On Tariffs, and Large Country Assumptions

Suppose the US puts a 10% tariff on imports from a foreign country. Will import prices (inclusive of tariffs) rise 10%? It depends on the elasticity of supply of said imports. If the elasticity of supply is less than perfect, then import prices will rise less than 10%. To see this, consider the most basic tariff graph in the known universe (from Feenstra-Taylor) – if you can’t understand it, abandon all hope for comprehension of tariff policy.

In the left hand side panel, we have the home domestic market, in the right hand side the international market. The demand for imports is derived from the gap between the home domestic demand curve and the home domestic supply curve. The supply of imports is derived from the corresponding graph for the foreign country, where the X* curve is the gap between foreign domestic supply and foreign domestic demand. The price at home and in the international market is the same under free trade, PW.

Now suppose home government applies a tariff, t. If the supply of foreign exports (imports into the home market) is less than perfectly elastically supplied, then the new price of imports in the home market rise to P*+t. Because the amount of imports is now lower, the quantity supplied from foreign must be lower, which occurs with lower price P*. The price increase (inclusive of tariffs) rises by less that the amount of the tariff, t. A terms of trade effect from the tariff. pushes the foreign country to sell to home at a lower price. In other words, whether home or foreign absorbs the tariffs is an empirical question (this responds to Mr. Bruce Hall’s point).

In this post examining the impact of iron & steel tariffs, I show that a small gap develops post-tariffs between import prices (ex.-tariffs) and the PPI for iron and steel, and a much bigger in early 2021 (the relevant figure is reprised below as Figure 2).

Figure 2: PPI for iron and steel (blue), and import price for iron and steel (brown), both in logs 2018M03=0. NBER defined recession dates shaded gray. Orange denotes imposition of Section 232 tariffs. Source: BLS via FRED, NBER, and author’s calculations.

In principle, in the simplest exposition (as in the textbook graph in Figure 1 above), the gap should be relatively constant (the composition/weighting scheme for the import price and the PPI are not the same, so that complicates comparison). However, if the slope of the demand and supply curves change depending on macroeconomic conditions (and remember early 2021 the global economy is roaring out of the Covid slowdown), and where one is on the curves, then the gap between the two measures could widen.

I mentioned whether the US or foreigners bore the brunt of US tariffs was an empirical question. In Amiti et al. (2020), it was determined that US consumers (broadly defined including firms) bore almost the entirety of tariffs — except (interestingly) for steel.

My apologies for assuming people understood the underpinnings of tariff analysis in my previous post. I hope that people now understand the import prices (inclusive of tariffs) can move for other reasons than just the level of tariff rates. For more textbook exposition, see my slides on tariffs/quotas under perfect competition, and under imperfect competition.



Reader Bruce Hall also writes, in re: tariffs:

Who wins? The government imposing the tariffs, obviously. Everything else is a lose-lose for everyone else.

To be blunt, this assertion is wrong. In general, producers will win (in this example those firms that compete directly with the goods having tariffs placed on them), as producer surplus will increase. While the analysis is partial equilibrium (no offer curves in sight!), one can see even in this large country case that if in Figure 1 area d exceeds DWL areas b and d, then the home country might experience a net welfare gain.

Let me be explicit – if one takes a small country case, producers will still gain, even if the country on net loses.

Here is my plea. If one is to pontificate re: tariffs, it would be best for one to consult at least an introductory textbook on trade policy, so as to prevent the embarrassment of making prima facie incorrect assertions, thereby destrongy any perceived credibility one might have.




43 thoughts on “On Tariffs, and Large Country Assumptions

  1. pgl

    “My apologies for assuming people understood the underpinnings of tariff analysis in my previous post”.

    Thank you for this excellent exposition on the incidence of a tariff as Bruce Hall seems to think regardless of basic market conditions that the entire incidence of tariffs on Russian oil will fall on importing nations which clearly is not what actual economics would suggest. Of course I sort of doubt whether Bruce is going to read this either.

