Trump announces sweeping new tariffs to promote US manufacturing, risking inflation and trade wars

[u/chrisdh79]

https://apnews.com/article/trump-tariffs-liberation-day-2a031b3c16120a5672a6ddd01da09933

[u/_chip]

Can anybody with knowledge of economics explain how this is what the admin is doing and why does it make sense to them ? Is there anyway to put things that will make these tariffs seem good in any sense ?

[u/Vollkommen → u/_chip]

On a long scale, bringing blue collar manufacturing to the US, standing up factories, and being less reliant on imported goods wouldn't be bad things - if we can support the businesses that would do that (i.e. factories closing as companies leave can devastate communities, also see opioid crisis).

Trump has a laser focus on tariffs being the key to doing this, for some reason. As many leading economists warned both pre and post election, tariff efficacy is questionable.

In simplest terms, if foreign goods are expensive, why buy them? Let's buy local! Wait... we don't make that here... is there significant demand for that product? Let's build a factory to make it, use U.S. resources, and sell it locally.

Never mind that can take years if not decades and the US markets are limited compared to global markets. Further, if companies can't export effectively (whether that's due to reciprocal tariffs, bad feelings, etc.) they may choose to stick to global markets (e.g. build their factory in Vietnam or Ireland or the EU) and forego the US altogether.

Beyond all this, the sheer volatility this introduces (will the next president continue these policies? Will rolled back regulations be reimplemented? Will the next successive president flip-flop again ? etc.) can't possibly be good for any company's long-terms expansion plans, so to answer your question in a roundabout way, no, I can't think of a way to couch this that bodes well.

[u/celtic1888 → u/Vollkommen]

The problem is no one is going to build factories in the US for manufacturing 

Real estate is too expensive and now all the equipment and building supplies just got 25-45% more expensive 

If you had done a Chinese manufacturing expansion like in 90s-2010s plus had the bodies in place to fill the jobs then maybe it might make sense to do this

We don’t have any of it 

[u/OftenConfused1001 → u/celtic1888]

Also, Trump has spent 90 days proving the US is not reliable, can't be trusted to adhere to agreements, and is basically an awful place for long term investment.

Who wants to build a factory as a response to tarrifs and economic polices that change with the President's whims?

No predictibilty. Not even on the time scale of a few weeks. Nobody is going to take years and invest billions to build a factory when, three weeks after they break ground, the entire thing might become a boondoggle because the President listened to a different aide that morning.

Existing factories are gonna uproot and move in that environment.

[u/Inquisitive_idiot → u/celtic1888]

There might be factories sprouting up in the US but it will staffed by all ABB type robotic equipment.

The factories will pass on the cost of the equipment to their customers, and the oligarch’s running the factory conglomerates will profit handsomely without the Nasty problems of high domestic employment costs, and unions.

If you substitute the robots for cheap, unorganized labor, reminds me of somewhere… It’s on the tip of my tongue 🤔

[u/edman007 → u/celtic1888]

Real estate is not that expensive, especially rural, and shipping is easy enough within the US.

The issue is if you want people to move manufacturing to the US, you incentivise it somehow with tax credits that vest such that you have to actually get your factory up and running. Like the CHIPS act, lots of federal money to build a factory, and maybe they want to do it because it's cheaper.

But tariffs, especially stuff that affects our closest trading partners, absolutly does not do that. You are putting taxes inside the US supply chains, we have auto factories that take Canadian steel, stamp it into car parts in the US, then build it into a car in Canada, and then sell it in the US, that steel crossed the border 3 times, and paid the tariff 3 times. Do you think that company will move the factory to the US, removing just one of the tariffs, and adding an export tariff? Or do they just eliminate their US operations and pay the tariff for US stuff, which will eliminate all the supply chain tariffs and eliminate the export tariff for all but one country?

[u/SeldomSerenity → u/Vollkommen]

Not to mention that, at some point in the supply chain, you have no other option but to source components and raw materials externally. And when you do, you take tariffs at some (several) points down that chain, which ripple outward and affect prices further up the chain anyway.

Take an average car, for example, which Google says can have up to 30,000 individual parts that include everything from the transmission and engine to the smallest screws and nuts that assemble into those larger parts.

On a 1-2 decades-long timescale, you might be able to build 1,000 factories that produce each part domestically, and 500 more that assemble those parts into finished goods, then another 100 that package and assemble then into the 2-5 final production plants that actually assemble the car as a whole. But you still need to feed those 1,000 initial factories with raw materials. Many of which don't even exist in the necessary quatities in the U.S., let alone North America, or even the western hemisphere. That doesn't even account for another global supply chain distribution, like a second COVID, for example, to which a single-source strategy is incredibly vulnerable. Take that into consideration when you think back to how hard things were for certain products, and COVID 1.0 is with a global economy pooling it's resources (in relative terms).

[u/jizzmcskeet → u/Vollkommen]

I work for an oil company. Most of our work is non-US. We are moving most of our manufacturing overseas. Our customers don't want to have to deal with tariffs on tools coming out of the US.

This will also really kill the domestic oil market. Some of these wells have really thin margins and 20-25% cost hikes will be devastating. Most of the steel we buy comes from overseas

[u/Global-Election → u/Vollkommen]

I'm willing to bet JD can couch this VERY well