's tariffs encourage people to not make anything in the United States. As even producing stuff in the US will be exposed to tariffs on imports to build things with.

Click to expand...

That’s exactly what I was thinking, and I’m glad you see the contradiction too. On paper, tariffs are supposed to boost domestic manufacturing by making foreign products more expensive, but when supply chains are global and interconnected, the effect can be the opposite. If a company is importing components, they’re hit with tariffs multiple times—on every part. But if they move everything offshore and just import the finished product, they only pay once. That’s not just a loophole—that’s a built-in incentive to offshore the entire operation.

Have you seen any data or case studies yet on how companies are responding to this shift? I’m curious whether smaller manufacturers in particular are more vulnerable here, since they often can’t afford to restructure their whole supply chain. Also, do you think this kind of tariff strategy will push countries into retaliatory moves, or is the U.S. counting on its market size to keep everyone in line?

NHC

laughing dog said:

In the end, tariffs may boost investment and production in the US for some industries

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And the amount of investment is not likely to be significant since there is huge uncertainty on what the tariff amounts are going to be in even a month or two, let alone in 3-5 years. Why invest in something that requires a tariff to remain profitable when that tariff may be gone or reduced during the operational life of that investment?

Axulus said:

And the amount of investment is not likely to be significant since there is huge uncertainty on what the tariff amounts are going to be in even a month or two, let alone in 3-5 years. Why invest in something that requires a tariff to remain profitable when that tariff may be gone or reduced during the operational life of that investment?

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Exactly. That kind of policy volatility is kryptonite for long-term investment. If you’re a manufacturer considering building a plant in the U.S., but your entire profit margin depends on a tariff staying in place, you’d have to be insane—or desperate—to greenlight that project. Investors need predictable conditions, not political whiplash.

That brings up a question: do you think this uncertainty is intentional, as a kind of pressure tactic? Or is it more just poor planning? And in a broader sense, if tariffs can be flipped on and off with each administration, how can any long-term industrial strategy actually take root in the U.S.?

NHC

As a side issue, Trump has so infuriated country after country with insulting (and stupid-as-hell) remarks, that they don't especially need to slap tariffs on our shit. It's not going on their shelves anyway. If you were Canadian, and Trump said over and over that you weren't really a country at all, that your destiny lay in joining MAGAmerica, would you buy anything we made, if you could help it? If you're in any NATO country, same question. He's not only treated Ukrainians as if they caused the invasion of their homeland, he's stated that our military might move in to grab Greenland. He's told the Arab world that we'll take Gaza, deport all the people still living there, and make it a resort. He's told Latin America that the Panama Canal Treaty meant absolutely nothing, and we're taking the canal back. All this, within days of Trump II starting. Almost all of this stems from one man's mental illness -- none of it will go away speedily, even if something shoos Trump off the scene. He has caused generations of damage that will be more lasting than the duration of any set of tariffs.
We are loathed in countries that once highly valued our partnership, and we goddamn deserve it.

Europe took his pay more for NATO advice. I think US weapons manufacturers were thinking they'd get the contracts. The world may move on without the US.

https://gfmag.com/economics-policy-regulation/european-union-armaments-fund-650-billion/

This is also another opportunity for corporations to scam the people the same way they did with the post covid inflation.

Yup. They get to raise prices no matter what now that the news is saying prices are going up. Lucky them.

I saw that it appears Trump enacted 10% tariffs on all nations the US has a trade surplus with.

Jimmy Higgins said:

I saw that it appears Trump enacted 10% tariffs on all nations the US has a trade surplus with.

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Trump seems to think that if we buy more from a nation then that nation buys from us that it's a bad thing. He's an idiot. It's just that they have things we want more then we have things they want.

One of our major exports is agricultural products. So .gov handed out $10 billion DOGE bucks to farmers this week. Something, something, efficiency. Because Ag could get retalitory tariffs and many inputs like fertilizer and tractors are going up in price.

Apparently paying farmers is not welfare.

I hedged tariff costs, buy inspecting and buying car parts for the family fleet, buying any needed durable goods, and rebalancing the wife's 401k for the market drop.

They were talking today about maybe Trump reversing some tariffs. But that's hoping he flip/flops like earlier this year. If he doesn't, and it looks like he won't this time, they said easy 20% market loss correction.