  2. pgl

    Did I have to go back and read Bruce Hall’s comment?

    Lucy, you should do some reading and not follow your normal react-speak-think process. Certainly suppliers can choose to absorb some or all of the costs of the tariffs, but that’s unlikely to be a long term solution for them or who pays most of the tariff. The middlemen (importers) can absorb some of the costs, but again that is unlikely to be a long term solution for them. The likely longer term solution is that the tariff costs are passed to the domestic users (manufacturer, distributor, consumer) in the form of higher prices. Who wins? The government imposing the tariffs, obviously. Everything else is a lose-lose for everyone else.

    First of all he is still stuck on dating some dude named Lucy which strikes me as making his comment inappropriate for the children. But let’s stick to the economics. The demand and supply analysis you presented did not consider the tiny commission rate received by the middleman all that crucial which I get. But Bruce Hall once again just assumed that 0% of the incidence of the tariff could ever fall to the producer, which is basically saying Bruce Hall never passed Econ 101.

    1. pgl

      “The middlemen (importers)”

      And can we remind Brucie that the importers are consumers and not the brokers who merely facilitate transactions. I often criticize Princeton Steve for not understanding the basic language but in fairness Steve gets this simple point which is beyond Brucie’s grasp.

    2. Bruce Hall

      Hey, Lucy, who paid the vast amount of the Trump tariffs. No, guess again.
      The Trump administration has repeatedly argued that foreign companies are paying for tariffs. But multiple studies suggest this is not the case: the cost of tariffs have been borne almost entirely by American households and American firms, not foreign exporters. While estimates vary, economic analyses suggest the average American household has paid somewhere from several hundred up to a thousand dollars or more per year thanks to higher consumer prices attributable to the tariffs.

      Here’s a great idea: European nations should put a 100% tariff on Russian oil and gas. Just think how much money will flow into the governments of Europe. Wow! Why didn’t they think of that earlier?

      Oil “brokers” vs. “importers”. A distinction without a difference in the real world.

      1. Bruce Hall


        Let me further expand on the notion that “brokers” versus “importers” are a distinction without a difference when it comes to tariffs and oil importing.

        The broker is a paper-pusher who is essentially a contract employee for the importer who serves the function of a corporate buyer. Like any other corporate representative, a broker doesn’t pay the tariff, the importing company does either directly or in the form of higher prices from the exporter. You can couch the transactions in any technical language you want, but the broker is invisible to the tariff process and simply receives payment for services.

        A broker serves the other side of the coin as an independent sales representative who receives a commission from a seller. The sales rep doesn’t take possession of the product and then sell it. He simply arranges the sale for the convenience of the seller.

        Why would you even bring that up in a discuss about tariffs? Totally irrelevant.

        1. pgl

          Gee – I have never seen a gay dude who chases his tail as much as you do. You do realize that you are serially contradicting yourself again – right?

          Oh wait – your IQ is single digits. Never mind.

        2. pgl

          “Why would you even bring that up in a discuss about tariffs?”

          YOU were the one who brought this up – even if you got the economics completely wrong. A perverted dog chasing its tail is something none of us prefer to see.

      2. pgl

        Oil “brokers” vs. “importers”. A distinction without a difference in the real world.

        You do not know the difference between a trading company versus the company that refines and distributes your gasoline? Wow – you are STUPID!

        But congrats on figuring out that your boy (Trump) lied even if you fail to make the distinction between imported goods in general and the specific good under discussion – steel. Yes that is what one expects from someone whose IQ in the single digits – especially when this moron is desperately seeking a date with a dude named Lucy.

      3. pgl

        Bruce Hall has contracted JohnH disease – cherry picking quotes and failing to read the entire discussion. As in this line from his own link:

        “Tracking precisely who pays for tariffs is difficult, because it depends on how buyers and sellers adjust their prices in response to tariffs, and how these price changes then ripple though supply chains and down to final consumers.”

