The things that dominate middle class budgets: food, housing, medicine, education, are surprisingly local, and have become increasingly unaffordable in recent decades even as economic numbers have gone up.
The question that really matters to most people is, "What will these tariffs do to the prices of these things that actually matter?" And that it actually rather hard to predict.
The economists who claim that tariffs will harm normal Americans were also the economists who claimed that sanctions would destroy the Russian economy. They had the opposite effect, for reasons that still remain somewhat unclear. It may be that global trade makes certain classes of society very very wealthy, while not necessarily being such a positive for the middle class.
It is also notable that Chinese competitiveness has only increased as they have engaged in decades of state economic planning and market barriers. The economists who have told us since Reagan that this is inefficient and stupid might be ... wrong.
> The things that dominate middle class budgets: food, housing, medicine, education, are surprisingly local
> The economists who claim that tariffs will harm normal Americans were also the economists who claimed that sanctions would destroy the Russian economy. They had the opposite effect, for reasons that still remain somewhat unclear.
> It is also notable that Chinese competitiveness has only increased as they have engaged in decades of state economic planning and market barriers. The economists who have told us since Reagan that this is inefficient and stupid might be ... wrong.
You are quite wrong there with all of those three points.
#1. a lot of food items come from Mexico, South America, Asia also. Housing material from Canada and China. A lot of meds come from Asia especially India. Majority of Stationary is manufactured in China as well.
#2. Russia is struggling with economy. But remember it has a lot of help from China, Iran, N Korea, and India. That offset a lot of sanctions. Europe is still buying gas from them.
#3. I’ve to remind you this - China exports in trillions.
#1. Total US food imports are about $200B. That's about 10% of US household spending on food, measured by supermarket plus restaurant sales ($800B + $1T).
#2. It's hard to know what's going on in Russia.
#3. High exports don't disprove GP's claim about "state economic planning and market barriers". In fact, they prove the success of those policies and help China maintain a $1T trade surplus, the very opposite of the US's situation.
One thing to note when comparing imports to spending. Import numbers are based on the commercial invoice value (i.e., how much it cost to produce) while spending is based on the sale price. So it's an...apples and oranges comparison. But I agree with the broader point that a lot of what we eat is produced here (especially meat).
>One thing to note when comparing imports to spending. Import numbers are based on the commercial invoice value (i.e., how much it cost to produce) while spending is based on the sale price. So it's an...apples and oranges comparison.
The context of this is the impact of tariffs on households' budget, and in that context, invoice value is fine, because that's the value on which tariffs are applied. 30% tariffs don't mean all foods go up 30%, it means it goes up by 6% (20% of 30%).
Why would you include restaurants in household food spending rather than something like entertainment?
About 25-33% of resturant sales are the cost of food. So you can break out the total spent on food pretty easily.
> That's about 10% of US household spending on food
Isn't ~10% spending on food like a historical best of any country ever?
I'm confused what this means? I think OP meant that 10% of the _spending on food_ is imported, so 90% of the household spending on food is from domestic markets.
> were also the economists who claimed that sanctions would destroy the Russian economy.
This is _very much_ up for debate. It's been a couple of years since Russia went completely dark on publishing key numbers on their economy. [This was three years ago.](https://www.youtube.com/watch?v=ZRgS6gpiMX0). They had a large war chest ready before they went to war (part of which has been frozen in the west), and there are a lot of signs that they are on their last stretch before things go really bad for them.
Predicting _when_ things go bad is very difficult, so I do not hold that against said economists. The most telling sign is that the first thing the Russians ask for is for sanctions relief before any peace negotiations.
>The economists who claim that tariffs will harm normal Americans were also the economists who claimed that sanctions would destroy the Russian economy. They had the opposite effect, for reasons that still remain somewhat unclear.
They didn’t have the opposite effect. They were ineffective in general, because Russia has large trade partners not aligned with the West and it has been preparing for it, optimizing the government apparatus for 20 years (financial bloc for 30 years). There are plenty of A-players (head of central bank, minister of finance etc), working industrial policy and digitalized processes, and they can make decisions very fast both politically and bureaucratically.
Prices will very likely go up for products that are not 100% local. Some resources for end products are currently mostly imported. The new tarifs also affect resources and unfinished products.
New trade routes and spinning up local production will take time (likely longer five years) so the consumer will pay a price. Question is how high it will be.
To purely imported goods (a lot of tech for example): cost will go up substantially.
To Russia: They are currently in a war economy. You will likely not really see a collapse coming until it is to late. Banks have been forced to give far to cheap loans to the arms industry complex which are unlikely to ever pay them back. This partially masks the true cost of the war.
