I read an example recently where the Obama administration imposed tariffs on tires from China and in response China imposed tariffs on chicken from the U.S. Both were said to have ‘cost’ the U.S. (in tire prices passed to consumers and … it wasn’t clear). How does this work?
In: Economics
It’s not really that simple. On one hand, many foods and services are outsourced because they are cheaper overseas – thereby saving the consumer money (good), but also results in the loss of domestic jobs (bad). On the other, you can raise tariffs enough so that the cheapest vendors for goods and services are domestic, which results in the creation of domestic jobs (good), but a higher cost to the consumer (bad)
Tariffs cost other countries money because when they are hit by tariffs, they have to *lower* their prices in order to maintain demand. For example, Scotland charges 50 dollars for a bottle of scotch, and there is a 10 dollar tariff. That cost is passed onto the consumer, and the bottle costs 60 dollars on the shelf. One year later, the tariff is raised to 20 dollars. Scotland can choose to pass the cost onto the consumer, resulting in a bottle now costing 70 dollars, or they can lower their base price to 40 dollars so that their bottle is still 60 dollars at your local liquor store. If they don’t eat the tariff cost, then that bottle of American-taste-alike priced at 65 becomes the consumer pick, and people buy less bottles of scotch from Scotland.
Latest Answers