USA’s tariffs 5
USA's tariffs 5
We will clarify matters regarding USA's tariffs completely. Not only we tell the truth but we explain everything very thoroughly because we have nothing to hide. When people are trying to deceive, like NWO's vicious cabal, they prefer confusion, keep matters hazy because deception is easier. When everything is very clear, it becomes more difficult to deceive.
We will go back to the example of the previous article. Auto exports from country B to country A will decrease after the tariffs. Suppose there is another country D which has a trade surplus with country B and makes autos. If country B imposes tariffs on autos imported from country D, there will be a decline in auto imports from D. This will leave market share for domestic producers.
So country B could make up the sales it will lose in country A by increasing the share of domestic producers inside the country. These two (sales lost and sales gained) may not be equal but there are not only autos produced in the economy. If a country has a deficit or a small surplus, it can make up the USA exports it will lose in the domestic market and still be at the same level in terms of overall deficit or surplus.
There is another way a country can cover the lost sales from exports in USA. It can increase exports to other countries. If it has a deficit with these countries, deficit will decrease. If it has a surplus it will increase and trade unfairness will increase. AntiNWO supports fair trading. Nevertheless, it may provide a temporary solution until permanent adjustments are made.
Governments may assist trade relations but it is not the governments that make trade surpluses or deficits. Companies are responsible for these. Governments can take measures like tariffs to affect the balance of trade. USA is among the most attractive markets in the world, if not the top. It is a lucrative market with large population and high per capita income.
There are other reasons as well. USA has immigrants from all over the world. So companies can find people that originate from their country to do business. The fact that they speak English also helps. Companies from all over the world are trying to get into USA market for the potential profit and the relative easiness of doing business. That may be a reason USA has trade deficits with many countries.
As it can be seen in Appendix 17, USA has only 15,7% of the world's GDP. We need to point out that Appendix 17 shows purchasing power parity values while trade is done in nominal values. The rest of the world has 84,3% of the global market but G40 (excluding USA) have 77,3% (Appendix 17). So there is a lot of potential in other areas of the world. Companies can certainly make up the exports they will lose in USA.
Of course, it depends on the product they are selling. A company that sells inexpensive clothing may find large markets in Sub-Saharan Africa. For a company that sells expensive autos, the markets in Sub-Saharan Africa will be very small. The type of product also determines one more thing, how the demand will respond to price changes.
If demand is elastic, price increases cause large drops in demand. If demand is inelastic, changes in demand due to price changes are small. Fuel, bread, coffee, soft drinks are examples of products with inelastic demand. Expensive clothing, jewelry, expensive cars have elastic demand. On the other hand, luxury items usually have much larger profit margin and may have more room to absorb tariffs.
Companies usually pass tariffs to consumers but are not obligated to do that. If they have high profit margin, they could keep the prices the same. In that case, demand will not drop and their exports will remain the same but their profits will decrease. There are not only two options; a) pass the tariffs to the consumer b) do not pass the tariffs to the consumer.
Companies can pass part of the tariffs to the consumer. Also, instead of making a one time price increase, they may choose to do it gradually. So instead of having a price increase equal to 100% of the tariff, they could increase prices only 50% of the tariff and absorb the other 50% by reducing profit margin. Also they may add the price increase due to tariffs gradually. For instance, they may add 10% of the tariff each month till it reaches 50%.
Suppose that the tariff is 25%. If they absorb 50% of the tariff, they will eventually increase prices by 12,5%, not 25%. Also if they do it gradually, they may increase prices 2,5% every month for five months till it reaches 12,5%. What they will do depends on profit margin and demand elasticity. Their goal is to maximize total profits and some times they may achieve that by absorbing part of the tariffs.
We stated that domestic producers could take the market share importers will lose. This can be done up to a level. Usually factories and businesses do not operate at full production capacity, 80% is considered good. So local producers could fill the market share importers will lose up to their production capacity. After that, time will be required to increase their production capacity with new investments. In the service sector it may be easier because they would only need to hire new employees and give them desks, PCs and telephones.
Also time will be required if there are changes in a country's production mix. For instance, a country may need to produce more automobiles and less computers. Production factors in classical economics were three; land, labor, capital. Entrepreneurship was added later as a fourth factor. These factors can produce all products and services. In order to shift production factors to other uses, time will be required.
Adequate time for adjustments is very important for the countries to which USA imposed tariffs. It would be less important for USA but still important, if they need to produce above full capacity or shift production factors to other uses. Countries in USA's tariff list have three options; a) do nothing b) retaliate c) negotiate. The third option is the right way but it is not certain that all countries will follow that route.
If they do nothing, they will just accept the tariffs. If many countries choose to retaliate, it will create a problem to USA as well. They could negotiate for lesser tariffs or some time. These can be combined. They can request lesser tariffs for some time, till they will be able to make adjustments, so that they will not be harmed by USA's tariffs.
Suppose that they do nothing. They would probably suffer initially until they will be able to make the required adjustments. So although in the long run, most countries will probably be able to make up the exports they will lose in USA, in the near future there will be a negative impact. If this happens in many countries around world, it may hurt USA as well. The best approach is to negotiate for adequate time to make adjustments.
If they do that, USA may ask something in return. Probably, in USA they are betting that countries will react in a rational way, negotiate to get adequate time. It is a risk they are taking in USA. If countries negotiate, it will work well for them and USA. If they do not negotiate, it will not work well for them or USA. If USA focuses only on EU and hit them hard with tariffs, risk is minimized. Even if EU retaliates to the end, it will be relatively manageable.