Seeing the Invisible Side of a Tariff

Although one number like 25% or 10% can identify a tariff, there is much more we cannot see.

A Tariff’s Choices

Looking at tariffs, we can ask if the importer has a choice. Their alternatives can determine the tariff’s impact.

Few Choices

U.S. farmers get almost all of their potash from Canada. As a fertilizer that provides crops with potassium, potash boosts yield and quality. With Russia and Belarus the main alternatives, it is likely that we won’t switch to another supplier.

With ROW the Rest of the World, Canada is our farmers’ country of choice for their potash fertilizer:

Producers also cannot avoid the impact of a tariffed commodity when we’ve dedicated a pipeline network to importing it–like Canadian oil. Furthermore, we’ve configured our refineries to process Canadian crude:

Similarly, we depend on China for our smartphones. We’ve seen that Apple is trying to shift production to India but the process takes time.  Now reputedly at 14%, Apple’s goal is close to one-third by 2027. But still with two-thirds of its smartphones assembled in China, a 10% tariff cannot substantially change importers’ relationship with China.

You can see China’s smartphone dominance:

Many Choices

By contrast, when the global market has many producers, tariffs create the incentive to find substitutes. With tires, U.S. importers have alternatives:

T-shirt importers also have lots of choices

Our Bottom Line: A Tariff’s Impact

Like the British coastline, when we look closely at a tariff, we see so much more. For the British coastline, a distant view reveals a smooth border. However, moving closer we see an increasing number of smaller and smaller inlets. Ultimately, a coastline that appeared finite becomes infinite:

Similarly with tariffs, looking at choice, we have only begun. Responding to tariffs’ vast menu of invisible incentives, businesses shift who is hired and fired, how much consumers pay, and the minimal funds that governments collect. This table provides a hint of the infinite number of tradeoffs that tariffs create. Although the numbers are way out-of-date, the choices are timeless. Assessing a tariff, we always should consider the invisible cost of our choices:

My sources and more: Thanks to The Washington Post for many of today’s facts. Then, looking more closely, this agricultural newsletter had the potash facts and India Briefing had more on Apple. However, my most addictive source was the statistical allure of the Observatory of Economic Complexity.