        Now the evidence does show that the incidence of the tariffs on washing machines may have fallen mainly to the American consumer. But as this very post clearly shows – the incidence of the tariffs on other products such as steel are quite different.

        But Bruce Hall is so incredibly STUPID – he cannot manage to realize markets for steel and markets for washing machines might be different?


  3. Moses Herzog

    You’re a true old school gentleman Menzie to apologize, even though really on a personal level you had no need to. Similar to our old school gentlemen Ashoka Mody and Professor Frankel. I wish I had your temperament. Alas, I was born with the demeanor of a jerk. I tried to be better when I was pretend teaching in China, but I was probably a jerk then also.

  4. Moses Herzog

    Thank you for sharing the slides Professor Chinn. I wish I could say I was being facetious when I say it’s very helpful to people like me who are “a little slow to the take” sometimes.

  5. rsm

    Is it too uncomfortable to say that arbitrary and fickle psychology plays a much greater role in prices than anything economists talk about like tariffs or supply and demand of the underlying physical resource?

    Why do I feel like the kid calling out the emperor’s new clothes?

    1. Barkley Rosser

      It is only uncomfortable because it is largely ffalse, rsm, like almost everything elese you post here. Psychological effects are important and have been emphasized for hundreds of years by economists ranging from Adam Smith to Keynes to Minsky. You are hardly making some great insight here.

      The problem with your statement is that rarely are these psychologival effects “arbitrary.” Generally they arise as reactions to real phenomena. The problem is that they can lead to overshoots beyond what is justified by a real change, but they almost always are triggered by a real change. Most speculative bubbles follow some fundamental move in the direction of the bubble that sets it off.

      So, no rsm, they are generally not “arbitrary,” although they can be quite ill-behaved at times. But that psychological factors can affect market prices has basically been knnown forever. Sorry, no Nobel for you.

    2. noneconomist

      You feel like a kid because you ask the same question over and over again as well as making the same childish comments ad nauseam.

  6. Moses Herzog

    As I’m reading these tariff slides, which again, are a godsend for someone like me, a thought occurs to me that I have had many times before but maybe with different mental terminology or different internal thoughts terminology. Who was responsible to explain to donald trump what a deadweight loss is in trade (to the USA or a hypothetical country) and did anyone even TRY to explain deadweight to the Orange Abomination. I mean seriously, we know trump has ADHD or some kind of learning disability, he can’t focus well. Maybe a woman economist would be better to explain that to trump, or would that just make it worse??

    1. Moses Herzog

      I was just thinking the same could be said of Biden now. Couldn’t Jared Bernstein sit down and explain this to him or use a white board in front of his desk or something??

  7. Bruce Hall

    Well, yes, local producers may get a boost if there are tariffs placed on their import competitors. So, technically, it is wrong to say tariffs and sanctions are a lose-lose proposition for everyone. I was thinking in general terms for the importing country and consumers of the product on which tariffs have been placed.

    If, for example, the tariff increases the unit price of a product by $50. that does provide an opportunity for the domestically made product to raise its prices by the difference between the imported product prices and their pre-tariff prices plus the $50. Example, import price is $200 per unit, domestic price is $240 per unit so the difference is -$40 when buying the imported product. Add the $50 tariff to the imported price and that now becomes $10 more than the domestic product. If the exporter absorbs $25, there still is no advantage to the domestic producer which product remains $15 higher than the imported product. The government gets $50, the importer loses $25 (net of the price absorbed by the exporter plus the $50 tariff), and the consumer potentially pays $25 more if he continues to buy the imported goods which has been passed through by the importer. Meanwhile, the domestic producer still doesn’t gain a price advantage. So, the government wins and it’s a lose-lose for everyone else.

    I guess the correct answer is “it depends”, but it seems likely that it’s a lose-lose with the exception of the government and possibly … possibly the domestic producer.