Let's so how this proceeds.
Trade deficit is effectively a migration of capital inflow, so tariffs should reduce not increase investments.
If an investment is profitable with 30% tariffs, but not at 10% tariffs, the risk of changing policy means your profitable investment has a risk of being unprofitable, and thus you are less likely to invest in it.
The current administration does not understand that. I think of American mask producers as an example of how you cloud get really screwed
> Trade deficit is effectively a migration of capital inflow, so tariffs should reduce not increase investments.
That seems backwards. A trade deficit (more goods coming into the country) should be balanced by a capital outflow (money leaving the country). We've sustained that for decades by printing more money and sending it around the world.
Some people think that's a good deal, because we get real stuff in exchange for money we create for nothing. But what will have left when other countries no longer want our money?
Edit: As the comment below points out, I should technically ask what happens when they no longer want U.S. government debt?
Money in this context is just a representation of value. You presume the money for foreign goods is leaving the USA when we import the goods, but that is actually not necessarily the case.
Make no mistake, these countries are getting something in return for the extra goods and services they give to us. It is not for free. One of the big things trade to China to make up this deficit is an investment in the US government (treasury notes) or assets. That is, they are taking the dollars they get and then parking it in the US as investment . The deficit is they're choosing us to invest in rather than themselves!
>The U.S. trade balance has been in a deficit position since the 1970s. This means that the total value of imported goods has been greater than the total value of exported goods. This means the U.S. is a “debtor” nation, running a merchandise trade deficit. However, the merchandise trade deficit refers only to imports and exports of goods and services. It shows that imports are greater than exports, hence the “deficit.” But, think about it for a minute, why does the world keep giving us goods, without getting goods from us in return? Is this a good deal or what? Well, clearly, this can’t be the whole story.
>What is happening is that the people from whom we buy goods abroad are taking our dollars investing in the U.S. economy. They may buy U.S. government debt (securities issued by the U.S. government to finance past federal budget deficits) or other assets in the U.S. For example, they may invest in U.S. companies.
https://www.csun.edu/sites/default/files/macro10_0.pdf
Trump is ha-ha-only-serious joking about a third term and has said that, if people voted for him, they'd never have to vote again. So... in case of Emperor Trump, the tariffs wouldn't go away. I wonder if somebody is already working out how to tell "the economy" about that without being too obvious about the seriousness of his third term plan.
Biden kept Trump’s first term tariffs, so there is no guarantee they will go away.
And many other countries, e.g. Canada, won’t just make up with the US after Trump is gone.
> The main issue I see is that in 3.5 or possible 1.5 years, a new president ( or laws passed through congress ) will just vacate all Trump executive orders, tariffs in included. So that $100 million you invested in a new factory that is 3/4 built? Sorry, tariffs are gone and now you are out $100 mil. Why would any corp assume that risk?
If I were to be as generous as possible, I might say that's why Trump is being so chaotic with the tariffs? If you turn everyone against us and no one is willing to trade with us, it may force people's hand to build locally and then 4 years from now, there's still no appetite to resume our normal trade patterns.
> The economists who claim that tariffs will harm normal Americans were also the economists who claimed that sanctions would destroy the Russian economy. They had the opposite effect, for reasons that still remain somewhat unclear.
It is somewhat unclear to me that sanctions had the opposite effect to destroying Russian economy.
Does that mean it is doing great? I don't think so.
> The things that dominate middle class budgets: food [...] have become increasingly unaffordable in recent decades
I tried finding some number to corroborate your claims.
The proportion of food in the American budget has decreased from ~17% to ~13% between the 60's and now. In fact, it has decreased a lot for "at home food" and increased slightly for "dining out food"[1]. Food seems cheaper than ever - on average. The current price of a calorie sufficient diet is now roughly $0.44/day in the US [2] that sounds very low. Between the 60's and today; the average daily supply of calories per person has increased from ~3000 kcal to ~3800 kcal [3]. People eat more than ever - on average.
[1] https://www.ers.usda.gov/data-products/chart-gallery/chart-d... [2] https://ourworldindata.org/grapher/cost-calorie-sufficient-d... [3] https://ourworldindata.org/grapher/daily-per-capita-caloric-...
I really wanna believe you, but aren't you just looking at the past with rose tainted glasses. And if you are young; aren't you making up a past that doesn't even exist ?
Over the period since the 1960s, look at education, medicine, housing, not food.
For food prices, look at the most recent 5-year timescale, where price increases are reported to be on the order of 30% for American consumers. [1]
[1] https://www.nerdwallet.com/article/finance/price-of-food
Yes, that's how proportion works; if thighs like food take a smaller portion of spending, some other things will take a bigger share.
