American Enterprise Institute’s Derek Scissors points this out:
Worst case scenario — If the US places 25% tariffs on ALL Chinese imports and no substitution for those goods and services occurs, the additional cost would be $145 billion. That’s a bit over one percent of 2018 consumer spending, but in reality, the cost will certainly not that be that high, because SUBSTITUTION WILL OCCUR. And the cost will fall over time as more producers enter to replace Chinese. We have businessmen in Mexico, Vietnam, India, the Philippines and Indonesia willing to take up the slack.
“Worst case scenario — If the US places 25% tariffs on ALL Chinese imports and no substitution for those goods and services occurs, the additional cost would be $145 billion. “
No way it happens. Free trade academics, politicians, economists, journalists, and globalist corporate types are using static economic analysis. In the real fluid and dynamic world the following are happening as we speak. The invisible hand of Adam Smith is working:
1) Every buyer of Chinese merchandise is telling their suppliers to cut prices to eliminate the effect of the tariff or else suppliers will be switched.
2) Sourcing departments of importers are working overtime to develop new resources in India, Sri Lanka, Bangladesh, Vietnam, Thailand, etc.
3) Chinese suppliers are looking for every possible cost reduction and efficiency gain to offset the margin hit they will be taking when they reduce prices. The Chinese factories are also screaming to the Chinese government for export incentives, loan relief, tax relief, and direct subsidies.
4) Chinese domestic competitors with small export businesses are sharpening their pencils and going after their Chinese rivals. Another reason Chinese factories will be cutting prices and slashing their margins.
5) Suppliers from Thailand, the Philippines, India, Cambodia, Vietnam, Sri Lanka, Bangladesh, and other Asian companies are lined up at Walmart and other large importers offering to deal.
6) Importers are taking a harder look at Western Hemisphere supply chains taking advantage of low wages in Central America and existing free trade agreements. Long term Western Hemisphere supply chains have the potential to be faster, less volatile, and close to cost parity due to much lower transportation costs and lower inventory investment (you have 1 week of inventory on the water instead of 4-5 coming from Asia).
7) The Chinese government can’t afford the domestic unrest that will come from large numbers of factory workers losing jobs. China cannot afford to lose market share to neighboring countries. The Chinese government will have to subsidize exporters to the US so they can lower prices. The government will also devalue the Chinese currency as it did when the 10% tariffs were put into effect. Likely China will have to scale back its military and Silk Road investments which will be a good thing for the US.
8) Visionary US CEO’s are looking at advances in robotics and AI for the potential to highly automate production processes now in Asia and bring the production back to the US.
Any US supplier incapable of using this “crisis” to its advantage to lower prices is a fool and deserves to go out of business. Any academic who preaches the US consumer will pay 100% of the tariff should be fired.
In 1865 the US was devastated from 4 years of Civil War. European countries dominated global economics. From 1865 to 1900 the US rose from economic devastation to the largest industrial economy on the planet. During those 35 years the US had the highest growth rate, and the highest tariffs, in its history. Over the past 30 years China has enjoyed the fastest growing economy in the world, climbing from poverty to a great industrial power while maintaining a mercantilist trade policy, protecting its domestic industry. Economists who claim open market free trade is the path to economic prosperity are fools. Just look at the anemic US economic growth rate over the past 30 years when we dropped our tariffs and quotas allowing foreign companies to slaughter US manufacturing.
Excellent.