this post was submitted on 16 Nov 2024
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The actual function is that it hurts the offending country by taxing our own business for importing from them.
So let’s says I sell diamond rings in the US, but one or more parts of my supply chain are in China (most often lab grown diamonds, moissanite, sapphire etc; sometimes the gold and ring creation, and sometimes the entire manufacturing end to end). I will pay the tarriff upon import. This on its face hurts the US business as China isn’t paying.
However, the business isn’t going to eat shit and raise prices (this is the fear). They will lower the supply chain dependence on China if possible. This does reduce the net import from China for this good.
This will motivate me to switch some or all of my supply chain to Mexico, India, Taiwan, the United States (there is domestic lab stone growing operations) etc, to shed myself of the tariff.
The macro effect is that we do, on net, give less money to China by virtue of forcing our business to move to other suppliers.
In the case of some goods, this might increase costs and be inflationary (the main criticism). But it also equally possible in this example for prices to go sideways, as I can definitely make this product example competitively even if I leave China.