It’s worse than that. As the other comment said, it’s the consumer who pays the tarrif but let’s assume today:
China can produce a battery for $4
Twian does the same for $3.90
USA can only make one for $5
Let’s then assume that for all 3 countries 25% of the cost is the raw Nickel that goes into the battery. Let’s also assume that it’s a flat 20% tariffs across the board.
Now your prices become:
China – $4.80
Twian – $4.68
USA – $5.25
Increase it to a 60% tariff:
China – $6.40
Twian – $6.24
USA – $5.75
So no matter what, prices go up even for the US manufacturer as they still have to import raw materials. The tariffs end up making local manufacturing more competitive with overseas at the cost of the consumer. As consumers just saw the price of batteries go from $4.00 to $5.75, a whopping 43% increase. Yay inflation!
The original idea behind tarrifs are just that… To give local businesses a competitive advantage while they catch up to overseas products. Once the US company is established you can then drop the tariff as they no longer need help while they ramp up manufacturing.
So maybe the US manufacturer costs might go down, if they’re able to make more at scale, but they still have to beat the automatic 75c increase because of their own imports. And all of that is still assuming that the tariff is large enough to make the US company the cheapest option. Otherwise it may end up backfiring and cause less sales as consumers end up not paying the increased costs. As you can see above with only a 20% tariff.
It’s worse than that. As the other comment said, it’s the consumer who pays the tarrif but let’s assume today:
Let’s then assume that for all 3 countries 25% of the cost is the raw Nickel that goes into the battery. Let’s also assume that it’s a flat 20% tariffs across the board.
Now your prices become:
Increase it to a 60% tariff:
So no matter what, prices go up even for the US manufacturer as they still have to import raw materials. The tariffs end up making local manufacturing more competitive with overseas at the cost of the consumer. As consumers just saw the price of batteries go from $4.00 to $5.75, a whopping 43% increase. Yay inflation!
The original idea behind tarrifs are just that… To give local businesses a competitive advantage while they catch up to overseas products. Once the US company is established you can then drop the tariff as they no longer need help while they ramp up manufacturing.
So maybe the US manufacturer costs might go down, if they’re able to make more at scale, but they still have to beat the automatic 75c increase because of their own imports. And all of that is still assuming that the tariff is large enough to make the US company the cheapest option. Otherwise it may end up backfiring and cause less sales as consumers end up not paying the increased costs. As you can see above with only a 20% tariff.