An interesting rebuttal to the idea that tariffs incentivize local production.
If you can’t import X, then you can either build it yourself or do without. If developing the capacity required to build it yourself is too hard, you do without. The potential users of X will invest in alternatives. Those with competencies to build X will move away.
The end result is not only that you destroy the local market for X, but you also actively invest in bad alternatives to X that will make it even harder to get an X market going than it would have been if you’d never banned it in the first place.
For example, imagine a country that bans car imports, in the hope of incentivizing a local car manufacturing industry. One possible outcome is that the locals figure out lots of alternatives to driving cars: they ride motorcycles, take the bus, walk, bike, travel by boat, or ride horses. Perhaps they invest far less in roads and gas stations than they would if buying cars was easy.
Perhaps there are enough locals with the skills and resources to start a car company. But the car ban is incentivizing the locals to find alternatives to car ownership and to avoid investing in car infrastructure. Seeing this, the potential car manufacturers either choose a different product to produce, or move to another country where there’s more of a market for their skills.
Now, the country lacks the expertise to start a car manufacture even if it eliminated the ban on imports, and its citizens are invested in alternatives to cars that has reduced some of their demand for cars. While eliminating the tariff may turn the tide and increase demand for cars, it seems like the net effect of such a tariff on the local car industry has been negative.
It’s not to say that it would always play out like this, but it seems like that’s what must have happened in America with the dredging ship industry?
One possible outcome is that the locals figure out lots of alternatives to driving cars: they ride motorcycles, take the bus, walk, bike, travel by boat, or ride horses.
In practice, what happens is that the locals just import cars illegally, leading to a huge black market for cars and auto repair. An auto industry is very hard to set up, but cars are still so vastly superior to other forms of transportation that people will literally drive cars across hundreds of miles of desert, then fix them up locally in order to resell them at a profit.
An interesting rebuttal to the idea that tariffs incentivize local production.
If you can’t import X, then you can either build it yourself or do without. If developing the capacity required to build it yourself is too hard, you do without. The potential users of X will invest in alternatives. Those with competencies to build X will move away.
The end result is not only that you destroy the local market for X, but you also actively invest in bad alternatives to X that will make it even harder to get an X market going than it would have been if you’d never banned it in the first place.
For example, imagine a country that bans car imports, in the hope of incentivizing a local car manufacturing industry. One possible outcome is that the locals figure out lots of alternatives to driving cars: they ride motorcycles, take the bus, walk, bike, travel by boat, or ride horses. Perhaps they invest far less in roads and gas stations than they would if buying cars was easy.
Perhaps there are enough locals with the skills and resources to start a car company. But the car ban is incentivizing the locals to find alternatives to car ownership and to avoid investing in car infrastructure. Seeing this, the potential car manufacturers either choose a different product to produce, or move to another country where there’s more of a market for their skills.
Now, the country lacks the expertise to start a car manufacture even if it eliminated the ban on imports, and its citizens are invested in alternatives to cars that has reduced some of their demand for cars. While eliminating the tariff may turn the tide and increase demand for cars, it seems like the net effect of such a tariff on the local car industry has been negative.
It’s not to say that it would always play out like this, but it seems like that’s what must have happened in America with the dredging ship industry?
In practice, what happens is that the locals just import cars illegally, leading to a huge black market for cars and auto repair. An auto industry is very hard to set up, but cars are still so vastly superior to other forms of transportation that people will literally drive cars across hundreds of miles of desert, then fix them up locally in order to resell them at a profit.
Suggesting in turn that the dynamic I outlined is especially relevant in the case of hard-to-hide products, like gigantic dredging ships :D