Trump promised voters tariffs are a panacea for the economy, but Walmart finance chief John David Rainey warned they will be inflationary for customers.
Shifting to buying more locally can work when there are local businesses that can ramp up production easily to meet demand, it doesn’t work when there is no local production that can be easily expanded, or when there aren’t enough local resources to supply local manufacturing (for example lithium for battery production)
Also, trade has been our leverage keeping China in check, we need their stuff, and they need our money, so we get along. If suddenly we say “we don’t want your stuff anymore, and we’re not giving you our money” they’re gonna turn around and sell more to India, Russia, and Europe. They’ll be fine, but we’ll both lose our leverage and toilet our economy for at least a decade while we try to recover from shooting ourselves in the leg.
The lack of specificity. They already replied with more detail and I largely agree, although I simply dont think its a permanent harm if nonessential goods rise in price and then drop over a period of a year or two.
Not sure if this is at all what you are asking for, but here goes:
As to the first bit I won’t provide as many sources as I’m not finding many that bring it all together in an understandable way, it’s basic economics of supply and demand. Here’s a video that explains some of the basics of supply, demand, and tariffs (it’s a bit jargon-filled, but I’m not finding much that strikes a good balance between understandability and oversimplification: https://youtu.be/3pSysspeCxY?si=6IIGFVuaTyObq5sl
In addition to the usual supply and demand changes that Tariffs bring, throughout the 80s, 90s, and 2000s a lot of US manufacturing was moved out of the country, to countries with cheaper labor. Often physically transporting the production line equipment from the US to China where labor was cheaper. So in most of those instances, our local production capability was reduced, and getting it back will require rebuilding it from the ground up (which oftentimes takes years). And that’s industries where we have the natural resources (and harvesting/mining facilities) to supply local manufacturing, where we have to spin those industries back up it could take longer.
Moving on to the trade leverage with China. I’ll try not to get too bogged-down with the history, but the US is China’s biggest “customer” in percentage of their exports bought. But considering our rivalry, they’ve been wanting to change this for years, and are making good progress in becoming less dependent on the US buying their exports. In 2004, the US bought 21% of China’s exports https://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/2004/Summarytext and in 2023, even though the US imported more from China than 20 years ago, we only bought ~15% of their exports https://tradingeconomics.com/china/exports-by-country - we’re still their largest trade partner, but they have done a lot of work to be less-dependent on US trade.
Along with this, there’s also a bit of a rivalry between the G7 (America, Canada, France, Germany, Italy, Japan and the UK) and BRICS (Brasil, Russia, India, China and South Africa). There’s a lot of complicated geopolitics in this, but the part that’s relevant to trade is that the GDP of those nations has now surpassed the G7 nations:
Here is a graph comparing the GDP of the G7 to BRICS countries over time.
https://en.m.wikipedia.org/wiki/BRICS#/media/File%3ABRICS_AND_G7.svg
Essentially China now has other friends, that go to a different school (and they’re actually real). And their new friends have money, want what China’s selling, and aren’t as likely to try to tell China what to do.
On one hand, less dependence on Chinese manufacturing by the US might be a good thing (one example I’ve seen of this is as drone warfare becomes more common, the US being reliant on China manufacturing the batteries isn’t ideal). But there’s a smart way to go about it (things like the CHIPS act that incentivize industries to move manufacturing to the US). If we don’t get manufacturing back before implementing tariffs we won’t have enough local supply to meet demand and prices across the board will go up.
I think I agree with all that, although I dont think China or America needs each other at this point.
I agree it would be ideal to have things prepared for when tariffs hit and companies are free to do that. They have some lead time now, and they could have prepared plans for this in advance as well.
If prices do go up, it will be because most companies choose to raise the price and/or drag their feet. People are increasingly critical of corporations these days, I dont think they will get off as easy as last time.
