Stephen Miran

You've got a factory in China or somewhere else, and it's stuck in China or wherever it is.

It's installed capital.

It's inelastic.

Whereas American importers can alter their demand patterns.

They could import from China, but they also could import from Vietnam, or they could make stuff at home.

That flexibility gives them the ability to avoid the burden of the tariff.

Now, this is just tax incidence theory in public finance, economics 101.

And when you look at it this way, the argument that economists always reach, the conclusion that economists always reach, is that the burden of a tax, a tariff, a subsidy, anything, falls on the more inelastic party.

Now the evidence is overwhelmingly that the farm producers are the more inelastic party because the factory is stuck in place, it can't move, whereas import demand can substitute across borders.

So it is the case that the negative effects of any tariff fall on the more inelastic party, which is overwhelmingly the exporter and not the importer.

And so as a result, the positive effects of tax cuts in the United States get felt by production, and they increase economic growth, whereas the negative effects of raising revenue from tariffs get borne by the exporting country.

Well, you know, import prices, as you're pointing, dollar-denominated import prices, as you're pointing out, have been relatively flat.

However, in people, I think you're alluding to an argument that people make, which is that you would see import prices decline if foreigners were reducing their selling prices.

Is that the argument you're referring to?

Yes.

To me, that logic doesn't follow for two reasons.

One, there's an implicit all else equal clause that's not being stated, and all else is not equal because we also had to move down in the dollar this year, which ought to increase import prices by a comparable amount.

And so the fact that import prices look relatively flat could just be the increase in import prices from the weaker dollar just offsetting the decrease in dollar prices from the incidence of the tariff being borne by the exporter.

The other reason why it doesn't really make sense to me is because I think that a lot of the importers of record are ultimately U.S.

subsidiaries of foreign companies.