    I’ll repeat the link: https://econofact.org/the-costs-of-tariffs-in-the-u-s-china-trade-war
    Recent research shows that the new tariffs are completely passed through into increased prices paid by U.S. importers as the targeted goods cross the border and result in higher costs for U.S. firms. Most of the Chinese goods targeted by tariffs so far have been goods purchased by firms as inputs into their own production (see here). Firms may absorb some of the increase in prices of imported inputs by adjusting markups or try to minimize the cost increase by making substitutions. New research by Fajgelbaum, Goldberg, Kennedy, and Khandelwal finds evidence strongly suggestive that the importer of record bears the full burden of the tariff, that exporters generally are not absorbing part of the tariff burden by lowering their prices.

    But nice charts.

    1. Menzie Chinn Post author

      Bruce Hall: You … missed … the … main … point. Producer surplus (since you omitted the discussion of it, I suspect you do not understand it) increases.

      1. Bruce Hall

        That may happen, but does it always happen? Well, yes a domestic producer can cash in on higher import prices (doesn’t have to sell at a lower price). So a small segment benefits while the larger economy does not. Yeaaa!

        My original points in the previous post were not focused on the economic benefit to a small part of the economy, but the generalized negative impact that both tariffs and sanctions have when you either increase prices artificially or reduce supply artificially. The intent and mechanisms are different, but the results are similar. That was my larger point… they shoot the instigator in his own foot. https://www.nytimes.com/2022/03/01/business/economy/russia-ukraine-sanctions-economy.html

        And sure, they can cause economic harm to the foreign supplier which is the purpose of both. I guess that’s what happens when your only tool is a hammer… everything looks like a nail.

        1. Menzie Chinn Post author

          Bruce Hall: Let me get this straight. You are essentially dismissing standard microeconomic analysis, particularly “producer surplus”, as a concept of relevance. That is, the idea of realized price exceeding marginal cost for some producers, as a general proposition.
          Please confirm or deny.
          If you confirm, then I see I will have to explain a simple supply and demand graph. Then you can say whether you rule as invalid all of conventional microeconomic analysis as understood by non-Marxian non-heterodox economists.

        2. pgl

          Your comments are becoming more and more word salad. In fact, they are so bad that they may have to recall your salad as potentially damaging to the reader’s brain cells. I am beginning to believe you and Princeton Steve have invented a whole new dictionary totally devoid of any economic meaning.

      2. pgl

        “Suppose the US puts a 10% tariff on imports from a foreign country. Will import prices (inclusive of tariffs) rise 10%? It depends on the elasticity of supply of said imports. If the elasticity of supply is less than perfect, then import prices will rise less than 10%. To see this, consider the most basic tariff graph in the known universe (from Feenstra-Taylor) – if you can’t understand it, abandon all hope for comprehension of tariff policy.”

        Your lead paragraph and yet Bruce Hall refuses to consider the possibility that the incidence of a tariff might fall in part on exporters. I really am getting the sense he never reads any of this stuff before spouting off what he heard this morning on Fox and Friends.

        1. Bruce Hall

          Lucy, you miss the part that basically said that “pass-through” (importers footing the tariff bill) was the rule in this case. It’s a good article and you should read it.

          But keep denying.


          No, I don’t believe I’m saying that making a maximum net profit on operations is not a basic principle and goal of businesses. I’m saying, and I provided two references, that showed that tariffs on imported goods did not create a better situation for importers or consumers of those goods… whether they were end manufacturers, distributors, or consumers. The apparent result of tariffs and Russian sanctions have allowed domestic steel (and producers of other products affected by tariffs) producers to enjoy higher selling prices in this case, but aside from some targeted benefit there, everyone else is paying higher prices or enjoying lower profits or seeing their money eroded by inflation.

          Are you disagreeing with that?

          I’m having a difficult time separating the bump that domestic steel producers get from the tariffs and the bump they get from the sanctions based on the 5-year graph of steel prices. There was a big bump when Trump implemented the tariffs in 2018 followed by a decline for two years to lower than the pre-tariff level during pretty good economic times. 2020 marked the bottom of the recent price history. After a sharp price increase at the end of 2020, there was a year of flat (2021) steel prices. Then Biden rescinded the steel tariffs from Europe (10/21) followed by a sharp increase (global supply shortages? plus effect of sanctions? minus rescinded tariffs?).

