Unless, I’m missing something, it will mean that faced with such a high tariff, German consumers are more likely to buy domestic German cars instead of higher priced American cars.
Likewise, with such a low tariff on German cars, American consumers are faced with a more equal price between American and German cars and would more or less equally consider both.
IOW, it screws American car makers and German consumers, but helps American consumers and German car makers. Without the tariff imbalance, American and German consumers would have a freer choice, and American and German carmakers would have to compete on quality instead of home field advantage.
Please let me know if I am misstating your opinion. I believe that you are saying that since the U.S. has so many diverse products and Germany has (essentially as a dominant product) one, then Germany needs to protect its best single product because it really needs to and the U.S. can afford to help an ally out.
If so, then that is nothing but allowing other countries to enact protectionist policies with us choosing not to do so because we should be nice. Free trade is good for all of the reasons economists state, but that’s not free trade.
And the “we do it too” argument with sugar and the like is equally Not Free Trade. So if we are starting from the proposition that free trade is good, then we cannot endorse either of those protectionist policies.
So…who wants to run for office in Florida telling the sugar cane producers that they have to compete with Latin American cheap labor? Anyone? Bueller? Free trade is good in the abstract but must also take in account these realities.
It’s a good thing that no one here has said it’s not true.
Like I said above, “Sure, that’s true, but dumb and irrelevant, because that’s not what’s important in international trade.”
Ultravires, I don’t see much disagreement with your points here. How would you respond to the OP’s Fox News-watching father-in-law? We’re not saying that “we do it to” is a good argument. We’re saying that Fox News is essentially telling a lie inside a true statement by seeming to imply how unfair it is, while ignoring all the unfairness the other way. Ultimately, the truth is that, pre-Trump, tariffs overall were quite low, especially between the US and other Western countries. Fox News was trying to show that German tariffs were high compared to the US, which was true with that particular product but a lie otherwise. They used that to justify Trump’s stupid and misguided trade war, because their job is to support the president no matter how stupid and misguided he is.
Well yes, there’s an argument, like there’s an argument that Trump is the messiah and another he’s just a very naughty boy. But it’s not legitimate.
To quote Mike Klein from the Brooking Institute
The US in 2015 passed a trade bill which had legislated definition of currency manipulation:
The named country must meet three criteria
It must have a significant trade surplus with the US
It must have material trade surplus with the rest of the world
It must persistently interfere in FX markets
Now #1 is true, #2 is not and #3 is true but the opposite of what your argument assumes. Since 2014 China has been propping **up **it’s currency to reduce capital flight. IOW China is spending it’s FX reserves to the tune of a a trillion USD to make it’s currency **less **competitive.
The real price of Chinese exports over the past 5-6 years has increased 50% because of yuan appreciation against the USD, appreciation against the currencies of other trading partners and higher inflation than it’s trading partners.
The hole the US finds itself is of your own making. It wasn’t imposed by trading partners. And the solution is the same as oft dished out by US bankers to developing countries in the same situation. But the US prefers sugar to harsh medicine.
These are EU tariffs, not “German tariffs”. The EU has an economy that is bigger than the US.
If I understand things correctly, Germany can’t lower its tariffs to 0 and then resell American cars in France at a lower price than French imported American cars.
This is a good point. The best rebuttal seems to be the 25% tariff on trucks that the US imposes. Is there a tariff in Germany on US trucks? How much is it?
Or pick another item where the tariff in the US is higher than the tariff in Germany. And then tell your FIL that information.
If the European auto works have better wages & working conditions than their counterparts in other countries, and enough Europeans think this is a good thing, it makes sense to have this high tariff, wouldn’t it?
Only if you are trying to isolate yourself from the rest of the world economy. Wages vary considerably across all countries, and if countries took that attitude, we’d have trade wars constantly.
Let’s say two equivalent cars from Germany and America each cost $30,000. The German government puts a ten percent tariff on imports so the American car ends up with a $33,000 sticker price.
Do you think the German car company ignores that? Not if they’re good businessmen. They raise the price on the German car to $32,000 which is still cheaper than the American car. That’s how tariffs help domestic companies; it enables them to raise their prices and get higher profits.
But it also has an effect on car sales. People are less likely to buy a new car when they cost $32,000 rather than $30,000. Maybe they’ll drive their old car another year; maybe they’ll buy a used car; maybe they’ll just take the bus. It’s basic economics; when the price of a commodity goes up, people buy less of it.
And even if we ignore that, there’s the factor that people who spend $32,000 on a car instead of $30,000 have $2000 less to spend on other things. So other businesses are losing out on two thousand dollars worth of sales. Higher prices reduce sales and hurt the economy in general.
If they are good businessmen, they figure out, to the best of their ability, the optimal price that makes them the most money. If that’s $30K, they stick with the $30K. If it’s $32.9K, they go with $32.9K.
People don’t impose a tariff on themselves. Their government imposes the tariff on them. They do it for the usual reasons; the government wants to collect more money and do favors for influential people.
You will notice that many of the “string pullers” are up in arms about this. Tariffs are the issue the GOP have come the closest to actually action against the president on. The Koch brothers (or possibly no just the Koch?) have spat money into information campaigns against the approach.
