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30 sats \ 2 replies \ @Undisciplined 17 Jun \ parent \ on: Where Is The Tariff Inflation? econ
When a large country that consumes a large share of global output imposes tariffs two important things happen:
- The global price declines significantly from the loss of demand, i.e. tax incidence falls on the foreign producers.
- Domestic supply expands, which is possible because large nations have diversified economies.
Yes, I understand those 2 points. One of my confusion points is the effect of individual choice on the prices of the goods. According to Mises, the goods will only sell at a price. Adding tariffs is the same a raising prices, therefore lowering demand in the tariffing country. Also lowering demand worldwide for that product.
The consumers will only pay at their price point, so the producer must eat the incidence of the tax. Yes, is get this. My point is where in this whole chain of reasoning does the individual consumer enter the picture, besides at the point where the consumers reject an increase in the price? Perhaps I am just confused.
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The individual consumer does reduce their purchases in the face of higher prices from tariffs. The point is that the tax incidence is higher on the foreign producers, so prices rise much less than the amount of tax.
That’s what we’re seeing. Prices are rising, just less than predicted.
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