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.
In your scenario how is the local made $100 item bought at $80? Where is a $20 refund paid from? You are double spending it on both imported and local goods
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
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
Where am I wrong here ?
In your scenario how is the local made $100 item bought at $80? Where is a $20 refund paid from? You are double spending it on both imported and local goods
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 ratioimport/import+localprod