There is hardly anything that is made domestically in the US. So the premise falls apart almost immediately. This premise works great for India where domestic production exceeds exports by massive margins and the economy depends mostly on domestic economy. It does not work for US where there is hardly any domestic production and is totally import driven economy.
The US has the second largest manufacturing base in the world after China. It's larger than India and is even slightly larger than the EU. It used to be the largest. Moreover, if the premise is that you're trying to bring back manufacturing capacity, it doesn't matter if something is currently made in the US, what matters is what it would cost if it was, because a tariff in excess of the difference would then make that cost effective.
Obviously in the latter case you would then have to wait until that manufacturing capacity comes back online, but "customers switch to a domestic product" isn't the only thing that can cause foreign manufacturers to have to lower prices. They could also switch to substitute products or reduce consumption and then foreign manufacturers would still have to lower prices to limit the extent to which that happens.
> The US has the second largest manufacturing base in the world after China. It's larger than India and is even slightly larger than the EU.
Of only end products. The "largest manufacturing base" is misleading when majority of inputs for your finished goods are dependent on imports.
> it doesn't matter if something is currently made in the US
It definitely does matter. The right way to have gone about this was to first build the manufacturing capacity in US before imposition of tariffs. It was done in the reverse, which led to US revealing its hand too early, allowing for rest of the World to re-calibrate and start the process of de-dollarization.
> foreign manufacturers to have to lower prices. They could also switch to substitute products or reduce consumption and then foreign manufacturers would still have to lower prices to limit the extent to which that happens.
It won't happen. There is no reason for exporters to lower prices when tariffs only set a new normal. Once the prices have gone up and consumer spending has stabilized around those jacked up prices, that will set the benchmark. Just study history. No product has been devalued due to any contingent circumstances unless the product itself becomes obsolete. Here you are not talking about novel products being developed and manufactured that will obsolete something popular. You are talking about bringing back manufacturing of nuts, bolts etc. Things that are critical and have an already established price in the market that will only go up higher in price once manufacturing moves to US eventually. Rest of the World will adjust to the new higher price.
> Of only end products. The "largest manufacturing base" is misleading when majority of inputs for your finished goods are dependent on imports.
Isn't it easier to figure out how to manufacture screws given steel than to figure out how to manufacture airplanes given screws?
> The right way to have gone about this was to first build the manufacturing capacity in US before imposition of tariffs.
But what's the incentive to do that if there are no tariffs? You either need a reward for doing it (subsidies) or a penalty for not doing it (tariffs). But the US government is already running unsustainable deficits, so there is no money for subsidies unless you want to pay higher taxes or cut some other spending, and good luck convincing people to do either of those things.
> There is no reason for exporters to lower prices when tariffs only set a new normal.
If China charges $100 to manufacture something that the US would have to charge $120 to manufacture and then you put a >$20 tariff on it, China could keep charging the same prices, but that would make it cost effective to make it in the US. To prevent that from happening they would have to lower the price, and therefore have the incentive to.
Now suppose it would cost $200 to manufacture in the US and the tariff is 50%. Can China just keep the price where it is and make the customer pay $150? The customer has a finite amount of money, so if they did then the customer would buy a new phone every six years instead of every four years. Meanwhile the $1000 phone just became cost effective to manufacture domestically, because 50% of that is more than the $100 increase in manufacturing cost, so they lose that business too. What response to this do they have other than to lower prices?
China has a third of global manufacturing capacity (and have to run flat out to avoid deflation due to domestic consumption that will never grow to meet domestic production capacity). Only the unsophisticated could believe the US is going to increase domestic manufacturing capacity at the levels needed to make domestic sourcing superior in some manner. That’s why these tariffs are not grounded in reality.
In three years at the most, these tariffs are done. Cheaper to eat the premium in the short term versus suboptimally invest capital in long duration investments (ie local factories and equipment to fill them). Manufacturing jobs continue to decline, as they have since the election.
