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47 sats \ 7 replies \ @south_korea_ln OP 7 Aug \ parent \ on: To tariff or not to tariff econ
Yeah, it's for sure not an exact science. Either party can parse the numbers any way they want. I wonder sometimes, as an economist, how one makes sure not to let personal ideology cloud one's objective interpretation of the numbers? Must be a constant internal battle for truth.
Economy is societal thermodynamics. As such, one of the fundamental principles is that of net preservation. You can always make very precise judgements on the net output long-term by simply looking at the input, ignoring whatever twirls in the middle. For example, in the case of inflation, a duplication of the monetary base will cause all prices on average to increase by 100%. In the meantime until that final and unavoidable state settles, prices will vary seemingly at random here and there, some might not change and some may increase by more than 100%, so if you make yourself the question "which price increment is driving inflation" you will be unable to parse the information correctly and conclude that "inflation is not an exact science", when in reality it's a perfectly deterministic outcome.
In the same way, in the case Undisciplined points out, how each cause will determine a final inflationary value once all settles (that is, if tariffs and money emission do not changes) has a perfectly defined percentage of final responsibility. An overall 50% of tariffs if imports account for 50% of the economy will have a net effect of 25% of inflation. A 100% monetary emission that's spent 50% on the country will cause 50% inflation. The net effect will be a 1.5*1.25= 1.88 => 88% total inflation. And so on and so forth.
Using this deterministic nature of monetary policies is that Milei was able to prevent an economic collapse, by simply executing a predefined plan.
If you want to perfectly understand monetary policies (and why they're something to get rid off for good), look for Milton Friedman speeches. He's the absolute master on the matter.
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Aren't you missing the role of tax incidence when talking about the pass-through from tariffs. It seems like you're assuming the exporting nation bears none of the tariff cost.
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I do not assume that, I know that's how it's first hand, from direct experience in Argentina. A company must keep margins to stay solvent so all tax increments are always passed towards the customer. Tariffs are simply a tax imposed to US citizens when buying foreign products. A company can withstand temporal costs variations, but an official 100% tariffs will only mean that you get to paid double for the same product. You will see it in action by yourself.
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That may approximately hold for small poor countries, but not large wealthy ones. The loss of business for exporters to the US would lower the prices they're able to charge.
You're also assuming no viable domestic producers of substitutes.
The equilibrium increase from tariffs is going to be significantly less than you're describing.
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The loss of business for exporters to the US would lower the prices they're able to charge.
There's a limit of viability, as any protectionist policy proved over and over, it will only cause imports to cease, not to become cheaper.
You're also assuming no viable domestic producers of substitutes.
I do am assuming viable domestic substitutes, that's one of the key factors in ensuring that tariffs will take effect only on the consumer side. That, together with decreasing and expensive imports, will cause local prices to rise. The US citizen will feel 100% of the tariffs one way or another.
The equilibrium increase from tariffs is going to be significantly less than you're describing.
Just wait and see.
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@remindme in 3 hours
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That’s a deep question and probably warrants a lengthy discussion.
In short, I think it’s helpful to state your expectations ahead of time. That way you’re less likely to fit the data to your beliefs post hoc.
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