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This post is about Tariffs, again, lest I be accused of burying the lede. Just read the last two paragraphs if you don't enjoy window dressing.
China tightened regulations on real estate developers in 2020. Xi Jinping stated 'houses are for living, not speculation.' Ghost cities, huge numbers of Chinese citizens owning multiple houses as investment vehicles, I assume you're all familiar with the stories after five years of news stories and discussion. Economists and western commentators largely agreed that the policies were A Really Bad Idea due to the ensuing chaos and meltdown in property prices.
To which I have to say ...what? They said they wanted to reduce housing costs! What did you think that would look like? How else are you going to do it? And what do you think it would look like to 'make housing more affordable' in the USA? If the YIMBYs and
neoliberalsabundance socialists get their way, home prices are going to tank here too. This is a good thing! Maybe there's some Chestertonian benefit to the upwards spiral of housing costs, but this here's a fence I'm ready to take a torch to.Anyways, to inch closer to the issue at hand - I have to confess that I had some tepid enthusiasm for Trump returning to office. Despite it all, I'm still an Elon stan and I thought some of the Dogemaxxers might have cogent arguments. I had some hope for racking up some China tariffs, eating bitterness for a few years and coming out the other end as a cohesive autarkical bloc of NATO + AUKUS + Japan + South Korea + anyone not named Putin or Jinping we can convince to join the squad. Setting aside my disappointments with Trump 2.0...
I'm utterly perplexed by the dialogue around tariffs? I can remember breathless fearmongering about shortages, empty shelves, inflation all spring. People on reddit posted invoices where what used to be a 10,000$ order from China was now over 50,000$. And yet...none of this chaos has come to pass? As far as I can tell, TACO is somewhat responsible, but also, average US tariff rates are just over 50% on Chinese goods?. Is it all TACO? If 50% tariffs have been painless, do you expect me to believe that 100% tariffs will truly be apocalyptic to the US economy? Do any of the firmly anti-tariff crowd have an explanation or prediction to make?
And on the other side, I fully expect victory laps and crowing about 4D chess from the 'Trump BTFOs retarded soyboy economics ExPeRtS crowd' again, but if the tariffs are painless and everyone is still buying cheap shit from China, aren't we losing??? Isn't the inflation, the spike in prices and the empty shelves the point of this whole exercise? Why are you promising people it will be painless, rather than YesChadding and telling them that the pain is the goal? You can have affordable housing when you're willing to accept that your own home will depreciate in value, and you can have low-skill manufacturing in your country when you're willing to accept higher prices for your goods. Eat bitterness with a smile on your face. Tell your daughter she only gets two dolls instead of 30 this Christmas because
communismuncle Jerry with the high school degree needs a better job.It seems fairly plausible that TACO/other delays in tariff implementation are substantially responsible. The "Liberation Day" tariffs weren't just a hike on (already high) tariffs on China - they were (supposed to be) a sweeping set of tariffs applying to basically everyone. China is a big trading partner, but it's still only ("only") a little over 10% of US imports. A moderate-to-high increase in the price of Chinese imports is not going to single-handed crash the US economy (especially since I expect re-exportation and other means of evasion to mitigate it to some degree), and given existing stocks and possible mitigation strategies, major impacts might be quite delayed.
On the other hand, if the April 2nd tariffs had gone into effect quickly, we'd likely be looking at a very different state of affairs.
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Chinese are not only talented at trade, they're also talented at cheating in trade. So.. it's not having as much impact as you'd think it would. Because they're not paying the tariffs.
Foreigners don't pay tariffs, they're an import TAX
Interesting thread though, very predictable consequence lol
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The tariffs would be paid in the end substantially by the US customers in any case, if for no other reason than the manufacturers being unlikely to have the profit margin to just pay for them.
Also, tariff evasion should be an expected consequence of having tariffs. To be fair, I think for most of the goods imported from China, enforcement is plausible.
Catching one container with cocaine in a harbor which processes hundred thousands of them is hard. Catching a container whose goods are priced to low on the customs declaration is easy if a significant fractions of the containers are undervalued. You just need to set up financial incentives which make it expensive to get caught (perhaps set up requirement that any importer needs to own a defined amount of seize-able assets per container they want to bring through customs per day), and your customs officers will pay for themselves.