GP comment is cited food as the first item; and decades (not 5 year) as the reference timeframe, so I focused on that. I am sure that by cherry picking both items and timeframe (look at food but only over 5 year; education but only since the 60's; telecommunication but only since the price hike of last week) you can paint a different story, but that's not the point here.
The average inflation-adjusted annual tuition for a 4-year degree has gone from $2843 to $10,892 between 1969 and 2023 in 2023-dollars. [1]
Healthcare spending per capita has gone from $2,151 to $14,570 in the same period in 2023-dollars. [2]
The inflation-adjusted home price index has more than doubled over that period. [3]
Real wages have remained fairly stagnant over these same decades. [4]
[1] https://educationdata.org/average-cost-of-college-by-year
[2] https://www.healthsystemtracker.org/chart-collection/u-s-spe...
[3] https://cdn-0.inflationdata.com/articles/wp-content/uploads/...
[4] https://www.epi.org/publication/charting-wage-stagnation/
Those things that are highly local have been dominating middle class budgets because foreign stuff like clothes has gotten so cheap. That's a good thing -- if you spend less money on some things you have more money for others. If you make the foreign stuff expensive, the local stuff will less dominate budgets as they destroy those budgets.
And labor shifts from activities where we have comparative advantage (highly skilled labor) to things where we have less comparative advantage (low skilled labor).
So now you have a lower skill low pay job and paying more than before.
I cannot make sense of it other than as a few others posted here that Trump is preparing for war and wants to soften the blow of the interruption to international trade by making sure we are more prepared for isolation.
Food is not entirely local. CA gets majority of fruits from Mexico, Peru, Chile etc. Olive, Sunflower, and other oils are imported. Many spices are imported. Lumber tariffs will impact housing and repairs. Any thing with semi-conductors will be expensive: routers, modems, tablets, phones.
Middle class expenses may arise around 5-10% at the very least.
To add some perspective, the most expensive component of modern farming is fetilizers. Things such as Nitrogen, Phosphate and Potash.
America depends on other countries to supply some part of these materials (like Potash from Canada).
I'm not sure the assertion "food is entirely local" is entirely sound, when we consider the supply chain.
Most of our potash comes from Canada, but surely the US is self-sufficient in nitrogen fertilizer (since it is made from natural gas, which is really cheap in the US) and ISTR it's being close to being self-sufficient in phosphate, too.
Maybe. But as an OSS developer, I find it cozy that even domestic food production has a certain global component. I like the image of a global community helping each other, just as we do in software projects.
I mean, if American companies had rejected Linux/Ruby/Lua because "they are foreign goods, born in Finland/Japan/Brazil", were it better?
Do US farms spend more on fertilizer than they do on fuel for tractors and other machines?
> The economists who claim that tariffs will harm normal Americans were also the economists who claimed that sanctions would destroy the Russian economy.
Nobody can predict the future, least of all economists. Having said that I think economists were not wrong on the headwinds that Russian economy would face. They just failed to account for extraordinary measures that dictatorship could take.
And even with said measures there had been a steady deterioration of the economic situation... The real question is what is the state of their mineral (cough gold cough) production rates and reserves. They might just be able to buy their way out of the current situationship.
I think this is mostly accurate:
> The things that dominate middle class budgets: food, housing, medicine, education, are surprisingly local, and have become increasingly unaffordable in recent decades even as economic numbers have gone up.
Really you have to split goods into two categories, stuff that has no geographic ties(alot of these goods manufacture has been outsourced to asian countries and low wage countries) and stuff that is tied to a location, think Mexican tequila or Swiss watches.
The first category is more tied to the middle class and I could alot of the manufacturing coming back to the US due to cost. The second category cannot be made in the US and buyers will bear the brunt of the cost runups.
The stuff in the first category that is going to be hit hard with tariffs is by and large big ticket items like cars and electronics, and conversely the really cheap plastic junk that is ubiquitous at dollar stores. I think the days of 50 inch flat screens for a few hundred dollars are gone. In addition cars sold in the US(US made brands and not foreign companies) have alot of their supply chain in either mexico and canada but the middle class is not buying alot of newer cars - average age of a car is reaching the longest ever due to cars jumping in cost the past few years.
