Economics

[vespa50sp]

So, I'm thinking about the news. Will increased Chinese Tariff's increase the cost of imported Chinese tubas of various brands? Also, I'm wondering if at some point it would be good to take a vacation to the UK and pick up a tuba (Brexit and all).
https://www.xe.com/currencycharts/?from ... D&view=10Y

[MartyNeilan]

So, I'm thinking about the news. Will increased Chinese Tariff's increase the cost of imported Chinese tubas of various brands? Also, I'm wondering if at some point it would be good to take a vacation to the UK and pick up a tuba (Brexit and all).
https://www.xe.com/currencycharts/?from ... D&view=10Y

Here is food for thought. Your name tells me you may ride a 50cc Vespa scooter. Vintage scooters are climbing in price, and a Vespa that has not been totally destroyed can be rebuilt at a specialty shop. Small displacement Chinese scooters are “disposable” and typically do not last more than a year or two under regular use.
Maybe I didn’t answer your question, but maybe I did.

(I have a 300cc Chinese trike sitting in my garage that I bought slightly used a few years ago. It ran fine... for about four days. Lesson learned, only older Honda’s and Harley’s have provided the less-than-four-wheeled transportation/family recreation since. Even Honda has chrome “plated” plastic where Harley has actual chrome and steel. Honda electrical wiring is undersized for capacity and aftermarket fixes are necessary depending on the year. Sometimes you do get what you pay for - better to have something 15-20 years old that has a lifetime left in it with proper upkeep.)

[vespa50sp]

I've owned scooters that were built from around the world. Plus bicycles and tubas also. I also had a Mercury with a Mazda Motor and a Pontiac with a Toyota drivetrain. Some of the lower price Kymco's (Taiwan Company that used to build for Honda) are built in China and seem to run fine. My observation is that wherever something is built, it's always about quality control.

Maybe the answer is that the tariff's are not going to impact decisions of a customer looking for quality goods wherever it is built. But there might be some margin impacts to local sellers or opportunities to pick up a quality horn from someplace where the currency is down.

I wonder how this impacts an outfit like Wessex, who has a rep for pretty good quality (Gagney is one of the horns on my list to try). Their instruments are manufactured in China but the home office is in the UK and they sell in the US.

Of course this has been going on forever. I have a little Lyon and Healy Helicon, stamped Chicago, that was probably built in France.

[acemorgan]

I think there is a good chance that I am one of the few members on this forum who not only is a tubist, but also an economics teacher.

And probably the only member who is also an economics teacher, who also bought an instrument from Jinbao (through Wessex) in the last couple months. I bought a Dolce, which cost a little more than a few months earlier, but I think it is probably due to the fact that they are now using gold brass for the bell, rather than yellow. Since the horn came through Britain, and they don't have a tariff on China (well, at least not the Trump tariff), I don't believe there was an impact on my price.

One of the things that a lot of people don't realize is that the country which is the object of a tariff does not actually pay the tariff. The consumer does. So China is not paying us anything in relation to the tariff.

However, when a tax is imposed on a product, both supply and demand incur a tax incidence. This means that although China is not paying the actual tariff, they are receiving a lower price in the market, than they would otherwise. Tax incidence is a function of elasticity of supply and demand. Put simply, China's supply of instruments is less elastic than the American consumer's demand, because we have alternatives in the market. Since we have the elasticity advantage, the tariff will hit them harder. This means that our price might go up a little, but not the full amount of the tariff; China is just getting a lower price for their products at their end.

Sorry for the verbosity, but this is in my wheelhouse, Thanks for listening.

[vespa50sp]

However, when a tax is imposed on a product, both supply and demand incur a tax incidence. This means that although China is not paying the actual tariff, they are receiving a lower price in the market, than they would otherwise. Tax incidence is a function of elasticity of supply and demand. Put simply, China's supply of instruments is less elastic than the American consumer's demand, because we have alternatives in the market. Since we have the elasticity advantage, the tariff will hit them harder. This means that our price might go up a little, but not the full amount of the tariff; China is just getting a lower price for their products at their end.

Sorry for the verbosity, but this is in my wheelhouse, Thanks for listening.

Huh, Tax Incidence and elasticity. And their producers might eat a significant portion of the cost of the Tariff's. I'm learning something new every day. Thanks.

[vespa50sp]

It's sunny and 60 degrees in Minnesota, so I can practice my new (old) Conn 26k sousa on the deck. I got to try out a Endoscope to check valve alignment, so it's playing a bit better these days.

[Ken Herrick]

Where I am in Oz it feels like winter has come despite the fact it is only 1 week to our federal election and all the politicians are producing a lot of hot air and wind. Might have to light up the heater for the first time this season.

[tofu]

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[Donn]

Tariffs ARE NOT better in the long run - history repeatedly has demonstrated so. Domestic producers hike prices and with competition suppressed innovation slows or falls by the wayside. They have little reason to compete on price or even find ways to lower their cost of production much less price to the customer - and study after study over time has shown the price to the consumer climbs quickly. .

If the object is simply to avoid higher price to the consumer, then sure, a tariff isn't going to work too well. If it's all you've got - our industry is just going to coast under tariff protection, then it isn't going to work too well. But - I'm sure you've heard this one - it apparently worked out well for the US motorcycle industry (Harley-Davidson.)

Harley was weak from decades of troubles, and Honda et al. were arguably dumping product here. Reagan (!) imposed a steep tariff on heavy motorcycles, and Harley came back - by the time the tariffs were close to expiring, the company said to go ahead and drop them early, because they were doing fine. No doubt most of the credit is due to the new management (employees had just bought it back from AMF), and the tariff scarcely addressed their market - the Japanese motorcycles weren't anything like a Harley - but it put a better complexion on their situation and helped with financing etc. They did what they needed to do, while the tariff just kept the wolves off their back while they did it.

