The bring manufacturing back to the US never made sense to be numbers wise.
Thing A is currently manufactured in China | Vietnam | whatever lower cost country and sold for $x today. Slap on 50% tariffs so now it costs $1.5x. That provides an incentive to produce thing A locally sure.
But if you can already produce thing A locally for $x, you wouldn't have offshored the production in the first place. Maybe producing thing A locally will cost less than $1.5x, but it'll still be more than $x. So cost still end up increasing.
The missing piece is not all costs are passed on to consumers.
Company absorb costs all the time. If you think cutting your price by 10% will boost sales by 20%, you do it because total profit is higher even though per unit profit is lower.
And the reverse is true - companies might increase prices and accept lower volume.
Not to mention not all items are interchangeable. Is a car made in Mexico worth the same as the same model made in Germany?
Low cost items, of the type the vast majority of the population are quite sensitive to the price of, have almost no margin on them to start with. There isn't 10% to cut.
They see a way with china by the end of the decade so they are trying to remove dependence on their manufacturing and flip Russia to our side.
Except there isn’t any guarantee of a war with china, it’s just an idea they have. For all we can tell they have no intention of that. Taiwan is tricky though
Whether one umbrella factory moves from China to the US within this election cycle doesn't really make a dent. The moving of industry from the US happened over decades, and was hand-in-hand with the US making fewer umbrellas and more computer programs, satellites, and microchips. Moving basic manufacturing of low value goods to the US would cannibalize the capacity of producing higher value goods. And none of it will be noticeable while Trump is still alive.
Hard to say re: labor cannibalization - if you are sociopathic about the labor force like Trump is, all these fentanyl deaths are just spare capacity that didn’t have an input interface and should have been in a factory.
1930's Gulags, in other words. The productivity of the unwilling and unskilled workforce, as well as the quality of their output, has been horrendous. The only thing the camps were good at were rapidly reducing the numbers of "undesirables".
Two typical scenarios that we know from the past in industries like cars for example.
Corp one has two factories one smaller one in the us one bigger one in the eu. They will now shift more of the production to the us from eu to avoid tariffs.
Corp two only has a factory in the eu. They will now build another factory in the us to be able to avoid tariffs and keep selling their goods at competitive prices.
Forgive me my ignorance, but: parts from which cars are assembled (or raw materials from which parts are manufactured), are also subject to tariffs, aren't they? So the only shift that would happen is that of the labour (and US labour is not the cheapest, IIRC).
They would in the current scenario, yes, but the OP said “Two typical scenarios that we know from the past in industries like cars for example”
In the past, countries would put tariffs on importing cars, but not on importing car parts (with some complex definition of what constitutes a car and a car part. IIRC, there once was a loophole where one imported a car and converted it into a van by removing back seats to avoid a tax on importing vans)
For manufacturing physical goods, labour cost is a small percentage of the total cost of the good. Why is this? Because modern labourers are extremely productive: they are highly skilled at their jobs and use very efficient tools and machines to do their jobs.
The problem with this theory is the tariffs will both have to remain in place for a decade and businesses will have to believe that they'll remain in place for a decade for that to pan out.
Nobody is building a new factory, based on tariffs that they expect to be gone in three years time.
They will only shift if it's predictable that the tariff policy will stay for long enough to recoup the high capital investments of building a whole new factory just to serve the internal market.
For many industries it might not make sense unless it's a 5-10 years long plan, the risk of investing a lot to build a new factory, bringing it online over the next 2-3 years, to then have tariffs removed and making your new shiny factory more expensive to run than one outside of the country, will also be factored into the total cost.
The tariffs are so broadly applied that the risk factor is much more massive than anything the USA experienced before (like during the Japanese cars era of the 70s/80s), it's wishful thinking the domino effect will happen in the short/medium-term.
> They will now build another factory in the us to be able to avoid tariffs and keep selling their goods at competitive prices
They won't be competitive prices though; they'll have to charge more because of the capital costs in setting up a whole new factory and supply chains, increased labour costs, and having to pay tariffs on importing parts.
I imagine that not being able to export cars from this factory due to reciprocal tarrifs will also drive up prices, due to things like lost flexibility, redundancy, and economies of scale.
And it isn't like we have especially high unemployment right now. There isn't a labor force available to suddenly staff a bunch of factories even if they took zero time and capital to set up.
