You impose a tariff that will allow the local industry to compete with imports. Not blow them out of the water.
The $10 you gave is objectively wrong. If we know the cost of making a widget in-country, we can easily calculate the correct tariff. In your example, it’s about 5.01$ (making a local widget just a bit cheaper than an imported one, but not too high to incentivize a raising prices).
In practice, the issue is that usually local manufacturers will claim it costs them $15 to make a widget so they can get the $10 tariff. This is an issue in countries with high historic tariffs, and the local industry claims lowering tariffs will take them out of business, or (to a somewhat lesser degree) where there’s very little local industry, and entrepreneurs claim they need the price to be $15 to make it economical for them to build factories. That’s why, ideally, before imposing tariffs, the government should do an economical study of the local industry to figure out how much manufacturing actually costs them.
That said, my bet is that Trump will impose high tariffs on industries with local operations owned by him and his cronies.
That’s not how tariffs are suppose to work.
You impose a tariff that will allow the local industry to compete with imports. Not blow them out of the water.
The $10 you gave is objectively wrong. If we know the cost of making a widget in-country, we can easily calculate the correct tariff. In your example, it’s about 5.01$ (making a local widget just a bit cheaper than an imported one, but not too high to incentivize a raising prices).
In practice, the issue is that usually local manufacturers will claim it costs them $15 to make a widget so they can get the $10 tariff. This is an issue in countries with high historic tariffs, and the local industry claims lowering tariffs will take them out of business, or (to a somewhat lesser degree) where there’s very little local industry, and entrepreneurs claim they need the price to be $15 to make it economical for them to build factories. That’s why, ideally, before imposing tariffs, the government should do an economical study of the local industry to figure out how much manufacturing actually costs them.
That said, my bet is that Trump will impose high tariffs on industries with local operations owned by him and his cronies.