round one

The iron law of microeconomics: price is ultimately determined by the availability of substitutes. Advertising is all about spreading the word, or creating the illusion, that product A is a substitute (although better/cheaper) for product B. So it may have a significant influence, for a while, at least, particularly for things that are hard to compare with one another.

Tariffs on imported raw materials or final goods upset this initial equilibrium by making goods brought into a country more expensive and/or reducing the quantities available. Ultimately, a new equilibrium emerges–typically a combination of higher prices for the product, more limited availability and consumers being less well off.

Trump has launched the current tariff regime on the idea, and with the implicit claim, that consumers won’t be hurt at all, so voters won’t object to the fact that the tax revenue collected is going to fund continuing tax cuts for the ultra-wealthy.

round two

The idea that tariffs don’t hurt an advanced economy like the US is a deeply non-consensus view in the world outside the MAGA movement. But it may be hard to see the real negative economic impact of tariffs, at least initially.

That’s because:

–-Amazon has mused that it might break out in its selling prices on its website the part that’s payment of the tariff tax being imposed by Washington. It, however, has been told in stern terms by the administration not to do so

—Apple makes phones in both India (low tariff with the US) and China (high tariff). The company has been planning to lower the tariff due in the US by shipping phones made in India to the US market, while supplying the Indian market with products made in China. This would minimize the tariff hit. Trump has warned the company not to do that, either

–Trump has also warned Walmart that it should “eat the tariffs” rather than mark products up in price to cover the tariff cost.

In other words, there’s a significant administration effort to obscure the economic cost of tariffs and to arm twist companies into absorbing part of that rather than simply passing it on. The fact that the administration wants to hide from citizens how big the tariff tax is speaks volumes. This coercion effort may not be successful. Of course, even if it is, a major consequence of the resulting shrinking of corporate profits will likely be lower compensation for company employees. But apparently that’s not as important to Washington as obscuring the direct line connecting Trump to consumer financial struggles.