Will Tariffs Raise U.S. Component and PC Prices? It’s Complicated

redgarl

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Chips are american, lithography are taiwanese, american and korean, PCBs are mostly taiwanese...

Unless Foxconn is making the PCBs, I doubt an increase will occur on the PC market... that's another story for Apple devices.
 

bit_user

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All it's going to do is push manufacturing for the US market to move outside of China. Like, maybe to Vietnam, Malaysia, Philippines, etc. Very little of it will be coming (back) to the US.

And in order to make that happen, we have to pay essentially a federal sales tax. On top of that, it's also hurting US exports to China. You're really cool with that?

There are lots of ways to promote more domestic manufacturing. Except in cases where underutilized capacity exists, tariffs usually aren't the best tool in the box.
 

bit_user

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Really? Most PC products I've purchased in the past 10+ years are made in China. Even Japanese and Taiwanese companies do it.

Semiconductors are probably the main exception. Most of the chips we buy still aren't fabbed there. Also, HDD makers have legacy plants outside of China.
 

nikolajj

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If the US customer pays for the tariffs, then USA is (still, if ever) being ripped off.
 

bit_user

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I think the argument is that the short-term pain would be worth it, if it resulted in strategic gains. For the most part, what's lacking is strategy. The big risk is that neither Trump nor China will back down. It's not that there aren't plenty legitimate complaints against China, but this is a very high-stakes way to prosecute the case. It could result in a lot of pain for little or no gain.

The main reason tariffs are being used is because it's the tool the President has. For historical reasons, congress had allowed the US President to levy tariffs of up to 25% for national defense purposes. As the saying goes: "when all you've got is a hammer, everything starts to look like a nail."

One alternative was to create a trading block which excluded China. This was known as the Trans-Pacific Partnership. Now, there are plenty of valid grievances against that particular treaty and negotiating process, but it was definitely less confrontational and would've created a trading block with even more leverage than the US, alone.
 


If this occurred two decades ago I would be in agreement. Tariffs should move the demand back to your country but the US simply can't manufacture this "stuff" so all its going to do is move manufacturing to some other country not China or the US. At the end of the day the American people are subsidising moving manufacturing to another country.
 

stdragon

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It's a game of chicken.

The bubble in China could pop with all that debt (think of a Japanese style "Lost Decade" crash in the early 90s), and the economy is already showing signs of slowing down. My guess is that China will counter via devaluing the Yuan. In fact, it was just reported a view days ago that China would not do such a thing - which tells me they'll probably do the opposite if they've got to underline that with a statement defensively. If they do in fact devalue the Yuan, that would counter the consumer effects of new imposed tariffs; either in whole or part. Meaning, not much of a price change for the US consumer.

So what's the really all about?? Again, purely a guess, but thinking about it this way. The massive trade imbalance is in fact funding all the HAMs (Hot Asian Money) to be purchasing real-estate in the West while money in the mainland is funding the Chinese military. That and China is looking to expand a Belt and Road initiative via an expanding empire. They're welcome to it like any other nation (empire building that is). But, (and they're always a "but") this is a recipe for regional Pacific conflict that would no doubt spark war between neighboring nations and God forbid, nuclear armed India!

So that all said, I'm not so sure this is purely out of America's interests directly as it is indirectly via preventing major military conflicts via neutering Chinese progress in their own endeavors. However as history has proven, a Trade War can lead to a hot war. So meaning, a total back-fire. And if that happens, you can forget about increase PC prices as that will be the least of your worries!
 

ssdpro

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This continual lack of understanding is what got the USA into this 20 month mess in the first place. Adding tariffs is just a flat tax on everyone that buys those goods. The tiny "tax cut" we got in 2017 is negated 200% by the tariffs now in place not to mention the soaring oil prices.

 

A Stoner

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This is what you need America, you have been getting ripped off for far too long by getting huge discounts on the products you buy. Trump is going to fix this problem by increasing the taxes you pay on as much as he can possibly tax at rates that reach and exceed your pain threshold. Now suck it up and live a lesser life, you earned it!
 

folkema

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Exactly. Tariffs are taxes - flat taxes that hurt the poor the hardest. The pitiful tax cut was just a redistribution of wealth to the oil companies and corporations. They gave you a tiny scrap back and took ten times that in higher priced goods and gasoline. Ironically that redistribution is the very thing conservatives used to bemoan about progressive policies.

 

bjornl

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SR-71 Blackbird is absolutely correct. Tariffs hurt the offending party, those that engage in unethical trade practices. They also hurt other uninvolved parties, which is unfortunate. They do not directly 'fix' what was broken. They aren't supposed to any more than sending a thief to jail is supposed to get the stolen goods returned. Sending criminals to jail costs society too (room, board, guards, etc all have to get paid by us) but we send criminals there regardless because it is the way we have elected to discourage bad behavior. With financial harm such as China has caused us, tariffs are the least bloody way to punish them and to discourage them from continued misdeeds. No one likes protectionism, but free-trade needs to be fair trade for it to be a rational choice.
 

Dark Lord of Tech

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Exactly!!! :)
 

alextheblue

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I'd like to see more manufacturing moved outside of China, almost regardless of where. It's not just about promoting domestic production... anything that doesn't address China isn't a good long-term solution. They take the "long game" seriously, and eventually we'll just end up back at square one if we just ignore their abuses.

As for capacity, the reason we don't have underutilized capacity is because outsourcing/importing *annihilated* underprotected domestic production in many sectors (and it wasn't always unintentional). If you have limited (or zero) capacity, of course you don't have any underutilization. You make 1000 widgets a month, and you're just about maxed - too bad the nation imports 100M units because the only ones buying the 1000 domestic units are government entities. But hey, at least we're not underutilized.

