Telegram Archive - week 15, 2025
- 3 minutes read - 546 wordsAs for the general tariffs case, here’s what Harry Binswanger writes (post #57064, HBLetter): Contrary to what we read, an American trade deficit with another country is good for America. It means the foreign firms doing the exporting will defer their reward (American products) in order to invest in America.
Tariffs sabotage this, converting what would have been fuel for economic growth into revenue for the government.
It’s a brililant point, let me illustrate this with an example. Assuming zero tariffs, let’s say Toyota sells a Corolla in USA for $20,000 USD, and plans to buy iPhones as a gift to the best of its employees after they work one year. Toyota doesn’t want to buy the iPhones immediately, since iPhones keep improving. It can get a better iPhone for the same money, if it waits a year. But, it doesn’t want to sit on the $20k in its safe either, for its value will decrease due to inflation. Instead, it buys Apple’s stock, thereby investing into Apple as a company, helping it make a better iPhone. By this act, the $20k have returned back to USA, and now for one year the American trade deficit has increased by $20k. After one year, Toyota will sell the stock and buy 20 iPhones, each for $1,000.
In contrast, in the presence of 20% import tariffs into USA, Toyota would have to pay $4,000 to sell the Corolla. Assuming the dream case for protectionists, it would pay it from the profit, rather than increasing the price of Corolla, thereby making only $16k in profit. Now, it will invest into Apple only $16k, making Apple worse off than before the tariffs. Finally, when it comes to buying iPhones, Toyota will buy only 16 iPhones, thereby reducing Apple’s profit.
The corollary is that the American exporter (Apple) has made less profit because of American import tariffs on a Corolla.
