Tuesday, August 27, 2019

Trump's distorting mirror

Donald Trump claims that US consumers won't be hurt by the tariffs he is imposing because Chinese firms (and US firms that use Chinese made parts) will eat the cost and not pass the cost of the tariffs on to consumers. Aside from the fact that depending on the concentration of the industry some may have little choice but to pass them on or make a loss (a simple piece of microeconomics that Trump apparently missed when at Wharton), he also doesn't consider that the same logic applies for goods moving in the other direction.  Applying his logic, if US firms selling in China we to eat China's retaliatory tariffs, US firms would be bearing the cost, not Chinese consumers. All of which is priced into the market which is why it reacts negatively when the trade war escalates.  

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