About his new rates, President Donald Trump said (and repeated in different forms):
“So what they have to do is to build their car factories honestly and other things in the United States, in which case they have no rates.”
This is seriously misleading.
Consider the standard economic result that a foreign exporter usually does not pay the rate: it is the importer and ultimately (in our case) the American buyer who pays it. The costs imposed on the foreign exporter are in lower export sales due to a lower amount required in the US. If, as is usually assumed, American buyers prefer the domestic replacement Ceteris ParibusThe sale of foreign exporters will fall; The value of their productive assets will also fall and any capital will be re -assigned to other economic sectors.
To prevent these costs, the owners of foreign export companies can indeed decide to move their factories to the US when The total relocation costs are lower than the costs of lower turnover to America. Moving and building a new plant, and definitely losing money in the sale of the old facilities (the owner does not move his plant literally across the border), is expensive and takes time. Moreover, the production costs will certainly be higher in the US, what the reason is why the company has not decided to produce here – and the owners know more about this than any politician. The costs to move to the US will be further increased if the US government imposes rates on inputs such as steel or aluminum. The uncertainty of constantly changing protectionist policy is a different cost component. If the total relocation costs are worth going on, it is because it is lower than the other loss of the company, but it is not necessarily much lower and it is a cost increase in any case compared to the starting situation. The removal company must pay a cost equivalent at a rate, even if it is lower.
These costs are not called a “rate” (or a tax), simply because it is not paid to the American treasury by the former exporter. A rate is by definition a special tax on imported goods. But from the point of view of the exporter who moves to the US, this comes to the same as paying a rate – that of course exceeds some American buyers in higher prices.
Mr. Trump’s clear ignorance of these considerations confirms what the owner of Florida of a construction company with 35 employees (for the time being) said to the Wall Street Journal (Rachel Louise Ensign, Arian Campo-Flores and Harriet Torry, ‘Rate Whiplash makes us consumers“March 5, 2025):
He has no idea of the economy.
Or, when The economist bump it is more diplomatic,
The president and reality seem to drive further and further apart. …
Because his approach does not miss a coherent logic, there is no knowing how he can turn his threats.
The pursuit of the economic issue in its moral dimension leads to questioning the idea that the compulsory surcharge of a costs is not compelling if the victim can lower his (or her) costs with avoidance measures and suggest some analogies. Consumers who do not like a tax should simply stop buying the taxed property, in which case they have no tax to pay. Kidnap victims who do not like the ransom just don’t have to pay it, in which case there is no ransom. Eastern Berliners who do not want to be shot should simply prevent them from jumping over the Berlin wall, in which case there is no shooting.
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Unfortunate investor moving his plant from Canada to the US