What should have happened is we should have dealt with this impending trade monster many years ago. The Bushes and Clintonbamas all ignored it. Now we are fighting an uphill battle and frankly, I don't see a lot of good options. With that said, the status quo wasn't heading in a good direction long-term, and doing nothing wasn't appealing either. I haven't seen a great solution yet, certainly not one that would unfold as planned in the real world.


The TPP was such a monstrosity that even Clinton dropped support.

"You down with TPP?"
"I'm not down with TPP."
"No, you're supposed to say 'Yeah, you know me'."

That reminds me, is Zach Galifianakis still alive after that?
 

bit_user

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No, I can't agree with that. The point about them is that, if correctly used, tariffs can act as a band-aid to redress the effects of the underlying problem.

To correct your analogy, tariffs are similar to forcing a vandal to pay for the property he damaged. It doesn't change the fact that he damaged it, but can make up for it.

Using tariffs as a punishment is precisely the most dangerous way to employ them. From a free trade perspective, they would only be used as a short-term fix for "dumping" scenarios, or other unjustified trade imbalances.


This brings me back to my earlier point: "when all you've got is a hammer, everything starts to look like a nail."

I'm not saying don't do anything about China, but to say that tariffs are the best answer lacks imagination and ignores history.


There are lots of people who like protectionism. It was a major part of Trump's campaign.

Also, free trade is not fair trade. Fair trade is a term coined in direct opposition to free trade. Free trade would say that nobody should have any tariffs or trade barriers, no matter what. Fair traders would say that we don't want free trade at the expense of things like worker and environmental exploitation. Fair trade isn't necessarily the same as protectionism, but there's overlap.
 

bit_user

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True, though I've heard China is even outsourcing some manufacturing for a few years, now. Production might just move to Chinese-owned/funded plants, elsewhere. One Belt, One Road.


Yeah, I get that. But the best solution needs to target the actual problem. In the case of the steel/aluminum tariffs, there actually was overcapacity, as evidenced by mills having to shut down. I'm not fully supportive of that move, but at least it made sense at some basic level.

However, in industries where there's no overcapacity (and, in many cases, no capacity), then you need to take a longer-term approach to build the capacity. That way, you at least get some gain for the pain. So, you could do this by having government-underwritten loans and subsidies. I don't want to get into an ideological debate about whether that's the best option, but I'm just giving a for-instance (and this is essentially standard practice, in China).


It actually goes back further than that. Since the 1960's or 1970's, US political culture has been dominated by free trade ideology, sometimes referred to by one of its chief proponents, the Chicago school of economics.

I don't actually know what Obama wanted to do, but his work on TTIP and TPP were efforts supported by the Congress he had to work with. He definitely took the conservative approach, as in going with the conventional wisdom. Although, if you look back to the original economic stimulus package from 2009, there were some parts which tried to favor domestic suppliers for goods and materials that either got removed or disregarded (after outcry from countries who blamed the US for causing the world-wide recession of the time).


There are a few easy options that are politically difficult. Most of our global competitors don't have employer-sponsored healthcare, for instance. This requirement makes US workers significantly more expensive to employ.

Probably a less controversial idea would be to invest in infrastructure, prioritizing things that would make it cheaper for businesses to operate. This would create jobs both in the short and long term. Infrastructure spending is another thing China has done quite heavily, and for quite a while.


It was easy for politicians to buy into it, since the major economic indicators seemed headed in the right direction. The problems mainly had to do with unequal sharing of the benefits. You had a growing population of folks who were disenfranchised, and somewhere in the past 50 years, I guess people stopped caring about the welfare of their countrymen. The business community was all to happy to outsource jobs and import immigrant labor, and the politicians' patronage was easily secured.


Clinton dropped it for political reasons. She probably thought it was the right (and not too controversial) thing to do, but realized her position was untenable after Bernie and Trump came out against it.

I don't think it was worse than what Trump will eventually negotiate. In fact, he might just be the one to revive it, although rebranded as something else.

Certainly, if he wants to get anything in place with the EU, in his first term, it'll be heavily based on TTIP. Negotiating trade agreements of such scope and scale is an extremely drawn-out process, so it's probably his only option.
 

alextheblue

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Overall I agree with much of what you have said, Bit.

Yeah, when and where it benefits them. They don't have quite the same impetus to do so as shareholder-driven domestic firms. I think a lot of their motivation is to dodge our efforts to slow them down, and to obscure their growing dominance. Furthermore, try to do the same in China (own a Chinese plant). Good luck. Looking at the increasing foreign ownership of various companies and property in the US makes me nervous, but I can't see an easy (and sane) way to tackle that issue (ditto for shareholder-driven issues).

Indeed. Our domestic labor costs are already plenty high compared to China without factoring in anything else, meanwhile we've got a lot of states that intentionally push up the cost of labor. Then there's the tax and regulatory burdens. Moving overseas or outsourcing production makes a company more competitive, allowing them to perform better against competition that also takes advantage of less expensive, well, everything.

To discourage this, you need barriers to make it unappealing for them to do so, and/or incentivize doing the right thing. Part of that may include making sure the playing field is a bit more level (on a case-by-case basis depending on the nation in question) for them to compete. I think there's some room between 100% free trade with all nations, and full-steam protectionism that tariffs ALL imports. I think it should be done cautiously and in moderation, and I think we should take the lessons of the past to heart. It doesn't even have to be done with much in the way of tariffs, but a lot of the levers we have are glued tight by Congress and many States. At any rate, given how much of our industry we've lost, it's definitely going to be challenging.