0
$\begingroup$

This CNN article seems to imply that Chinese tariffs on American goods will make them more expensive to American consumers. Is this true? I did think that tariffs by your own country on imported foreign goods made those imported goods more expensive, but I also thought tariffs by a foreign country on goods your country exports actually made those goods cheaper for you.

Example statement in the article:

The cost of the new tariffs can be found in the roughly 1,300 individual products that have suddenly become more expensive.

This statement is followed by a list of "US goods hit by Chinese tariffs ". Clearly the implication is these goods are among the products that have become more expensive.

| improve this question | |
$\endgroup$
  • 2
    $\begingroup$ "Washington put tariffs on $34 billion worth of Chinese goods on Friday, and Beijing immediately responded with penalties of an equal scale. The cost of the new tariffs can be found in the roughly 1,300 individual products that have suddenly become more expensive." $\endgroup$ – Giskard Jul 6 '18 at 17:37
  • $\begingroup$ @denesp Thanks for your comment. I did actually read the quotation you included, and it left me with the question I asked above. Are you saying the article does not imply that the Chinese tariffs on American goods will make those goods more expensive? $\endgroup$ – partyphysics Jul 6 '18 at 23:07
  • $\begingroup$ Not to the American consumer, no. The quoted part mentions both American and Chinese tariffs. There is no implication that American tariffs make American products more expensive to the American consumers. $\endgroup$ – Giskard Jul 6 '18 at 23:42
1
$\begingroup$

Well, due to Lerner's Simmetry Theorem, an import tax has the same effect of an export tax. When China makes its imports from the US more expensive, its exports get more expensive too.

| improve this answer | |
$\endgroup$
  • $\begingroup$ So isn't that like saying an American export tax on American pork has the same effect on the price of pork in the US as an American tariff on Chinese pork? But can't the effect of a Chinese tariff on American pork have a completely different affect on the price of pork in the US? I may be misunderstanding. $\endgroup$ – partyphysics Jul 12 '18 at 0:38
  • $\begingroup$ This is how I thought it worked: A Chinese tariff on American pork encourages American pork producers to export less pork and sell more in the US. This means an increase in pork supply in the US without an increase in demand and thus pork prices in the US should drop. Is that thought process valid? $\endgroup$ – partyphysics Jul 12 '18 at 0:56
  • $\begingroup$ The idea is that regardless of the tax policy, relative prices should remain the same. Meaning that a country can only export more by importing more. And that import taxes not only make a country import less, it'll export less too. Lerner (1936) is a great paper, you should at least skim it. $\endgroup$ – Pedro Cavalcante Jul 12 '18 at 17:36
  • $\begingroup$ Despite Lerner, there's sides of this story you should know too. The first is general equilibrium reasoning. In your example, why don't american producers produce pork in the first place, regardless of tariffs? Well, because american capital and labor can be better employed in other, more lucrative activities. This is known as Revealed Profit Maximization. We can infer that whatever firms do is a result of their attempts to maximize expected profits. Forcing capital and labor to be employed in activies that were revealed not to be as profitable makes your country poorer. $\endgroup$ – Pedro Cavalcante Jul 12 '18 at 17:45
  • $\begingroup$ The second is floating exchange rates. An import tax increases supply of your country's currency (because people in your country now pay more for the same amount of stuff they import), making exchange rates appreciate. This makes it more expensive for other countries to import your country's exports. Thus, import taxes reduce exports. $\endgroup$ – Pedro Cavalcante Jul 12 '18 at 17:49

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.