> China has a third of global manufacturing capacity (and have to run flat out to avoid deflation due to domestic consumption that will never grow to meet domestic production capacity).
This sounds like the case that they'd end up paying more of the tariffs, because they can neither reduce production nor absorb the output domestically, which leaves lowering prices to try to sustain the same volume.
> In three years at the most, these tariffs are done.
That's not happened the last time. Trump was out for four years and Biden kept a lot of the tariffs.
> Manufacturing jobs continue to decline, as they have since the election.
"Manufacturing jobs" are a talking point but were never really going to happen. The only way the US is actually going to compete is by increasing automation, which doesn't do much for "manufacturing jobs". But it does get the manufacturing into the same timezone as the people designing the products to prevent those jobs from going next, keep the knowhow of production active domestically, reduce dependence on China, etc.
This is a graph showing that construction spending on manufacturing in the US is more than double what it was a decade ago and trending only slightly down from the all-time high in the period trailing when the COVID money ran out and the Fed started to raise interest rates.
While in the abstract and academic sense this is true, in practice there are two big problems that make it an utter non-starter*:
1) Due to the absolutely massive supply chains that have been built up in East Asia (not just China, but many other countries around there), and lack of same in the US, even for products where it's physically possible to produce it all domestically, from the raw materials on up, it would take decades of sustained investment without return before actual consumer products could be made on anything other than a one-off basis. Any step that can't be done in-country gets the tariffs slapped on again. And there are a fair number of raw materials we just don't have, at least not in the kinds of amounts that, um, the entire rest of the world does, that are required for mass production.
2) Trump isn't applying tariffs in a strategic manner to get domestic manufacturing to come back. He's applying tariffs as his personal punishment stick, and to all appearances that's the best he's actually capable of doing with them. In order for any of what I described in #1 to happen, ever, the tariffs need to be applied consistently, predictably, and for a long time.
Trump doesn't want to do any of that. He's just found a magic stick that makes people kowtow to him, and he's going to use it however he pleases.
* Not that I think you're unaware of these, based on your post; to a large extent I'm just expanding upon your second paragraph here.
> it would take decades of sustained investment without return before actual consumer products could be made on anything other than a one-off basis.
That's true of some products, not all of them, or even a majority. And even for those products, well, if it's going to take a long time then we better get started.
> And there are a fair number of raw materials we just don't have
This is again not the common case, and even then it's not necessarily the wrong solution. For example, China currently dominates the production of rare earths and the US doesn't have sufficient reserves, but Australia does, so higher tariffs on China than Australia create an incentive to move mining operations to Australia which breaks China's lock, and creates the incentive to invest in rare earth processing in the US, since then you're only paying the (lower) tariff on the (lower-priced) raw materials rather than the (higher-priced) refined product.
> Trump isn't applying tariffs in a strategic manner to get domestic manufacturing to come back.
This is more of a Trump problem than a tariff problem. If you do something wrongly enough it obviously doesn't work as well as it otherwise might.
> China currently dominates the production of rare earths and the US doesn't have sufficient reserves, but Australia does, so higher tariffs on China than Australia create an incentive to move mining operations to Australia which breaks China's lock
There are "sufficient reserves" (known rare earths in the ground) across the globe and the US absolutely has large reserves.
> to move mining operations to Australia which breaks China's lock
There are already mining operations in Australia delivering raw concentrates in bulk to China. Again, not a shortage of mining operations or a shortage of reserves in the ground.
It's the concentrate processing that China invested time and capital in decades past - every other country about the globe (save for Malaysia, to their regret) figured they'd leave the acres of acid ponds and low level radioactive waste to the Chinese.
Now the US wants Australia to take that on, and that's a deal with the devil for Oz while the current POTUS cannot be trusted to hold up any deal.
There is hardly anything that is made domestically in the US. So the premise falls apart almost immediately. This premise works great for India where domestic production exceeds exports by massive margins and the economy depends mostly on domestic economy. It does not work for US where there is hardly any domestic production and is totally import driven economy.