Sceptiksky

In the scenario local good is still worth $100 but given that you refund all good by the amount added by the tariff later, you have $20 refunded (not really $20 as i tried to show previously, but $20 x total_tariff / total_amount_of_good_bought_locally_and_imported, so somewhere between $80 and $100 net for local production and between $100 and $120 for imported good, depending on the ratio import/import+localprod

Ah yeah I see I forgot this part, more bureaucracy and delay might hurt cash flow. Thanks that’s a good thinking.

It’s just a though experiment, in real life it’s not a nice math problem to solve like you said.

Wouldn’t refunding the amount of the tariff to the customer fix this? Ignoring the very important diplomatic and retaliation tariffs which makes the whole post unusable for real life

• Canada sells a product A $100.
• Tariffs makes it $120 when you buy it
• so Canada gets $100, USA gets $20, USA customer pays $120.
• USA has now $20, they can directly refund the customer for $20 via a policy to reduce the price of the category of A.
• So customer gets $20 reduction of the product A via tax something, so USA now has $0 and USA customer actually paid only $100.
• Except now if USA company make the product A they can sell it for like $100 and customer pays $80.
• There is a slight increase of imported goods price here because tariffs cannot actually refund $20, it will be a % of the local vs imported production.
• Over time you can expect to get a local advantage because of this price inequality, so local companies will be subsidized by imports until imports are no longer significant.

Where am I wrong here ?

By the way, if tariffs are directly sent back to the customer through tax reduction on the tariffed category of products, wouldn’t it be painless for the company/customers (if you forget the retaliation tariffs) while increasing you local insensitive to production? (all things equal if you imagine companies reduce the cost of the products properly etc which is not realistic)