The incidence of tariffs on Chinese goods

…start-ups are likely to be hit hardest, whether their products are made in China or they import components and do the final assembly work in the US.

“Your resistor or diode is already costing you 10 times what you’d pay if you were Apple,” said Mr Kelly. Slapping a tariff on these higher prices will add to the pain, he said. Companies such as Brilliant face the extra challenge of trying to price their products in a way that will generate demand in new markets that have yet to establish themselves.

…breaking into the mass market usually involves cutting the price, something that is now much harder.

Furthermore:

In the technology industry, hardware start-ups face some of the longest odds for success. Until they reach high enough volumes to strike better deals with suppliers and support the costs of brand marketing it is hard to make the economics work, and profit margins are notoriously low. “When you’re in hardware, a 25 per cent tariff can be a death knell to your business,” says Nate Kelly, a supply chain expert who now heads TrackR, a company that makes Bluetooth devices. The lack of a financial cushion or a diversified set of products means many companies will not be able to “ride this out for six months or a year”, he said.

And Mexico will gain, China will lose.  That is from Richard Waters at the FT.

Comments

'And Mexico will gain' by importing Chinese resistors and diodes, performing a little of that anti-regulation free market magic, leading to to the end result of the Chinese manufacturers laughing all the way to the bank.

Though Brexit, much like 3D printing, no longer seems to be a topic here, this is pretty much precisely the dynamic the EU wants to avoid with the UK. Currently, Chinese imports that do not meet EU standards are a problem to deal with. This being the EU, the solution is considered to be better tracking and enforcement regarding imports. The UK Brexiters, on the other hand, are promising exporters that cannot meet EU standards currently that the UK will soon allow them the opportunity to use the British Isles as a destination - with a sort of wink-wink, nudge, nudge, say no more deal involving the EU treating the UK as a still trusted member of the common market.

Cauuuuukkkk!!!

More jobs in Mexico, less migration to the US. This is much better than Trump's wall.

Was this meant as irony?

You are explicitly saying you would rather not have employed Mexican immigrants?

"And Mexico will gain, China will lose."

Just look at the relative performance between US equities, global equities ex-US, and China since mid January (when first tariffs were announced). The market has decided that the US is going to "win" a trade war (in relative terms - of course the US and the world can be worse off in absolute terms).

US is strongly outperforming the world. Trump, who seems obsessed with the stock market, surely has noticed (he tweeted about the divergence a few weeks ago). That means he's going to continue to turn the screws in China.

Stock markets are just one source of information, but perhaps there is something there. Since Trump's election (11/8/2016), US small-cap stocks (which primarily serve the home market) have grown 46%, compared to 36% for the S&P 500 (lots of multinationals), 23% for overseas developed markets, and just 13% for emerging markets.

"And Mexico will gain, China will lose."

FT is sending me a new password, but in the meantime..

It seems really unlikely to me that US business will accept long-term tariffs on intermediate goods (materials and components of all types).

For that reason, this "plan" to build the Mexican economy (per Axa, to keep Mexicans out) seems very .. transient.

Everyone will be a loser in the meantime.

I mean geez, remember when Tyler complained about uncertainty? This is more than uncertainty, it is upheaval, and worse than that upheaval leading to no new stability.

I'm waiting for the WP headline: Trump's Weak Dollar. At the policy level, the falling dollar has been showing up in higher import prices and, hence, "inflation". On the other hand, the falling dollar has helped U.S. exporters (because it makes U.S. goods cheaper). Rising deficits in the U.S. (a trillion dollars in this year alone), however, require more government borrowing, and the falling dollar makes borrowing more expensive. What will the Fed do in response to all of this? What will U.S. consumers/voters do in response to all of this (in particular higher consumer prices for imports - from cars to televisions to washers)? As Cowen's blog post points out, international trade is complicated, reactions to actions sometimes producing unexpected results (unexpected to people other than Cowen, I suppose). Me? I just want to see Trump's response to the headline Trump's Weak Dollar.

"the falling dollar has been showing up in higher import prices and, hence, "inflation""

Not according to breakeven inflation prices.

China's currency has weakened. The same with Taiwan's.

Are you sure you know what you're talking about?

Source: I'm in the import business.

Chinese tariffs are not going to divert much trade and so far, we have not seen them on our product lines despite being warned by our customs house broker.

So that is it. Americans' jobs must be deatroyed, so that malefactors of great wealth can make more money and deatroy more lives (I mean, "disrupt" more activities). Maybe it is time to Americans take their country back from Red China and its abettors!! It is time to throw some Chinese diodes into Boston's waters.

And when that is done, we must use nuclear weapons on the major Chinese cities to force them to surrender.

First, they have to have a chance to surrender, impersonator!!

The passion of the Brazilian people burns with the brightness of a thousand Brazilian National Museums!

It is sad to see that for some people the suffering of people of a different nationality is a laughing matter.

I did not laugh when your Saudi friends crashed airplanes into buildings.

I would think the most impacted companies would be domestic low margin businesses that sell highly elastic goods. These types of businesses don't have high enough margins to temporarily eat the costs, can't raise prices on their customers without losing business, and can't easily shift operations overseas. E.g. Mid Continent Nail Corp, the largest manufacturer of nails in the US, with the steel tariffs had to raise prices and saw its orders drop 70% and is struggling just to stay in business (https://wapo.st/2p8G414). Whereas a lot of the tech companies have higher margins and produce inelastic goods - even the chip makers, which some consider a commodity business, operate an incredibly complex manufacturing process, and the Chinese semiconductor companies are years behind the American companies like Intel, Nvidia, Micron, etc. Most customers aren't willing to shift into inferior Chinese products.

We're in the process of moving production from Taiwan to China due to costs. I thought maybe the 15% tariffs being threatened would make that move less attractive...it really didn't do much. China is just so much cheaper.

My prediction is they will bring in more revenue than divert that much trade. China is also clever at finding ways around this: transfer pricing, weakening the RMB, etc.

I agree. The Chinese central command will find ways.

https://voxeu.org/article/chinas-hidden-shipbuilding-subsidies

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