          1. pgl

            As I noted – anyone who insists the market for steel is the same as the market for washing machines has to be the dumbest troll ever. You know if you stopped writing gibberish 24/7, relaxed, and then start thinking, you might one day learn to tie your your own shoe laces. Good luck with that.

    2. pgl

      “Well, yes, local producers may get a boost if there are tariffs placed on their import competitors. So, technically, it is wrong to say tariffs and sanctions are a lose-lose proposition for everyone. I was thinking in general terms for the importing country and consumers of the product on which tariffs have been placed.”

      I love it when a dog chases its tail which is what you are doing. I also love it when you pretend to get technical since you have zero technical abilities. Some clown named Bruce Hall tried to tell us tariffs are lose-lose even though anyone who gets basic international trade realize import competitors can enjoy higher prices. So Bruce Hall the dog finally caught his tail!

      You 2nd paragraph was like a little child with crayons pretending to be an artist. You cherry picked one quote from Econofact to suggest pass through is the general rule. Well yea those dumb Trump tariffs has a complete pass through but Menzie’s point about incomplete pass through was also the main point of that Econofact discussion of how China’s tariffs on US soybean exports lowered the price received by the supplier.

      Like we have said to many times – please READ these discussions and at least try to get their points. DUH!

  8. Bruce Hall

    Despite Biden rescinding tariffs on metals from Europe last year, steel prices have remained high as a function of world demand.
    https://www.nasdaq.com/articles/us-steel-confident-on-rising-steel-costs-prices-persisting [5-year view is helpful]

    It appears that basic supply-demand considerations have outweighed tariffs in 2021-22. That “producer surplus” looks pretty healthy as steel producers are free to jack up prices.

    US-EU sanctions on Russia are only adding to the steel price increases (and inflation). While Russian steel may not be a big player, they have some impact on prices:

    Steel prices in Europe soared last week as the Russia-Ukraine conflict threatened exports from the two major producing nations.

    Benchmark prices surged 22% last week to 1,160 euros ($1,257) a ton, the highest since August, according to data from Kallanish Commodities Ltd. Steel is one of several raw materials booming as the war jeopardizes supplies from the two commodity producing heavyweights.

    A number of steel producers in Ukraine — including ArcelorMittal SA and Metinvest Holding LLC — have been forced to idle their plants due to the war. The nation is normally among the top five exporters of steel into the European Union, and disruption to its supplies will tighten the already strained market there.

    Russian steel firms are facing their own difficulties exporting to the bloc. Severstal PJSC suspended sales to Europe, its biggest export market, after billionaire owner Alexei Mordashov was sanctioned by Western nations, along with other tycoons in the country.

    Higher prices for the metal will cause more pain for manufacturers and construction firms, who endured a rally to record levels last year. The market could get even tighter if rising energy prices cause further production curtailments by European steelmakers.

    What tariffs couldn’t accomplish, sanctions have, apparently. So, yes, steel producers are a winner; everyone else, not so much.

    1. pgl

      Gee markets work. Stop the presses. And there was some troll named Bruce Hall that tried to blame high prices on Biden’s socialism. What an idiot!

    2. pgl

      That “producer surplus”

      I guess you had to put a basic economic concept in quotes since it has become very clear you have no clue what that term even means.

    3. Barkley Rosser


      OK, this is an interesting scramble by you to try to salvage at least a few talking points out of the rubble of just having had Menzie totally hand you your behind. I do not know how well you know actual international trade theory, but you certainly have not exhibited much knowledge of it in any of this discussion so far.

      Now as someone who studied the topic at Wisconsin before Menzie was out of diapers from the late Robert E. Baldwin, chief US trade negotiator at the Kennedy Round of Tariff Reductions, I have mostly stayed away from these tariff and quota discussions because in the end they do get down to all this waving around of supply and demand elasticities, not to mention the state of market conditions as in competitive or not so much so, with all sorts of different outcomes possible depending on the concatenation of these various elements, many of which are not all that easily pinned down in the real world at any time for any sector. Caution is always wise on this topc.

