Chicago Boyz

Several items:

1–At X, there’s some knowledgeable commentary on the relationship between tariffs and retail prices, from Craig Fuller @FreightAlley: “When products are imported into the US, the importer is charged a tariff based on the declared value of those imports, not the marked-up retail price consumers will eventually pay…The markup might be only 5% for big-ticket items like cars, while it could be as high as 500% for luxury goods. Most retail goods have markups of over 100% over their declared value.”  He discusses the alternatives available to importers and suppliers,  of which ‘raise retail prices’ is only one.  Link.

2–The WSJ, a while back, had several letters on tariffs in response to an article on that subject. One of them said:

Phil Gramm and Donald J. Boudreaux don’t mention the basic evil of tariffs: that they negate comparative advantage. If Product A can be produced cheaply or efficiently in Location 1 and Product B in Location 2, each location should concentrate on its speciality and trade to the benefit of both.

Imagine Massachusetts enacting a tariff on oranges to protect an industry of heated orange groves and Florida a tariff to support air-conditioned cranberry bogs. State politicians could trumpet creating a new industry, but OJ would be $25 a glass in Boston and cranberry sauce would be $10 a scoop in Miami. Tariffs amount to a “beggar thyself” policy. The Constitution’s framers recognized this and crafted the Commerce Clause to forbid restriction of trade by states. The same principle applies to trade between nations.

Trade based on relative efficiency of production, as for the orange/cranberry example, is a classic example of the advantages of trade.  But a high proportion of trade today is not of this nature: it is simply labor arbitrage, based on differentials in wages.  The primary reason why products made in China have been so much lower cost than those made in the US is because Chinese people would work for lower wages than US people. There was nothing inherent in Chinese geography or climate, or Chinese skill sets, that made assembly of iPhone more efficient in China than in Iowa.

3–In my Labor Day post for 2021, I said:

In a world with global and highly-efficient transportation and communications…and billions of people who are accustomed to low wages…is it possible for a country such as the United States to maintain its accustomed high standards of living for the large majority of its people?…and, if so, what are the key policy elements required to do this?

This question should be fundamental to discussions of trade policy, along with national defense and resilience considerations.

4–Bill Waddell, a very experienced manufacturing practitioner and consultant, who used to comment here sometimes, has a new book out:  Reclaiming American Manufacturing: Take Back the Middle Class From Globalism. A quick and worthwhile read, available on Amazon Unlimited.  Also, this post at LinkedIn.

5–Although offshoring is usually discussed in terms of its impact on manufacturing, there is also plenty of offshoring going on in service: Telemigration.

Your thoughts?