For a hypothetical future example, some day fairly soon it will be possible to make better batteries for electric vehicles. Higher storage density, faster charging, smaller, maybe all three, and very likely less toxic. Right now, those batteries are Lithium-cobalt, a chemistry that has better energy density than the alternatives. Like everything else, they're made in China, and China has acquired the Democratic Republic of Congo and its cobalt mines, so they pretty much have that industry locked up. (You can use Lithium FePO4 if you can find it - better in some ways, but bigger and heavier for the same charge.) What are the odds, that when those alternative EV battery technologies go into production, Chinese Lithium-cobalt will fall to below-cost pricing, to stifle the market for years while they extract what they can? A tariff might well be in the public interest, depending on the circumstances.

[WC8KCY]

Somehow forgotten here:

China uses currency manipulation in conjunction with tariffs as core components of its trade policies. Unless Chinese currency manipulation is brought to heel along with their protectionist tariffs, it's just going to be a shell game: the effects on China of more equitable tariffs, if ever agreed upon, will be mitigated--at least in part--by further currency manipulation.

[acemorgan]

It is true that China uses currency manipulation. They peg their currency to ours, and keep it weak relative to ours to make their products appear cheaper. The only way they can do this, in the face of U.S. inflation, is to inflate their own currency. This gives them a mixed benefit: trade advantage, domestic disadvantage. Since their "minimum wage" is a fraction of ours, the net result is that it take us a day to buy what it costs them (in labor) a week to produce. We gain, at their citizens' continued loss.

Americans will continue to do what Americans do best. Who is the target market for the Chinese instruments? Certainly not the professional market. That will continue to be serviced by the high-end manufacturers. If our domestic supply is not geared toward introductory-level instruments, then let the Chinese do it. We gain. 200 years ago, David Ricardo introduced the concept of comparative advantage. If their cost is lower for low-end goods, let them produce them. Our cost will be lower on the things for which we have the comparative advantage.

Ultimately, we win.

[Donn]

Americans will continue to do what Americans do best.

Sounds good in theory, but in practice? End up with nothing to sell but GMO corn, and a lot to buy. Our technology geniuses are in significant part coming from Asia at this point. Our high tech manufacturing is turning out to be dangerously defective, thanks to a too-cozy relationship between industry and regulatory agencies. Any narrow specialization we try to sell to the world, they can do as well or better for themselves, and without general production facilities for basic requirements, we're extremely vulnerable.

[acemorgan]

Any narrow specialization we try to sell to the world, they can do as well or better for themselves, and without general production facilities for basic requirements, we're extremely vulnerable.[/quote]
Since our economy is not a closed loop, domestically, and since our currency is stronger than China's, we must be producing products comparatively better than do other countries, specifically China. The evidence of our production of products which are unique to our mix of resources, is the fact that we can buy their stuff cheaper (in terms of hours worked), than they can ours.

[acemorgan]

Since our economy is not a closed loop, domestically, and since our currency is stronger than China's, we must be producing products comparatively better (cheaper, higher quality, more efficiently) than do other countries, specifically China. The evidence of our production of products which are unique to our mix of resources, is the fact that we can buy their stuff cheaper (in terms of hours worked), than they can ours. Sure, we are the world's leading exporter of corn, but that is not the whole story. If you look at our exports, most of them are in the realm of high-tech products: aviation, communications, microelectronics, etc.

[Donn]

A narrower and narrower niche, that fewer and fewer Americans have any part in. My house is full of stuff that was made in the US 30 years, 20 years ago, 10 years ago, but no more. What Americans do well, increasingly, is consume what China produces. Oh, lots of money coming our way right now, but in real terms the Americans who benefit from today's economic miracle are a tiny few, and they're just getting what they can while it lasts. There's nothing special about the US that gives us exclusive rights to even a tiny niche, and a global economy that isn't on a level playing field will eventually leave us with nothing but corn and hedge funds.

[acemorgan]

America's primary exports are: industrial equipment; refined petroleum products; cars, aircraft, and related parts; medicines; and medical instruments, in that order. Corn is actually .8% of our exports. We do make things other countries don't--or can't, at least at our opportunity cost.

Anyone involved in any of those fields is making money. And they are making more money than their foreign counterparts, which is why we can afford to buy imports.

In China, Walmart is where the members of the upper-class shop, because only the wealthy can afford imported American goods.

[Ken Herrick]

Yes, back to the weather! First frost for the season - countered by first lighting of the wood fire. You have been updated.

[acemorgan]

Corn subsidies are the highest in all of US agriculture. This is why we are required to burn it in our gas tanks--to get rid of it. We feed it to animals whose bodies are not designed to process it (cattle), or for whom corn is an alien substance (farm-raised fish). It takes between 4 to 5 gallons of fossil fuel to produce a gallon of ethanol. So we are clearly not doing it for the environment. We are doing it to get rid of the freaking corn. Another example of the damage from government interference in the market. Like tariffs.

[Donn]

...and - just fwiw - most Americans would probably be better off avoiding most food stuffs with corn products in them altogether, but that's up to each individual.

I believe there's a good deal of corn in bourbon whiskey and similar. I personally subscribe to the theory that this was one of the evil effects of Prohibition - American whiskey had been made from rye for well over a century, but after repeal, the new industry turned to corn. Certainly not for flavor, as it has basically none. I'd sure suggest that switching to rye would be a step in the right direction (and I don't mean Canadian whiskey, which isn't real rye - common reasonably priced ryes include Old Overholt, Rittenhouse, Bulleit, Wild Turkey, Pikesville if you can find it.) Say no to corn ethanol.

(Sunny and in the 80s, here in Seattle. Records broken.)

[tofu]

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