I see this really hurting high income americans alot more, new cars especially European luxury are going to be quite expensive, alot of expensive wines and liquor will jump in price, jewelry and luxury handbags will also be alot more expensive.
well for the Russia sanctions, initially it did have an impact but then both people and corporations found workarounds...
for example, blocking swift does not make money transactions impossible, makes it difficult for the layman in the first a few times.
nowadays, everyone uses crypto/usdt for the transactions and realizing it is actually cheaper and faster than the swift.
for the europe, they still buy the gas even at a higher price. grounding berlin to moscow flights only benefits turkish airlines and qatar airlines as now they profit from being monopolies (connections through istanbul and dubai)
the reality is that people adapt. i am not a trump supporter, i do not agree with the tariffs but that's what trump is trying to do; force people to adapt local goods
> also the economists who claimed that sanctions would destroy the Russian economy. They had the opposite effect, for reasons that still remain somewhat unclear.
On what timeframe did they say that?
There’s a good argument they ARE working to that end, just not as fast as policymakers would like. See the RU economic weakness in September.
One can make a decent argument that the sanctions were insufficient as Russia is effectively a petrostate (now with industry on a war footing) and the sanctions largely avoided RU oil/gas. Also China took up the slack by buying whatever Russia was willing to sell, and in Russian currency which extended their runway.
Lastly, Russia predicted the sanctions as a response to their Feb 2022 invasion because similar things happened before, so they planned ahead and made themselves resilient to The US dollar financial system locking them out (the same way they made their internet resilient to foreign sovereigns potentially cutting them off.
> They had the opposite effect, for reasons that still remain somewhat unclear.
The US deindustrialized since the 70s. Russia has had 100 years to practice being an independent, self-reliant, sanctioned country. The reasons are obvious.
>It is also notable that Chinese competitiveness has only increased as they have engaged in decades of state economic planning and market barriers
How is China's own economy doing these days?
With all respect, that's not a steelman argument in favor of tarrifs. It's a stack of whatabountism fallacies. "Tariffs are Good" does not follow from "People who say Tariffs are Bad were wrong about other things". Everyone is wrong about lots of stuff. The world is hard to predict.
You don't shoot a hole in the bottom of your life raft because the person pleading with you not to was wrong about how many people it could hold.
> They had the opposite effect, for reasons that still remain somewhat unclear.
It's clear that Russia redirected most of its exports. Just look at how much oil India is now buying from Russia — before the war, it was around 5%, and now it's over 40%. They rerouted a large part of their trade, created shadow fleets, and many EU exports still end up in Russia, but through proxy countries like Kazakhstan. (You can see this in the trade statistics between the EU and former Soviet bloc countries before and after the war.)
But the situation here is entirely different. The US has placed tariffs on much of Asia, the EU, and several other regions. There's nowhere for the US to reroute trade in a way that allows it to import the same goods at the same or lower prices.
The US might reroute them through Sinaloa, and then Sonora or Chihuaha...
India is having Russia keep the rubles it gets in India and buy other stuff with it
> They had the opposite effect
The Ruble was on it's way to complete devaluation before Trump propped up the Russian economy by signaling he's willing to give them everything in exchange for nothing.
But it's also true that the west never really fully committed to the sanctions, the fact that you still had Russian oligrarchs traveling around Europe with relative ease was a pretty strong tell.
It wouldn't be this steep if he wasn't trying as hard as he can to follow through on his promises of "his own brand" of prosperity, the only way he has ever known how, unfortunately that's when massive losses have always proven the most likely outcome.
Anyone else with a proper business background would have been able to negotiate international trade agreements more favorably, including overall increases in tariffs, and if there was going to be unavoidable downward pressure it would certainly be much less than this at this point.
Plus someone with actual useful deal-making experience would have been able to maintain stability on the way to a noticeable if not shocking upturn by now, there was a lot of low-hanging fruit left over after Biden.
Why not do something with that, rather than take it out on the American people? Just because all of them didn't vote for Trump, he can't bring himself to care about the country as a whole, or average citizens hardly at all. Much less legal residents.
If the only way to "sink the liberals" makes almost everyone else go down with the ship, so be it.
>It is also notable that Chinese competitiveness has only increased as they have engaged in decades of state economic planning and market barriers.
Meanwhile in California, the high-speed rail project is not going so well. There's some serious problems in the U.S bureaucracy, especially blue states. A recent extension of a rail line in San Francisco came in at $1 billion per mile. There are huge amounts of people dependent on the government running inefficiently, vastly overpaying and taking as long as possible to complete work. As we've seen with DOGE, as soon as someone starts to dig into all that, the whole establishment dependent on that inefficiency screams bloody murder. They seem to be adept at developing flywheels where the more money they spend, the worse the problems get, and that justifies spending more money. The $300 million a year homeless budget in San Francisco is a great example of that tendency. Somehow, that needs to get fixed if we want to compete at a world standard level.