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For countries which are not China, it seems that there is a bit of a "market correction" for tariffs: high US tariffs reduce demand from the US, tanking the exporting country's exchange rate to the dollar, which makes those imports more affordable, after which point the prices don't seem so high anymore even including tariffs. The Fed estimated that this feedback loop reduces the effect of tariffs by about half. Trump's recent announcement of tariffs on Korea and Japan increased the exchange rates there by about 2%, which is the TACO-inclusive correction.
In the case of China, though... well, they tend to try to peg the RMB to the dollar (although it hasn't been pegged directly since 2010), so I imagine the effect will be much worse for them.
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I think you're misunderstanding the housing issue in China. Their problem is that all that housing was financed with debt taken on by the local governing bodies who are up to their eyeballs in it and also get most of their revenue from building the housing. The Chinese stock market doesn't make returns and Chinese citizens are limited to where they can put their savings. Housing being cheaper is fine, good even but that sector was propping up the local governments. Chinese people have something like 70% of their savings in housing and housing makes up something like 30% of chinese GDP. Chinese local governments are facing debt crises as a result.
Building on this- the problem is what the nature of that debt, and the collapse of housing investments for future returns, implies for future economic development.
For example, the implication of the private household debt is how it shapes China's ambitions of escaping the archetypical middle income trap. The classical understanding of the cause is that a country makes good money as an export nation working the lower value chain, tries to work its way up the value chain, but the main basis of national growth (a productive low-cost but also low-income manufacturing worker class that produces exports) goes away before the worker class is able to transitions to a higher-income level of productivity that corresponds with the higher value chain. Some of the country does, but not enough (proportionally), resulting in more stagnant growth, both in terms of national economy and average wages. It's not 'bad,' but it's, well, middling. No longer economically viable for the thing that made it good.
The classical theory of how the higher income countries escaped this is that they transitioned from a manufacturing-export economic model to an internal-consumption model. The internal economics for wages and such are driven more by how the country spends and consumes within its own market, rather than how it exports to foreign spenders and consumers. Ideally, it's to some respects self-reinforcing, for the typical economic multiplication effects that let commerce grow the economy.
This was the basis of the economic question of if China would get old before it got rich. It was referring not to the country GDP as a whole, but to the wealth of the population and its ability to power a consumption-economy model. Could the Chinese public get rich enough in their economically productive years to power a transition to a consumption-based economy, before they grew so old that their savings were instead consumed in end-of-life support?
Well, that's a great deal harder for a family to contribute to if a family's lifetime of savings and investments no longer exists. Like, say, because it was invested in buying an apartment that never was built, or was built and torn down before it could be sold, or which lost its value due to the property crash.
China may yet escape that. It's unclear if the middle income trap is an issue of proportion or absolute number, in which case a proportionally small core of rich-enough Chinese could maybe drive a system. But the middle-income trap would be a lot less likely if a lot more Chinese had a lot more of their lifetime investments have a lot more value.
And, of course, if losing investments didn't contribute to the vicious cycle of ongoing deflation. Which is generally agreed to be bad, but makes individual actor sense if you recently lost much of your money but now find yourself in a position where things look like they will get cheaper the longer you refrain from buying them.
The Chinese local government debts, by contrast, are a bit 'simpler.' These are debts by lower governments, or government enterprises, that the Chinese national government is ultimately likely on the hook for. That's not a macro-economic-structure crisis, 'just' the official debt numbers being radically off and at risk of a liquidity crisis if ill-structured debts create bank runs. Which, technically, might be solved by simply printing more money and forcing the mostly Chinese holders of the debt to accept it, but...
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Most global trade is via ocean freight, which is fairly slow. Domestic supply chains and inventory turnaround time delay the impact further. I would consider most data on final prices to very much still be pre-tariff, especially since headline series like the CPI/PCE are still only through May. The big data tests for the tariffs implemented in April will probably be for June and July data over the coming weeks, but even then the metals tariff increases to 50% didn't take effect until June.
I think it really depends on how much pain it is to stockpile the goods in question.
For example, assume that when Trump announced his tariffs, market observers agreed that the price of Tamagotchis in the US would increase by 100%. Obviously, this would lead to people starting to hoard Tamagotchis, which in turn would cause the stores to increase the prices on their existing stockpiles, on which they had not paid any tariffs. When a few months later, the next container ship arrives, the prices will stay high even though supply might be far higher than demand, as the owners are just sitting on their supply and waiting for demand to materialize, knowing that more shipments of the goods will not be coming soon.