      As it is, I would prefer to see Biden do more to reduce the trade barriers Trump put in place as well as some others that predate him and have been hanging around aggravating some of our current problems (e.g. lumber tariffs). But I am also aware that he is from the coal and steel state of Pennsylvania originally and hypersensitive that he will almost certainly face a 2024 GOP candidate who will go for the industrial working class vote in those rust belt swing states who tend to holdl pretty protectionist views, even when those views do not necessarily help them (see out of work autoworkers at Lordstown, OH, who supported steel tariffs). And as I long ago heard, I think this may have been after Menzie began learning how to read, it takes an awful lot of Harberger triangles to add up to some very visible Tullock rectangles that powerful interest groups see themselves getting with certain policies.

      1. Bruce Hall

        I love it when people write dirty comments. All of those Harbergers Tullocking around. 😉

        I respect both you an Menzie for your academic credentials. And I’ll be the first to admit that when it comes to the more esoteric language of economics, I do have to “scramble”. Nevertheless, it seems that there are a lot of gray areas (“I have mostly stayed away from these tariff and quota discussions because in the end they do get down to all this waving around of supply and demand elasticities, not to mention the state of market conditions as in competitive or not so much so, with all sorts of different outcomes possible depending on the concatenation of these various elements, many of which are not all that easily pinned down in the real world at any time for any sector.”) …. gray areas that I have attempted to show, probably crudely, that don’t seem to “follow the rules”; for example, my questions to Menzie about what seems to be the strange contrary price movement of steel over the past five years given the timing of tariff implementation and rescinding. But maybe I’m not interpreting what you wrote in the way you intended.

        There are millions of people who can influence decisions and prices and actions based on some simple direction like “Let’s have a tariff” or “Let’s impose sanctions” and often those decisions are not completely rational by “the rules” but merely an effort to “punish the perpetrators”. And then there are the speculators that can whipsaw prices which we saw earlier in March for oil when people were trying to get a handle on the mess in Ukraine.

        It’s possible we may see prices of steel (and oil) drop as supplies are adjusted in 2022. Biden is trying to get Iran and Venezuela out of the sanctions box so that they can ship their oil into the global markets (even though nothing has fundamentally changed about the reasons they were put in the box) with the hope that those actions will drive down Brent and WTI prices and, consequentially, gas prices before the November elections. Will the US and EU tell Russia that all is forgiven if they withdraw from Ukraine as long as Russian commodities dig the West out of some serious holes (like wheat shortages and sky high prices for fertilizer)? Is it going to be another Mission Accomplished?

        Regardless, my original notion that while the intent of tariffs and sanctions are different, the outcomes are remarkably the same: companies that buy the imported goods or distributors or consumers in the country that imposed those tariffs or sanctions end up the losers. Menzie’s argument was that I am wrong because domestic producers can and do benefit by being able to increase their market share while holding prices or have some wiggle room to raise prices. I view that as an exception to my general statement.

        I don’t know about US steel manufacturers ability to raise prices, but the during the Trump tariffs period, production only returned to the 2014 level in 2018-19 (there was a slight economic slowdown in 2015-16 which may have been the cause of that 10 million tons output decline). So, one would have thought that if steel manufacturers were the beneficiaries of the tariffs as Menzie and pgl purport, and with a strong economy in 2018-19, that steel output should have well exceeded 2014 unless they were capacity constrained in which case the only way they might have benefitted was through higher unit prices. There are several FRED series regarding steel prices, but they tend to follow the same pattern as this one:
        It appears that there was some benefit in the way of pricing from the tariffs… initially… but then a decline to pre-tariff levels.

        The fact that output did not increase during a robust economy would seem to indicate that US steel producers could not take much advantage of the tariffs.