Shifting to buying more locally can work when there are local businesses that can ramp up production easily to meet demand, it doesn’t work when there is no local production that can be easily expanded, or when there aren’t enough local resources to supply local manufacturing (for example lithium for battery production)
Also, trade has been our leverage keeping China in check, we need their stuff, and they need our money, so we get along. If suddenly we say “we don’t want your stuff anymore, and we’re not giving you our money” they’re gonna turn around and sell more to India, Russia, and Europe. They’ll be fine, but we’ll both lose our leverage and toilet our economy for at least a decade while we try to recover from shooting ourselves in the leg.
I think thats awfully simplistic but if you can point me to some source that goes into the details of what you are predicting I’d be happy to read it.
Always fair to ask for sources, but what exactly do you want to see here? Or what part are you contesting?
The lack of specificity. They already replied with more detail and I largely agree, although I simply dont think its a permanent harm if nonessential goods rise in price and then drop over a period of a year or two.
Not sure if this is at all what you are asking for, but here goes:
As to the first bit I won’t provide as many sources as I’m not finding many that bring it all together in an understandable way, it’s basic economics of supply and demand. Here’s a video that explains some of the basics of supply, demand, and tariffs (it’s a bit jargon-filled, but I’m not finding much that strikes a good balance between understandability and oversimplification: https://youtu.be/3pSysspeCxY?si=6IIGFVuaTyObq5sl
In addition to the usual supply and demand changes that Tariffs bring, throughout the 80s, 90s, and 2000s a lot of US manufacturing was moved out of the country, to countries with cheaper labor. Often physically transporting the production line equipment from the US to China where labor was cheaper. So in most of those instances, our local production capability was reduced, and getting it back will require rebuilding it from the ground up (which oftentimes takes years). And that’s industries where we have the natural resources (and harvesting/mining facilities) to supply local manufacturing, where we have to spin those industries back up it could take longer.
Moving on to the trade leverage with China. I’ll try not to get too bogged-down with the history, but the US is China’s biggest “customer” in percentage of their exports bought. But considering our rivalry, they’ve been wanting to change this for years, and are making good progress in becoming less dependent on the US buying their exports. In 2004, the US bought 21% of China’s exports https://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/2004/Summarytext and in 2023, even though the US imported more from China than 20 years ago, we only bought ~15% of their exports https://tradingeconomics.com/china/exports-by-country - we’re still their largest trade partner, but they have done a lot of work to be less-dependent on US trade.
Along with this, there’s also a bit of a rivalry between the G7 (America, Canada, France, Germany, Italy, Japan and the UK) and BRICS (Brasil, Russia, India, China and South Africa). There’s a lot of complicated geopolitics in this, but the part that’s relevant to trade is that the GDP of those nations has now surpassed the G7 nations: Here is a graph comparing the GDP of the G7 to BRICS countries over time. https://en.m.wikipedia.org/wiki/BRICS#/media/File%3ABRICS_AND_G7.svg Essentially China now has other friends, that go to a different school (and they’re actually real). And their new friends have money, want what China’s selling, and aren’t as likely to try to tell China what to do.
With regard specifically to the US relationship with China there is this from Biden’s Tariffs from 6 months ago which contrasts China’s response now to their response in 2018 when we had more trade leverage. https://www.reuters.com/markets/what-doesnt-kill-you-makes-you-stronger-china-trolls-new-us-tariffs-2024-05-15/
Here is a more recent article where a Chinese official says the the tariffs will backfire on the US https://apnews.com/article/china-economy-tariffs-us-commerce-trump-843769cd7175011d8e34be32cc8d045f
On one hand, less dependence on Chinese manufacturing by the US might be a good thing (one example I’ve seen of this is as drone warfare becomes more common, the US being reliant on China manufacturing the batteries isn’t ideal). But there’s a smart way to go about it (things like the CHIPS act that incentivize industries to move manufacturing to the US). If we don’t get manufacturing back before implementing tariffs we won’t have enough local supply to meet demand and prices across the board will go up.
I think I agree with all that, although I dont think China or America needs each other at this point.
I agree it would be ideal to have things prepared for when tariffs hit and companies are free to do that. They have some lead time now, and they could have prepared plans for this in advance as well.
If prices do go up, it will be because most companies choose to raise the price and/or drag their feet. People are increasingly critical of corporations these days, I dont think they will get off as easy as last time.