A friend forwarded me the following interesting AI generated video recently.
The original post is here.
#I’m confused—and I think I’m supposed to be.
Because when I look at recent trade policy rhetoric, particularly the renewed call for higher tariffs under the guise of reviving American manufacturing, I’m left wondering: who exactly are we trying to help?
From a basic economic standpoint, the logic is clear: as long as relative advantage exists between countries, tariffs create inefficiencies. Someone always pays. And more often than not, it’s not who politicians claim.
Let’s unpack that.
The Myth of Domestic Substitution#
Take the case of construction materials, or other industrial inputs that the U.S. imports in massive volumes. The idea behind a tariff is that it will discourage imports, thereby encouraging domestic production.
But there’s a catch.
The U.S. simply does not have the capacity to immediately ramp up production for many of these goods. Not even close. It takes years to plan, build, and scale factories—often longer than a single presidential term. So what happens in the meantime?
Companies still need to import. They just pay more to do it. The tariffs become a tax—paid not by China or other exporting nations, but by U.S. businesses, and ultimately, U.S. consumers.
Tariffs Don’t Build Factories—Capital Investment Does#
Let’s say, hypothetically, that a company does want to reshore production. Will they really pour billions into U.S. infrastructure on the hope that tariffs will stay in place long enough to justify the cost?
That’s a tough sell. Business investments require stable, long-term incentives—not short-term political tools. Without genuine industrial policy or subsidies to support such moves, tariffs are just window dressing. Most firms will opt to pay the tax and pass it down the supply chain.
In other words: it’s less “Made in America,” and more “Paid for by Americans.”
China’s Cost Advantage: Still Too Big to Ignore#
Now let’s talk numbers.
Even with a hefty tariff, the post-tariff cost of Chinese goods in many sectors remains lower than the domestic alternative. Why? Because the scale, supply chain maturity, and cost structure in China are still leagues ahead.
So we end up in a strange situation: American companies keep importing because it’s still cheaper, while American consumers foot the bill. Exporting countries may suffer from lower demand—but they don’t absorb the tariff. There is a risk that the world is pushed into depression, but this is a great opportunity for global economies except US to support each other, optimising demand structure and absorbing the production capacity from each other.
What’s the Endgame?#
If the goal is to reduce dependency on foreign suppliers, then tariffs are a blunt—and often ineffective—instrument. They don’t create new factories overnight. They don’t guarantee jobs. And they certainly don’t fix structural issues in U.S. industry.
Instead, they function as a hidden tax. One that might increase government revenue—maybe—but at the cost of consumer welfare, global cooperation, and economic efficiency.
US should be asking better questions. Not “how does US punish imports?” but “how does US invest in competitive domestic industries?” The former is politics. The latter is strategy.
Conclusion: Trade Wars Aren’t Free#
The real confusion isn’t about who pays. It’s about why we keep pretending someone else does.