The tariff tax will show up as inflation in most people's bills. Smart companies will add the tariff tax to their reciepts so voters see it.

A few well-placed tariffs can be a good way to influence investment and steer an economy to improved prosperity. But I think you will find ZERO professional economists advocating tariffs like those Trump is imposing, especially the escalating reciprocal tariffs that threaten to reduce prosperity all around the world.

ZERO.
"Stupidity" or "Insanity" are the words to describe these Trump policies. Debating details is besides the point.

The mystery is why the U.S. government, which employs millions of people many of whom are quite brilliant, would embark on such foolishness. The answer to that boggles the mind. Truth is stranger than fiction.

Simply put, the U.S. has been turned over to a semi-literate malignant narcissist who has the emotional maturity and intellect of a 7 year-old brat. There are probably millions of Americans who would do as bad a job as Trump if they were thrust into the POTUS position and given no adult supervision; so the mystery is: Why does this Presidency have no adult supervision?

Similar problems were visible during Trump-45, but Bannon, Kushner and perhaps Ivanka were there for adult supervision. Bannon and Kushner may have had sociopathic or criminal tendencies but at least they were literate and had intellectual curiosity. However the Kushners have abandoned the Moron-in-Chief, and Bannon's role has been taken over by Elon Musk, who is very far out on the autism spectrum. Trump also takes advice from Putin and Xi who are delighted to see the U.S. destroy itself.

We have learned that Congressmen, who could put a stop to much of this idiocy if they united, just are not very smart. And some are intimidated by death threats from hate-filled MAGA nuts provoked by the Moron-in-Chief.

I could go on, but you get the point. Many of you will guess that I'm exaggerating Trump's incompetence, but I think I'm understating it. Trump's "leadership" really is as stupid and insane as it seems.

Truth is stranger than fiction.

NoHolyCows said:

Axulus said:

And the amount of investment is not likely to be significant since there is huge uncertainty on what the tariff amounts are going to be in even a month or two, let alone in 3-5 years. Why invest in something that requires a tariff to remain profitable when that tariff may be gone or reduced during the operational life of that investment?

Click to expand...

Exactly. That kind of policy volatility is kryptonite for long-term investment. If you’re a manufacturer considering building a plant in the U.S., but your entire profit margin depends on a tariff staying in place, you’d have to be insane—or desperate—to greenlight that project. Investors need predictable conditions, not political whiplash.

That brings up a question: do you think this uncertainty is intentional, as a kind of pressure tactic? Or is it more just poor planning? And in a broader sense, if tariffs can be flipped on and off with each administration, how can any long-term industrial strategy actually take root in the U.S.?

NHC

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Trump has a simple solution to this problem - just make sure there are no future Presidents, except Trump.

There's very little stability in multi-party states. If stability is your thing, you need to emulate the North Koreans.

Liberation Day tariff on Ukraine: 10%
Liberation Day tariff on Russia: there is none

Some try to argue that this will bring manufacturing back here. Yes, possibly, but that would take years to plan and set up. But also, say we started doing all the manufacturing here in the US.. Then we are not importing as much, so all that tariff tax revenue will drop sharply. The government will have to raise other taxes to compensate. We are going to be paying higher taxes no matter what, and are kneecapping our international trade in the process.

Axulus said:

laughing dog said:

In the end, tariffs may boost investment and production in the US for some industries

Click to expand...

And the amount of investment is not likely to be significant since there is huge uncertainty on what the tariff amounts are going to be in even a month or two, let alone in 3-5 years. Why invest in something that requires a tariff to remain profitable when that tariff may be gone or reduced during the operational life of that investment?

Click to expand...

I agree. But remember that almost all tax and tariff policy is driven by reasoning that is unrelated to economic rationality.

marc said:

Some try to argue that this will bring manufacturing back here. Yes, possibly, but that would take years to plan and set up. But also, say we started doing all the manufacturing here in the US.. Then we are not importing as much, so all that tariff tax revenue will drop sharply. The government will have to raise other taxes to compensate. We are going to be paying higher taxes no matter what, and are kneecapping our international trade in the process.

Click to expand...

That depends on budget priorities, but it’s fair to say that either taxes go up or spending gets cut, and neither is painless. So yes, in a best-case scenario where reshoring works, we still face the cost of replacing tariff revenue, along with potential inflation from higher domestic production costs.

NHC