This is all about Trump and his misguided idea that mutuality and cooperation has hurt the US badly, that he can reverse the US trade deficit in a way that benefits the US, and that the rest of the world will give in to pressure rather than band together and wait him out.
Nothing substantial is going to change, because everyone else know that a) actually giving in to Trump threats would just empower him to demand more, and b) they’ve discovered that you don’t actually have to give him much of anything, because he’s so desperate for wins he’ll slap a “VICTORY” sticker on any small change.
Yes, obviously. But it’s equally obvious that if you can manufacture a car for $25,000 then you’ll make more money if you sell it for $32,000 instead of $30,000. You’ll lose some sales but the additional profit on the cars you sell will make up for those lost sales.
Let’s say that your marketing studies tell you that you’ll sell 50,000 cars at the $30,000 price and 48,000 cars at the $32,000 price. You’re still making more profits on the higher priced sales ($336,000,000 vs $250,000,000).
So you can make more money while manufacturing fewer cars. Maybe you can shut down an assembly line and lay off some workers.
You’re ignoring that the German government now has $2000 dollars which they wouldn’t have otherwise. They are going to get used somehow. The next tax hike could be a little less high, leaving tax payers with more in their pocket, government activity could be increased slightly, lowering unemployment, the government could borrow a little less money, spreading the effect out over reduced interest payments over the next fifty years.
Same with your “maybe they won’t buy a new car”. Well then they have $30000 more dollars they can spend on something else.
Your example also ignores the situation that most often prompts tariffs (at least according to the politicians who instate them). The equivalent American car is 29,000 to the German 30,000, due to lower wages, or worse benefits, or subsidies of some kind, and not instating a tariff means the profits are generated in the US, and the taxes on them go to the US government.
International trade will never be a level playing field, and tariffs are a valid (if often misused) tool, to prevent the haves of a country from using international trade to reverse the benefits of 19th century improvements in the conditions for the working class, or to keep essential industries despite inescapable disadvantages.
It’s not equally opposite. It’s a flawed counter argument to what you replied to.
You will not necessarily make more money selling at 32k. You will only make more money if your 40% hike in profits (6.6 % hike on sales price) doesn’t reduce your sales by 29%.
You can say “You’ll lose some sales, but still profit.” and then just pick an example where that is true.
And shutting down an assembly line and laying off some workers is already baked into your starting point. That’s how you can use a fixed $25,000 production cost per car.
Countries do take that attitude, which why the agriculture in the western world runs on extensive subsidies, tariffs and other ways of manipulating the market. Of course you could say that the third world countries whose trade would benefit the most from a change in this system would wage a trade war if they had any chance of winning. But isolating a country to some degree from the world economy is a valid approach to national security, even if the current US president is using that excuse in a hamfisted and misinformed way.
See Stranger On A Train comments; the summary is reasonably accurate. Tariffs exist to try to shield a nation’s industry from competition by foreign goods. This can be done for a variety of reasons (to reduce unemployment, to protect national security interests, to try to gain additional control over the global markets through economic force, etc…)
Yes, the automobile tariff example is accurate (although as others point out, it is an EU-wide car import tariff, not a Germany-specific one). Is it fair? I would say “sure”, in the sense that in any negotiation you have to give to get. If you want to have trade while simultaneously reserving the right to protect certain domestic industries in your own country, you have to allow that other nations will have industries they deem sensitive. Thus, you have to grant your trading partners the right to implement trade barriers to protect their own interests. Whether the tariffs are actually effective in protecting the industries in question is debatable, and of course depends on the specific industry, circumstances, countries involved, and how the tariffs are implemented.
The full US import tariff schedule is here: Harmonized Tariff Schedule PDFs . The US has high tariffs on imports on a number of categories of goods to try to shield domestic industries from competition and preserve those local industries. Some areas where the US levies high import tariffs include clothing and apparel, metals, and agricultural produce.
I don’t know if too many people are advocating unregulated free trade… that would be too wild-west for most countries.
But I think most are against the artificial propping-up of industries that can’t compete without the subsidies- US sugar is a perfect example. For whatever reason, the government decided in the 1970s that we need to protect the domestic sugar industry against lower foreign sugar prices, so they enacted tariffs and other protectionist actions to keep the sugar price in the US artificially high, and they’ve kept it that way ever since.
The unforeseen consequence of this is that high fructose corn syrup suddenly became much more attractive as a sweetener, thereby boosting corn as well. So ultimately the American consumer ends up paying the price for those tariffs in higher sugar prices and having corn syrup foisted upon us.
Other subsidies and tariffs aren’t quite so simple; the farm subsidies where they pay farmers to leave land fallow are actually intended to remove supply from the market and keep prices high. This actually benefits everyone, since the grain markets are worldwide, not just in the US. If we quit the subsidies, US farmers could and would flood the market and wreck grain producers in the rest of the world because prices would fall through the floor due to excess supply relative to demand.
Another reason is to keep certain industries available in case of national emergency- the idea being that if trade is seriously disrupted by war or disaster, the country would still have the capability to do whatever this industry does, even if under normal circumstances, that industry is not competitive without the tariff.