The main argument by the Trump administration is that tariffs will be paid by foreigners. And in fact, under very specific circumstances, customs duties may be paid in part or in whole by foreign producers.
If the importing country is monopoly
Exporting countries could be induced to lower prices to maintain market share rather than to low tariffs. That is, exporting countries can absorb (all tariffs) (here is an interesting non-technical discussion of theory and its history).
US SEMS that fits the description at least on paper. We are one of the largest countries in international trade. US imports account for around 13.8% of global imports and exports, and about 8% of global exports (data from the World Bank). Furthermore, in the subject market, we are much larger buyers/sellers.
So, at least in theory, there should be a total of US credits eaten by foreign producers. Still, that’s not really the case.
Indeed, tariffs hindered by the US government are almost entirely paid by the US. Why is that so? You might want to abandon the trade model and bring about unscientific appeals to greed and politics, etc. (as the White House did). But we should not abandon a completely good theory unless we can’t explain things. And as it happened, a well-understood trade theory explains this visual contradiction.
Most trade models treat countries as individual economic actors. The US trades with Mexico. This is done for educational purposes and helps students understand that there is little difference between domestic and international trade. And it can be useful or decorated to treat a country as an individual economic agent. The theoretical ability to pass tariffs depends on treating the country as an individual actor.
But the reality is that trade, all trade, ultimately occurs between individuals rather than nationals. The US does not trade with Mexico. The Dallas company deals with a company in Mexico City. Overall, a total country may have market power, but there are few individuals. The current ability to pass customs duties or force foreign suppliers to pay customs duties is limited to the absence of the existing.
But is this a tariff point? To negotiate “collectively” for all? Can’t we apply the same logic here to something “sturdy” that has left the US behind? Wings, no. The country is not a company. The president has not negotiated the opinions of American companies, except for completely socialism. Companies are still UNEs who are purchasing purchases. What matters is the ability to take over prices, not the obedient street “US company.”
The predictions and declarations by the Trump administration and its economists cannot be realized because they do not understand methodological individualism. That economic decision must ultimately be made by the individual and that must be where our analysis begins. Those who advocate for American market power can feed foreigners far away the costs of US tariffs, forgetting that the total is not independent of the individual, but rather urgent.
This fatal conit, this fatal mistake, you have a burr under the saddle of many politicians, and the Trump administration is no exception. Reality is not an option. Otherwise, how many flashy Greek letters have to be said.
