What is the rational, adult, real world, non-superstitious way, to think about tariffs

How to think like an adult about tariffs and taxes – stop embarassing yourself with sophomore arguments about the efficiency of free markets, because that is not the point here and it makes you look like a total amateur.

Why all taxes are taxes on consumers

One way to think about taxes, whether they are tariffs, personal income tax, corporate income tax, land tax, estate tax, carbon tax or whatever, is this: “all taxes end up being paid by the end consumer”.

And the reason is simple – if the supply chain was profitable, all duties that were paid by capital factors in the supply chain must be covered by the price paid by the end consumer.

Why imports are exposed to different tax regimes

If you make a car domestically, the price of the car will cover for taxes like: income tax on wages paid to labor, income tax on gross profit made by manufacturer, other local taxes that impact real estate factors, energy, import components etc. If you import a car the price of the car will cover for two things: 1) all the taxes that the other country imposed on capital factors used to produce car and 2) tariffs.

Why onshore/offshore arbitrage is bad

If the import tax burden is lower than the domestically produced tax burden, mobile capital assets that earn the manufacturing revenue will simply move from your country to the other country, and sell the goods as imports, to earn the spread. But all taxes are taxes on consumers – so what you are actually saying is that consumers of imports are paying fewer taxes than consumers of domestic production – you are shifting the load of your government to people who consume made in the USA.

How tariffs workout this problem

Assume you slap a tariff of 20%-50% depending on the country that you are getting imports. Now the game theory is this:

1. If they don’t normalize their taxes they will be giving your government free revenue
2. If they do they will lose their exporter edge.

Now you can reach a common sense “free and fair trade” agreement where they fully detax exports on their end, and you fully tax them as tariffs, and vice-versa.