re: CBO: Trump’s Tariffs Could Slash Deficit by $4 Trillion

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He presumes 100% of the tariffs will be passed on to consumers.

Which has not happened yet.

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Seemingly, at least partially true.

LINK

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Most Impacted Firms Have Increased Prices, Many Plan to Again

Some firms remain in “wait and see” mode as uncertainty around tariff policy and input prices persists. However, most impacted respondents have begun passing along tariff costs to their customers by raising prices. Of the roughly half of firms that reported direct tariff impacts, nearly 60 percent of them have already increased their prices due to tariffs, and most of these firms plan to raise prices again. In contrast, about 25 percent of firms reported that they have been impacted by tariffs and plan to raise prices but have not yet. For example, a South Carolina transportation manufacturer plans to pass on tariff costs but has not yet due to concerns about demand for their product. As they explained, “Tariff cost transfer to customers is creating the largest earnings uncertainty in our 2026 business plan.” Fourteen percent of respondents who reported being affected by tariffs were unsure about whether to adjust prices.

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Thats a useless stat. The point is to stop buying that product made overseas. You don't HAVE to buy that same priduct.

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And this is how Capitalism dies

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Seemingly, at least partially true.

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So, not 100%, which was (and is) my point.

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Every dollar you siphon out of the system actually comes out of the system...it's not like Schrodinger's Cat that comes out if the observer wants it to but stays in if the observer wants it to.

It comes out in some way. Either higher prices, wage stagnation, the loss of jobs, loss of earnings in the market. You can't pull a rabbit out of a hat and the rabbit still be in the hat.

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very true.

and that is both the real-world math and the gamble, and it is a gamble, that the Trump admin is making.

But what if GDP does grow and CPI/PPI is flat? While what you are saying is true, it is only one of several prognostications/scenarios that mighty yet play out.

Because there's one variable in your math not accounted for. Everyone assume "buy American" means a US company on US soil. But they've tweaked that and a foreign company can manufacture on US soil in this case. There's your capital entropy and jobs (with wages being TBD) right there.

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Go read BCreed1's post on page 3. He uses an extremely high margin example to make it seem logical that foreign companies will eat the tariffs (or most of them). That's why they believe it.

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In addition to completely destroying the "'Muh tariffs to bring back manufacturing to 'Merca" narrative, the mechanism for that scenario happening would be for the importer to negotiate a lower price with the wholesaler/exporter to offset the tariffs.

Let's say they actually agree to that. First of all, there's a limit to how much lower they would go...maintaining market share when you're just breaking even or losing money is usually not something companies are willing to do...not for any significant length of time, anyway. So depending on the margin and the tariff you certainly can't count on that working across the board.

Secondly, what would stop the importer from taking the lower price from the exporter and still charging Americans a higher price and (explicitly or implicitly) blaming it on the tariffs?

It seems like the higher the margin, the greater the chances that would happen.

I import your baseballs that used to cost $5 each and I used to sell for $8 each, but now because of the tariffs I'm not buying them from you for anything over $4 each and I'm going to sell them for $9 each because people expect prices to go up anyway due to these tariffs. And that last part is none of your business, baseball supplier.

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But even this scenario still relies on higher prices paid by consumers.

Those higher prices mean redistributing spending from other economic areas to these producers.

If there is less money circulating on more efficient, productive economic areas (like tech), then that's going to lead to a decrease in GDP and standard of living. We're basically going to use government to redistribute spending from more productive areas (that can scale much more efficiently and expansively) to less productive areas (inefficient manufacturing). I don't see a way how this can be a net positive.

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This.

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But they've tweaked that and a foreign company can manufacture on US soil in this case. There's your capital entropy and jobs (with wages being TBD) right there.

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Also, why in the world would they do that?

The average factory worker in the US makes $17 an hour. In China it's $6 an hour, and in Mexico it's around $4 an hour.

I assume that the cost of real estate/construction, etc. is also proportionately less in those places.

So why would a foreign company locate HERE to manufacture? Why would they locate in one of the most expensive countries on planet earth to manufacture in?

The tariffs would have to be really high to make it worth avoiding them like that, and all it would do is ensure that the products were really expensive for consumers.

So we get a bunch of $17 an hour jobs, but we also get baseballs that used to cost $8 and now they cost $12.

How is that trade-off worth it?

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How do you get the domestic manufacturing without the higher prices?

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Answer. You can't.

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It can look like cancelling expansion plans (which costs the economy jobs), freezing raises and promotions (which causes wage stagnation), laying people off

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We're talking about foreign organizations here right?

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Thats a useless stat. The point is to stop buying that product made overseas. You don't HAVE to buy that same priduct.

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Tariffs don't affect domestic products, produce and services.

The South back in the early 70's had hundreds of textile mills and related factories. It made sense given the Souths cotton production.

When the tariffs on Indian clothes and textiles were dropped all of those Southern mills vanished seemingly overnight.