Terrific public finance exam question: Is it more efficient to put tariffs on an industry -- effectively forcing U.S. consumers to subsidize it, while also distorting the price signal -- than to subsidize it directly using taxpayer funds?
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In former case the specific (micro) sector of the domestic economy is made less competitive b/c it bears a burden it doesn't in foreign economies (the tariff), conversely it benefits from reduced cost of it's inputs at the expense of the broad economy (which pays for the subsidy).
There in the first comparison on the tariffs side of the inequality we should add increase of domestic manufacturing mindful of effect on broad economy.
If we're weighing goods of ubiquitous use, these are actually equivalent and should result in inflation and structural change in the economy. Conversely, the trade-off is politically coloured toward the micro sector.
If the goal of the policy is to add capacity then subsidies should be preferred as they have more direct effect and less visible cost structure and hence are a more resilient measure, however neither are long term sustainable unless the economy is competitive.
The CHIPs and Science Act of 2022 contains a workforce development provision allowing non-college, blue collar workers, like Trump voters, to receive training, apprenticeship and pre-apprenticeship initiatives.
It’s going to be hilarious when (if?) the US does reshore some critical manufactures and processing (chips, rare earths) but still needs the tariffs to protect the nascent industries against what they claim is Chinese dumping.
Only one answer here. Tariffs by themselves are a horribly regressive tax. Subsidizing industries is only as regressive as the entire tax system, so therefore is much fairer to the lower and middle class. Oh yeah, subsidies also don’t have a collection and remittance administrative burden either.
Some people like to use carrots to incentivize investment in important industries. Others like to use sticks and piss all over the place causing confusion- then pretend they implemented a strategy which leads to no investment. The latter people are idiots.
If you want to subsidize it for political reasons,
give your "beneficiaries" the cash,
don't trash all other US manufacturers who use electronics,
and "never fight a trade war in Asia", because he just trashed US farm exports for a decade or longer. Again.
And US farm machinery manufacturers.
Tariffs make exports more expensive. So they hurt companies like INTC, TI and Micron. Fabless companies like Nvidia and AMD which manufacture in Taiwan at TMSC are fine since they don't pay US or Chinese tariffs to produce products. The lesson is obvious, don't manufacture in the US.
Subsidizing that industry is much less destructive to other manufacturers that use their products or sell them components and materials than putting a tariff on imports of competing products.
Other people have pointed out it's also less regressive,
but Trump and his corporate donors like regressive.
either he has the fundamental misunderstanding about who is actually paying for the tariffs or he is pretendding to be dumb while stabbing the US consumer in the back, I say the later.
Hint: If subsidizing chip production is not worth doing using taxpayer funds, then it's almost certainly not worth doing using funds raised by distortionary tariffs.
The incentives like in the chips act only cost money if they work. There’s no uncertainty there’s no disruption and it gets us where we want to be. The tariffs cost us in many ways with no certainty that they will work. No brainer.
Investing in your countries ability to produce something will always be better than making the external good more expensive. One provides funds to innovate, the other punishes your population.
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At least they aren't this dumb and immoral.
Tariff revenue decrease in profit/size of the micro sector mindful of effect on economy
Cost of subsidy mindful of effect of increased tax/deficit on economy increase to profit/size of the micro sector
give your "beneficiaries" the cash,
don't trash all other US manufacturers who use electronics,
and "never fight a trade war in Asia", because he just trashed US farm exports for a decade or longer. Again.
And US farm machinery manufacturers.
Other people have pointed out it's also less regressive,
but Trump and his corporate donors like regressive.
https://bsky.app/profile/justinwolfers.bsky.social/post/3lmsmd7lqbs2t