François Chollet (@fchollet) “People expect the economic impact of a high-tariff regime to look like a downwar” — TopicDigg

People expect the economic impact of a high-tariff regime to look like a downward step function, like in the image on the left (not expecting 145% tariffs on China -- but let's say 30%). In reality, it will be more like the image on the right. 1. The early response will be muted, as businesses had prepared for the initial shock via inventory buildup 2. Once inventory runs out, businesses can now... stop importing (-> layoffs and bankruptcies), pass on the price increase to consumers (-> runaway inflation), crush their margins (-> layoffs), or some combination of these 3. Due to secondary and tertiary effects, things get a lot worse than anticipated 4. Long-term, supply chains get rerouted to lower-tariff countries (i.e. goods transit there, get repackaged) and imported goods are "just" 10% more expensive across the board. Only minimal reshoring happens. Impact is better than feared (high tariff rate is rarely ever paid) but substantially worse than the prior free trade regime Right now the economy is gutshot, but it won't become obvious for another couple of months -- which will actually encourage the new high-tariff regime to get entrenched. Expect summer and fall to be really bad