The main effect of tariff insanity:
Uncertainty poisoning supply networks, degrading a lot of relationships at once.
That scar tissue will linger for a long time.
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Uncertainty poisoning supply networks, degrading a lot of relationships at once.
That scar tissue will linger for a long time.
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Comments
A trade war triggered by Trump's chaotic tariffs is the same type of aggregate shock as the Covid crisis, but worse.
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https://www.noahpinion.blog/p/americas-supply-chains-are-a-disaster
Most of these sourcing relationships cross borders.
And most of these relationships operate on low margins. That means big tariffs will shut down a considerable number of them.
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The consequences? Contraction or inflation. Quite possibly both.
Plus a worse selection of goods for both businesses and consumers.
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Just like the Trump crash, it was a global phenomenon - global supply networks are global.
In that crisis, shipping congestion was the "tax." In this case, the tax comes from the choices of one person.
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Its models don't capture the firm-to-firm supply relationships.
So they can't capture the sudden contagious scarring due to many relationships being randomly hit with crippling tariffs.
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I taught a simple example, based on your awesome paper, earlier in the semester, to my intermediate micro students. This, plus the number of times things (car parts, for example) get imported (and reimported) and exported, clarifies just how big the overall impact it
And markets also don't believe reshoring will fix all this, for a simple reason: these supply chains are too complex to reshore, and reshoring is slow and very expesnive.
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