Tuesday, April 23, 2019

Tariffs raise the prices of domestic goods too

There is a nice article in the NY Times about the Trump tariffs imposed on washing machines. It should be useful as a classroom illustration.  This snip-it caught my eye:
It is hardly surprising that the tariffs drove up the price of foreign washers. Perhaps more unexpectedly, they also prompted American manufacturers to raise their prices.
This fact should not be unexpected to anyone to anyone familiar with the textbook analysis of tariffs. When foreign and domestic goods are close substitutes, increases in the price of foreign goods caused by tariffs raise the price of domestic goods. See Chapter 9 of my favorite textbook.