High Tariffs with International Value-Added Chains
Things are moving so fast, that I am a day late with this. I argue that Trump’s insane tariffs will, in some cases, impose higher costs on US than foreign manufacturers.
There are two key issues. First tariffs are charged the full value of a good, not the value added in the target foreign company. Second, actually and relatively recently, parts of goods pass borders again and again before the final good is assembled.
Tariffs punish passing through the USA. If the final consumer is foreign, the tariff can be avoided if US located manufacturers are not involved at all. So let’s say half of value is materials and assembly in, say, Canada. Then a quarter in Canada or the USA, then a quarter in Japan and the final consumer is in Europe. Trump’s US manufacturing promoting tariff will penalize the US manufacturing by imposing a 10% of half of value tariff.
The same is true if the final destination is the USA.
Yesterday, this was a guess. Today it is a fact. Stellantis shut down 2 stamping factories in the USA, because of Trump’s tariffs. Not bad for a day.
more reduction of US manufacturing due to Trump’s tariffs a
update: told you so
It is possible to go back and forth between Mexico and the US doing different processes. The same holds true for Canada and the US.