Weekly Updates
Weekly Updates
- US President Trump suggested taxing US consumers on imported goods encourages foreign firms to build US factories—allowing them to supply goods locally. Firms must balance the potential damage to sales if US consumers pay relatively higher prices when buying foreign-made products against potentially higher costs of US production.
- The competitiveness of taxed imports depends in part on the behavior of local producers. US firms may also raise their consumer prices as tariffs hit—because taxing imports offers local firms a choice between increasing profit margins or increasing market share. If local firms chose profit over market share, there is less incentive for foreign firms to shift production to the US.
- Firms will have to consider the obvious production costs of investing in the US. There may be other costs—uncertainty about being able to import components, the ease of finding labor, uncertainty about rule of law, and whether other countries will take US exports are all risks that potentially deter investment.
- Technological change encourages localization—a hundred robots and an hundred people in the US might replace five thousand people elsewhere. Localization may still have higher production costs, but should lower post-production costs. However, such investment responds to the incentive of technology, not the pain of trade taxes.
Stay up to date
Stay up to date
