I have posted this in GQ because I am looking for answers that have been provided by economists or other professionals in this field, rather than general public opinion. However, I suspect that any thread with the name Trump will attract opinion and land in IMHO or GD.
Trump is pushing hard on U.S. companies who employee workers in other countries. So far I think all we’ve heard are threats, but the threats are to levy high import tariffs or other taxes on companies who manufacture goods abroad to reduce labor costs. This has a very rah-rah America First sound to it, but what are the long-term effects to moving jobs back to the U.S.? Will companies do that math and decide they are better off leaving the jobs abroad and sucking up the tax?
From my limited college economics classes I would expect that although it may preserve some American jobs it would also raise consumer prices on those types of goods, and that the types of jobs gained would probably be low- to medium-skilled jobs with commensurately low pay. It could also damage economic relations with those countries since it would take away jobs from them and possibly affect their ability to import American goods.
In general I believe that international trade creates economic value on a global level which in the very long term is good for everyone, although there are short-term costs that nobody wants to bear locally.
Well, that’s a question that’s being asked right now in the grand halls of economics, and unfortunately we don’t have a good answer. Economists broadly believed for some time that free and ever free-er trade was a definitive good thing - that it was so good, in fact, that any downside would be limited and mild. We are finding out, however, that the downside is grossly unevenly distributed (which was somewhat anticipated), but also worse and much longer-lasting than expected. At the same time, the benefits have not been as good as anticipated.
How do we square that? Well, a great many pundits seem to be of the “all-we-need” school. Most of them are well-off journalists or scholars who sniff their noses and opine that the problem really lies in these subhuman wretches who are complaining and dirtying up the place. So “all we need” is to move them where it is more convenient, or if possible make them die off more conveniently. (Exaggeration, but not much of one.)
But The net result of Trump’s aggressive stance? Well, that’s hard to say. For one thing, other nations have been increasing restrictions on trade to their advantage for years, so there’s an argument that even if the goal is ultimately free trade, we need to balance the scales; if other nations then agree to cut back restrictions, good. If not, we aren’t being taken advantage of. But there is a genuine belief among other economists that even doing that is ultimately more harmful than good, so the argument goes on.
Thanks for that. My impression is that Trump is being incredibly simplistic about how he looks at economics and there’s a huge future debt to be paid for these kinds of antics. I also have to believe he has some smart people working for him. Or maybe just sycophants.
To complicate matters further:
One can find economists/professionals that will provide an unqualified yes OR no to all your questions posed above. Even among experts, there is no definitive answer.
Also, it has always been a foregone conclusion that U.S. consumers benefit by lower prices as a result of globalization and free trade… Why? It is entirely possible that businesses reduce cost and maintain consumer prices. All the while, increasing their own profit margins.
Naturally they wouldn’t do any of this unless it increased profits, but that doesn’t mean that they cannot also lower prices. If a business can lower costs, there are multiple factors affecting profit, depending on the market for the goods they are making. It’s not one size fits all, but if by lowering costs and also lowering prices they can hit a price elasticity of 1, then they can lower prices *and *maximize profits. Competitive pressures will also tend to lower prices, but that word “tend” has a lot of baggage.
Because they could lower prices, doesn’t necessarily mean they do lower prices.
Volkswagen, on the leading edge of this trend back in the 1970s, moved production of their Beetle to Mexico. Their per unit profit went way up, yet the consumer cost remained unchanged.
I feel it is a mistake to automatically assume consumers reap lower costs… Just because that is the notion put forth by business in an effort to justify their own position… It’s possible consumers don’t have a clear picture of what is going on.
Canada imports a lot of what consumers buy. Years ago, before NAFTA and WTO and alls orts of treaties, they used to have import duties on most things and a manufacturer sales tax. The usual argument was to protect and encourage local industry. However, what happened was that any local manufacturers took the higher import costs as setting the market rate, and simply enjoyed a cushy extra profit margin. It did not encourage a lot more companies to get into the market. It just raised the cost to consumers.
Anyone who remembers North American auto makers 30 or 40 years ago - same thing. they were all uniformly unconcerned about quality. Being protected from European or Japanese manufacturers did not “give them time to improve their quality”. They coasted until lower cost and better Japanese cars started flooding the market and eating their lunch. Then and only then, did they finally get serious about competing on quality.
So import duties will simply raise the cost to consumers, create an guaranteed profit margin for internal companies, and lull them into a lazy complacency and reduce any incentive to improve. That means when the tariff is finally lifted, they are more likely to fold and leave the market to foreign goods only, than to emerge stronger and better.
One of the more pernicious economic myths is that prices are somehow related to the costs of production. It simply isn’t true, except in the obvious sense that something simply won’t get made or sold if the best price it can fetch is lower than the cost to make it. But otherwise, prices are a function of supply and demand, which are in turn complicated functions of information, need, availability, etc. Two goods could each cost $20 to make, and one could end up costing the consumer $20.50, and the other $2000.
I worked for Ford from 1979 to 1983 so experienced this lunch-eating firsthand. I left the company because I figured I was better off setting my own destiny rather than waiting for the inevitable layoff. This was around the time Ford rolled out the Escort, and after a while it became pretty successful but things have never been the same for the U.S. auto industry. Except trucks, but that is due to the chicken tax.