Tariffs are 40 times less than sales tax

 

tariff cost 2018A whole LOT of news stories talk about adverse impacts of the 2018 “trade war” with China on U.S. consumers, and also how businesses will “suffer”.  We throw a fresh light on these two issues.

IMPACT ON CONSUMERS

US consumers spend 12 trillion dollars a year.  That’s 12,000 billion.  Not all of it is subject to sales tax, but if it were, and the rate were 8% as where I live, that would be around 960 billion dollars.  The TOTAL value of a 10% tariff on 250 billion of Chinese imports is 25 billion dollars.  This is one 40th of the sales tax.  Consumers aren’t actually going to notice.  They give 15 times that much to charity.

IMPACT ON BUSINESSES

Some businesses will be adversely affected.  Let’s establish that up front.  Nearly every research paper on cooperation since the 1980s has found that “tit-for-tat” is the most common reliable cooperation strategy.  Only a few strategies undermine it.  A good many papers study the “costs” of tit-for-tat.  The costs are the punishment of non-cooperators.  If someone doesn’t cooperate, then you get into the “tat” phase where you don’t cooperate with them, and this costs both of you.

But if you aren’t willing to suffer the short term loss, then the other side will continue to take advantage of you until you are bankrupt and their slave.  Hundreds of papers have shown this.  The idea there is some magic negotiating bullet that will produce cooperation without willingness to suffer costs of punishing the other side is a utopian fantasy which does not exist in the actual world, outside of ultra-liberal think tanks and dreamy Christmas movies.

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