That's the entire point of it all. I think you are the only person in this thread who gets it. When there isn't a labour force available, you have to increase salaries to get workers. This means other industries and businesses have to increase salaries to keep their workers, giving a domino effect – meaning higher salaries for workers across the board. It might even mean that shit industries can't find any workers and have to close shop. For example the restaurant industry.
This also means higher prices across the board for consumer goods, but the worker still net benefits greatly.
Who does not benefit: The people who do not work. And that's fine. But it's also this class of people who make the entire political and media class, and hacker class apparently, so that's why we have this enormous resistance.
"Domestic production will replace imports" is conditioned on the cost of domestic production being lower than the cost of imports with the tariffs added. "Just spin up new factories with capital investment, raise wages substantially to get people to change careers from service industries, and train all these new people" isn't going to be a cheaper approach to building furniture than continuing to import it from Vietnam with a high tariff.
The effect will be minimal new domestic manufacturing and higher prices for large numbers of goods.
I think you fail to account for just how little a salary needs to be increased for it to be interesting to switch jobs for the people who are making the lowest wages. In Europe, people compare wages with single digit differences per hour when deciding for switches in jobs and careers.
And low paid workers in the service sector aren't low skilled and costly to get going. They're intelligent and honest, and would be fine workers in manufacturing if given the opportunity. They're working in the service sector because those jobs couldn't be off-shored.
If corp two could have factories in the US and still sell them at competitive prices they would've done that already no? The fact that they haven't indicates it didn't make economic sense. So then doing so would mean their costs would go up, which would either mean they have to eat the extra cost and reduce profit or pass the extra cost to consumers.
They can only pass the extra costs if there is no competition and they can only eat the costs if their margin is big enough to absorb the cost and still remain profitable. If their us market share is important they will shift their production around to the us or somewhere that has a favorable trade agreement with the us.
The stated goal of tariffs is to force companies to shift production back to the US. But US production costs more, hence the outsourcing in the first place, so shifting production back to the US increases cost.
If costs goes up then either prices go up too or margins go down or a mix of both.
In the first scenario the investment isn't astronomical, and if there is surplus capacity you can definitely shift around to avoid tariffs. I think Volvo already announced this wrt. to their US plants. They can take some production from the EU or China and use capacity in the US to build cars. The parts are still imported from China and the EU so will be more expensive, but they still seem to think this can help.
But the second scenario is a massive investment. It not only requires the economics of it to work today, it requires knowing what the situation is 1 or 2 decades down the line. You can't build a car factory in two years. Barely in four. And even if you do, it doesn't matter if it's likely to operate at a loss in 8 years!
The most important thing for that type of investment is stability and predictability, not just "the costs will be lower for at least 2 years now! or maybe 2weeks we don't know since the tariffs seem to come and go depending on which side of bed the local czar wakes up on".
3-4 years is a LONG time in business. I do not know how long the tariffs will last. Maybe they will come to a deal next week maybe not. but if they stick around businesses will move stuff to the us. I'm saying this as an EU citizen.
3-4 years is a very short time for developing land in the US, anywhere near population centers. You’re looking at that much time just to get permitting done, optimistically.
3-4 years is not long at all in this context. Most places take that long to get permits, and additional years to build the factories, and additional years to even become profitable and self sustainable in ideal circumstances.
It's not a long time if you're talking making massive capital investments into things like new factories or capacity.
Your second sentence indicates the more significant problem though, because that uncertainty on timelines makes even the 3-4 year time horizon questionable. Nobody is going to invest anything based on tariffs that may go away or change next week and the only way you can tell if they're sticking around is waiting so long you don't have time to make the investment any more.
It might be different if Trump came in with a clear, transparent tariff plan on day one. But they're already all over the place and being implemented in extremely unpredictable ways. Some people might argue his unpredictability is an asset in general, but it's absolutely not in this case.
You just made me think of another scenario, Corp three has mostly idle factories at important locations around the world but designs their factory lines to be packable and shippable around the world to hedge against tariffs. The carrying-cost of buildings is considered insurance.
That’s may be true. But why does Vietnam have such high tariffs? They should be competitive based on their lower costs right? So it’s simple: Vietnam can eliminate tariffs on imports and the U.S. would eliminate tariffs as well.
Thing A is currently manufactured in China | Vietnam | whatever lower cost country and sold for $x today. Slap on 50% tariffs so now it costs $1.5x. That provides an incentive to produce thing A locally sure.
But if you can already produce thing A locally for $x, you wouldn't have offshored the production in the first place. Maybe producing thing A locally will cost less than $1.5x, but it'll still be more than $x. So cost still end up increasing.
Am I missing something?