        But thanks for your useful comment. I know I’m guilty of responding to pgl’s nastygrams in less than a mannerly fashion. But I view this site as both an opportunity for learning and seriously questioning some propositions and your response is well-received. Perhaps Menzie did hand me my behind with some well-place economics lingo, but that really didn’t seem to address the many questions… just push the discussion into a small corner of the overall issues.

        1. Menzie Chinn Post author

          Bruce Hall: The ideas of consumer surplus, producer surplus, net welfare are central in comparative statics in microeconomics. It’s what we teach in Econ 101 here at UW, and as far as I know, any decent college/university. If you think these are small aspects of lingo, then you are seriously deficient in your understanding.

          Look, we impose import tariffs (literally, a tax on imports) sometimes as a sanction (i.e., punishment for some action). It is true that we might pick certain types of import tariffs if the intent is to protect domestic industry, or the intent is to punish a foreign country or firm. However, a given tariff will have the same impact regardless of the motivation.

          Would it hurt you so much to pick up a second-hand trade textbook, and just read the chapters on tariffs?

          1. Bruce Hall

            I can look those terms up and they are relatively simple to understand; I just don’t use them on a daily basis since I took a couple economics in college over 50-years ago so it takes some refreshing. However, I still maintain that while “a given tariff will have the same impact regardless of the motivation”, that impact of tariffs 1) may not be predictable and 2) may or may not benefit the entity for which it was intended to give benefit and 3) may or may not punish the entity for which it was intended to punish. I could offer a fourth possibility: tariffs and sanctions can backfire on the instigator. Europe seems to be experiencing the fourth possibility now, but the political leaders seem to be willing to endure much economic pain to inflict political and economic pain on Russia. It may take awhile to see how that all shakes out.

            In the real world, a tariff may restrict supplies to a specific geography of one commodity from one source, but sometimes there are other sources or commodity substitutions that smudge those nice graphs. Sure, sometimes tariffs work and work well. I know the US automotive industry benefitted greatly from the tariffs on imported light trucks (“chicken tax”). It also benefitted employment in the legacy US automotive companies and then created whole new opportunities for employment as foreign owned companies built their own manufacturing plants in the US to avoid tariffs and employed many thousands more and expanded the opportunities for automotive component suppliers. On the down side, consumers had to pay a lot more for a long time to purchase a light truck. So I’ll give that one a win-lose.

            I don’t think that happened with steel and given the political tension between the Biden Administration and US oil producers and investors, I don’t think we’ll see everyone jumping on the production bandwagon because of the sanctions on Russia.

            You have twice avoided giving your insight as to why, given the data on steel prices and output, that the tariffs on steel did not seem to have much impact on output and only very temporary impact on prices. The only thing I see is that users of that steel got a price hit in 2018 for awhile and the steel industry didn’t benefit all that much. The answers may be right before my uneducated nose, but I don’t recognize them. Maybe I have too little information on other relevant causal factors. I suggested substitution and capacity constraints. Perhaps you can enlighten me.

            I always told my sons when attempting something complex that “nothing is ever as simple as it first seems” and for planning purposes “triple your original estimates”. Somehow I think that tends to apply when transitioning from the neat and orderly college course to the messy and sometimes irrational world.

          2. Moses Herzog

            Menzie, I’m just starting off on my first beer tonight, which might affect my reasoning, and I may just be showing preference to the things/people I at least find “semi-likable”. But I think your odds of turning JohnH into a good Jedi are much better than the soil you’re toiling here. I admire the effort no matter the potential of the student,

            just saying……..

          3. Bruce Hall

            Moses, good Jedis do not uncritically accept the “standard model” when they perceive aberrations. They seek to know if it is their perception that is wrong or that the reality and model do not align. Good Jedis are from Missouri.

          4. pgl

            “I can look those terms up and they are relatively simple to understand”

            Then why does he never look them up? Or is he too dense to understand even the most basic economic concepts.

