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Culture War Roundup for the week of April 14, 2025

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That's not terrible prose but how do you square the idea that Trump isn't stupid with the fact that he apparently doesn't know how his beloved tariffs work?

I talked about the int-econ101 theory of tax incidence last week, if you don't trust the sophisticate version https://www.themotte.org/post/1827/culture-war-roundup-for-the-week/316188?context=8#context

Miran covers this is in his paper, presenting his argument of China as having effectively paid for the 2018-2019 tariffs.

During his campaign, President Trump proposed to raise tariffs to 60% on China and 10% or higher on the rest of the world, and intertwined national security with international trade. Many argue that tariffs are highly inflationary and can cause significant economic and market volatility, but that need not be the case. Indeed, the 2018-2019 tariffs, a material increase in effective rates, passed with little discernible macroeconomic consequence. The dollar rose by almost the same amount as the effective tariff rate, nullifying much of the macroeconomic impact but resulting in significant revenue. Because Chinese consumers’ purchasing power declined with their weakening currency, China effectively paid for the tariff revenue. Having just seen a major escalation in tariff rates, that experience should inform analysis of future trade conflicts.

If tariffs cause the average consumer to pay +$1800/year when they don't make +$1800/year, or simpler, if tariffs are causing people to spend money in excess of increased wages, what would they care of a stronger dollar? Miran also covers this:

Second, Cavallo et al find that the price hikes occurred for prices paid by importers, not prices sold by retailers, limiting the ability of tariffs to result in increases in consumer prices but squeezing margins. That means that for the measures of inflation commonly prioritized, like the Consumer Price Index, or the price index for Personal Consumption Expenditures, there was little consequence. That helps reconcile the micro- and macro experiences. However, it would be bizarre for economies with sufficient competition not to see importers over time restore their margins by shifting suppliers if currency weakness isn’t passed through.

The game of tariffs appears far more complex than "cost passed to consumers" but I'm just copy-pasting Miran, I don't know economics.

His argument is that in essence China can opt to weaken Yuan proportionally to the tariff, and simply decrease the costs of exports to the extent that their new prices in USD + tariff overhead ≈ old prices in USD; alternatively, Chinese suppliers themselves can secretly be operating with a massive margin and drop the prices directly. Well, I don't know if this will fly this time, especially if the dollar itself weakens. In any case, China can simply not do any of that.

There’s enough ambiguity in the chain of causality that anyone can be said to ultimately pay for something. Trump also said mexico will pay for the wall. The people love to hear the tale of the paying foreigner, it really gets them going.