First posted on:
Econbrowser [4], 27 September 2018
The following graph compares average tariff levels across countries.
One can take comfort from the fact US tariff rates are historically low.
I have two observations:
- We live in an era of global value chains, so that the value added has been chopped up and split across nations. In this context, a tariff of 10% on final value is a lot more than 10% on value added.
- This shock to global value chains comes on the back of an already stretched logistics network.
The latter point is highlighted by the following graph:
The latter is perhaps a temporary phenomenon, likely to end when the economy goes into recession. However, the former is likely more persistent.
Global value chains have been built up over decades; rejiggering these chains to accommodate tariffs of indefinite duration is sure to be disruptive, possibly inflationary (although that depends on monetary policy).