          5. pgl

            I always told my sons when attempting something complex that “nothing is ever as simple as it first seems” and for planning purposes “triple your original estimates”.

            This from someone who cannot get even basic international trade right even as he writes gibberish like forever. I shudder to think how long it took his kids to even learn to tie their shoes. But maybe they had a very patient mom.

        2. Barkley Rosser


          On Iran it looks like there might actually be a resumption of the JCPOA nuclear deal that Trump idiotically withdrew from. If so, that would remove the main reason for sanctions on oil exports from Iran.

          On the matter of the Harberger triangles and Tullock rectangles, shocking as they may be, I think I first heard about them in a class on industrial organization rather than international trade, with the issue of comparing lost consumer’s and producer’s surplus to rent redistributions certainly as relevant to it, if not more so. An important point to keep in mind is that the missing triangles of consumer’s and producer’s surplus are not so easy for people to see because they do not exist. They are missing gains nobody is getting. They are lost.

          But the Tullock rectangles of redistribution do exist and can be seen. They are income that would have gone to consumers that can be seen to be being shifted into the hands of the special interest groups gaining from either monopoly power or a trade restriction. But the losses by the consumers may be so widely spread compared to the concentrated nature of the gains to the special interest groups that the consumers cannot organize the political power to offset that the recipients of the rectangles can organize to act to help them keep getting them.

          1. pgl

            Why on earth are you confusing totally mixed up Bruce Hall with basic economics. You do know he is incapable of understanding what any of this even means.

  9. Ivan

    Thank you, this was very helpful.

    Clearly if a domestic company is competing against a foreign company (imports) – then adding to the cost of the competitors product (tariffs) will benefit the domestic company. They can either increase their price/profits or their market share (usually will do a little of both). The foreign competitor can try to compensate by lowering prices/profits provided they have “room” to do that (and remain a viable company). If we are talking end products then the domestic producer is “winning” and domestic consumers will often be forced to pay (part of the cost) via increased prices. Whether the benefit for the country (increased profits and jobs at the domestic producer) outweigh the damage (increased consumer prices) is as much a political as an economic question. However, tariffs against foreign products are always countered by those countries raising tariffs on our domestically produced exports. That further complicates the calculations of who benefit/pay and by how much.

    There is a further complication if the product is a raw material or intermediate product, rather than an end product. That produces a ripple effect for companies using that raw material. The increased cost will be detrimental to them. It will make them less competitive both domestically and in foreign countries because they uniquely will face an increased cost their foreign competitors do not. That is why many government have a preference for (direct or indirect) subsidies rather than tariffs to protect domestic raw material producers from foreign competitors. A classic example of that: in the US mining rights are almost given away for free.

    That was always my biggest concern with the Trump tariffs on steel and aluminum. It has fulled domestic prices/inflation and made our producers of products (using steel and aluminum) less competitive in foreign markets.

    1. pgl

      Understanding the concepts and writing in clear English. NICE! But just the opposite of that conflicting babble Bruce Hall keeps writing. Then again – it is hard to write clearly if one does not get the economics!

      1. noneconomist

        We have a new Carnac. Replacing CoRev was not easy, but Bruce Hall has done it. Expert in economics, physics, history, immunology, ballroom dancing, et.al. Like Caesar, (Julius, not Sid) he comes, he sees, he conquers.

  10. Floxo

    It should be noted that partial equilibrium models are not particularly useful in analysing the welfare impacts of tariffs. Tariffs are long term in their effects and can only be properly understood using general equilibrium models. Typically, trade elasticity in the context of gravity models can be used to estimate welfare losses. See for example: “New Trade Models, Same Old Gains?” Arkolakis, Costinot, Rodriguez-Clare (available online).

    Personally, I have long held the view that the developed economies should not have lowered tariffs in the 1970’s and 80’s. It is one thing to enable technology transfer overseas, it is another to deindustrialize as a consequence of the current global imbalance in wages and rents. It is notable that some Asian economies promote independence and self-sufficiency while we are becoming evermore dependent on them.

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