Now imagine the same situation for bananas. Even anticipating a price hike, customers will not buy their four-year supply of bananas while they are still affordable. While the banana-delivering ships which set sail in the pre-tariff era are still on the ocean, the supermarket price of bananas should mostly stay stable -- some importer is making a loss on them, but still not as much of a loss as if they left them to rot.
Of course, the banana importers will anticipate higher prices and thus lower demands and therefore order a lot less bananas. Unless they are mistaken about the shape of the demand curve, this will lead to a price hike roughly when the ships with the smaller orders come into port.
My estimate is that different factors affect how well you can stockpile a certain trade good. Food will rot. Any resource needs to be stored, many of them in a dry place. Fossil fuels have to be protected from going up in flames or escaping into the atmosphere or the ground, sometimes. Electronics become obsolete, eventually. Consumer taste and fashion changes, who knows if in two years anyone will still be interested in cheap Chinese "Alligator Alcatraz" merchandise.
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I wonder how much of US prices' resiliency to the tariffs is caused by long-term contracts that were signed before Trump started to levy tariffs and are still in effect. I have no idea, I know very little about how international trade works.
I do not know much about international trading contracts either, but I assume that most Chinese companies would not guarantee delivery to your porch at a fixed price. I would guess that in most cases, it is the importer who will have to cough up the unexpected tariffs.
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It does count as tax revenue, so to the extent you care at all about deficits and debt, that's at least helpful.
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Pretty much, yeah.
Of course it was never reasonable to think that "tariffs" meant "stop all trade with China". It couldn't have meant that, because that's just not how things get done in the neoliberal world order. I'm not an economist and I haven't followed the technical details of this story closely, but I do know that there's no big red switch labeled "TARIFFS" that they just flip on and off. You look at the actual details of the agreements and it's always something like, "an O(n*log(n)) prorated surcharge will be applied to soybeans from these three farms just outside of Shenzhen every fifth Tuesday when Venus is in retrograde", rather than "fuck China we got our own soybeans now". The devil's in the details.
So either Trump's powerless to implement his vision of reshaping global trade, or he doesn't actually want to, or this IS the agenda as he envisioned it and this is the extent of the impact. But either way it doesn't look like much of anything is going to change.
The fun part, all of these are somewhat true
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My fancy ramen from the Asian grocery does indeed seem to have gone up significantly in price. That's the only "pain" I've been personally felt from the tariffs and I'm pretty sure the response from pro-tariff policy people would be that I should stop buying Chinese noodles and get aboard the Korean noodle train. Because I am a very stable genius, I predicted this months ago:
In all seriousness, I will continue to be actually pretty agnostic about the whole enterprise and think that we won't really know what the actual outcomes are for quite some time yet.
As a boardgamer, I can tell you that the tariffs have really fucked over a lot of boardgame publishers and Kickstarters. For those who don't know, the vast majority of boardgames are manufactured in China, and many publishers have written detailed responses to "Why don't you print in the US instead?" (The answer is "We've tried and the manufacturing facilities don't really exist here" and also "Costs will go up, not by a little but by so much that basically only people who don't care about price will buy boardgames.") Admittedly boardgames are very much a niche luxury good, but in at least a few industries there have been significant impacts.
Adding onto this, this is an example of the real stupidity of this. For boardgames, it requires making lots of different little pieces. China outcompeted in manufacturing so hard that the only manufacturers left only want to deal in volumes significantly higher than most games would sell. The margins aren't there to set up manufacturing in the U.S., so the boardgame industry will likely collapse or stop selling in the U.S. before it ever does what Trump seems to want people to do.
That's the real stupidity of the tariffs. Even if you think tariffs are good, a blanket tariff doesn't care about the reality of the industries it targets.
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Oh, that sucks. I actually do enjoy boardgames, but I don't buy them often enough to have bumped into that. We grabbed Wingspan and its expansions, Ark Nova, and Brass: Birmingham and we've been pretty happy with that rotating set for the time being. My wife bought me a preorder copy of First Monday in October which makes for delightful nerd cross appeal, but that order went in quite a while ago.
I also backed First Monday In October. That company is one of those that's been posting on the impacts of tariffs (they have had several games delayed). Most recently they thought they found an alternative by printing in Brazil... and then Trump announced BRIC tariffs.
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