In the wake of the largest tariff increase in the US since, well, a really really really long time, I’m seeing silly posts like this one above pop up more and more.1 The implication is that because this manufacturer uses domestic steel & aluminum in their products, they are immune to price increases from tariffs. But this is simply wrong.
Ostensibly, the purpose of the tariffs is to bring back manufacturing to the US. This means that pre-tariff, foreign manufacturers could produce at lower costs than the US, hence too little being made in the US.
So, the US imposes tariffs on foreign producers, and manufacturing goes up in the US, right? But what is that mechanism? It’s price. Tariffs increase the price of the imported good enough that domestic producers can raise their prices to profitable levels, incentivizing the domestic producers to build more factories, etc.
Let’s put this another way. Say you make hammers. It costs $4 to make a hammer in Mexico and $5 to make a hammer in the US, so hammers are all made in Mexico and imported here, and sold at $4+markup. In order to spur the domestic hammer industry, the US imposes a 50% tariff on imported hammers. It now costs $6 to make and import a hammer from Mexico but only $5 for a US hammer. We stop importing hammers and make them here for $5+markup. What’s the net result? Even though the tariff only was applied to Mexican-made hammers, domestically produced hammers became more expensive. This is why economists view tariffs as just another form of a tax.
To be clear, I actually am quite fond of the misguided owner who posted this particular message on his FB page. His job is to make car parts. My job is to educate about economics. So far, I think he’s winning.