Eliot Lear's Ramblings

A simplified explanation of why Trump’s tariffs won’t work

Let’s review a very basic model of tariffs and see why they generally don’t work.

I’ve put together a basic, simplified graph to explain how tariffs work, and why Trump’s approach is going to harm consumers.

A supply and demand curve. Tariffs are introduced, shifting the supply curve up, reducing output and revenue.

In the graph, P is the price of a product, and Q is the quantity people are willing to pay at a given price. Curve D represents consumers’ willingness to buy a product. At a given price, consumers are willing to buy a certain amount of a product. The higher the price, the lower the quantity of product that will be sold.

Curve S represents a price at which suppliers are willing to sell a product. The lower the price, the less willing a supplier is willing to sell, and the lower the quantity. Before tariffs, market pricing is at point (p₁,q₁).

Now the US introduces a tariff. This represents an upward shift in the supply curve from S1 to S2. That upsets the equilibrium and causes consumers to by fewer products at the higher price. So a new price and quantity (p₂,q₂) is set.

What has happened? The consumer has paid a higher price, the foreign producer has sold fewer products and taken in less revenue.

So what is Trump’s point? He’s hoping that by increasing consumer costs for imports, a domestic supplier will enter the market in the US that offers the same product at a price below p₂. But it will not be so low as price p₁ unless something else changes. Otherwise the product would not have been imported in the first place. That can happen for many reasons, such as the foreign producer delivering better quality product or lower cost, just to name two.

That means that no matter what happens, consumers in America will always be penalized for tariffs with higher prices than they otherwise would have paid. What’s more, because consumers would always end up paying higher prices for the same product, they’ll have less money to buy other things. And that leads to a further shrinkage of the economy.

Worse, those tariffs could work in reverse. Imagine a market in which raw materials such as lumber are imported to the US from Canada, it is turned into furniture, and shipped back to Canada. In this case, the tariffs are actually making US exports less competitive, encouraging Canadians to make their own furniture. The same concept would apply for tariffs on any raw material such as steel. In addition, there are some products that the US cannot produce such as the rare metals found in most computers.

Another aspect that the curve above doesn’t really show is startup cost. The first unit of any product is always the most expensive, because it required a production facility to be built. But if Trump’s policies get reversed, or he reverses them himself, then that startup cost turns into a loss. If you were a producer, would you trust that tariffs would remain in place?

Putting aside those startup costs, there’s another problem: the US unemployment rate is relatively low. Put another way, we wouldn’t have enough people to operate the factories Trump wants to see built. How to add people to the workforce? The safest way is to allow more immigration. Florida is considering another approach for their worker shortage: child labor.

Obviously there’s a lot more to this, and there are a lot of assumptions that we can review. In my view, doing so makes it clear that the economics of tariffs for America only make things worse.

23 years after: The Harm of Fear

America’s War On Terror was a war on American ideals driven by fear. Let’s hope for better.

Photo of two beams of light where the Towers stood from Liberty State Park, N.J., on Sept. 11, 2006, the five year anniversary of 9/11. (U.S. Air Force photo/Denise Gould) — U.S. Air Force photo/Denise Gould

It’s September 11th, 2024. Yet another anniversary of that horrible day in 2001. I always dread this day. For years it has served as a reminder of how far we have to go to heal ourselves not only from the events of that day, but from the self-inflicted wounds that followed. Given that we are 23 years on, now seems like a good time to take stock of the cost of our fears, and maybe hope for better.

In the aftermath of 9/11, the passage of the Patriot Act that dramatically expanded government surveillance powers was no doubt well-intentioned, but an assault on libraries and privacy as a whole. We began to severely restrict who could visit the United States, and our government tortured people. We tarnished American ideals not unlike the injustice committed against Japanese Americans in the 1940s, as our society scrutinized an entire classes of immigrants and Americans for the actions of a few who cruelly took advantage of our openness and generosity. We did that to ourselves. These acts were our choice.

We engaged in a war in Afghanistan that served only to lead to Osama bin Laden’s death, but cost the lives 2,342 American military personnel, 3,917 contractors, over 116,000 Afghans, and over 60,000 Pakistani people (people always seem to forget the Pakastanis). We engaged in a second war in Iraq that served only to see off Saddam Hussein, but at the cost of 292 ally soldiers and as many as 50,000 Iraqis, while at the same time destabilizing the region. We did this to ourselves and others. It was our choice.

President Bush in front of Mount Rushmore.

President Bush’s War On Terror turned into a terror of its own. Many of us became fearful, insular, and and xenophobic. In the 2000s we saw everything through the lens of 9/11, and we could not unsee those towers falling, and our friends and family dying, and we withdrew from the world, and we became scared. Our federal buildings and monuments were blocked from the People by “visitor centers”. We used our might solely as a means of revenge, and not for good. It was reflected in many aspects of our culture, most notably television shows and movies in which there was a bad guy who spoke with an Arab accent. We did that to ourselves. It was our choice.

9/11 put an end to the Israeli/Palestinian peace process, which was, to be fair, already in trouble. Never again were the two sides seriously willing to sit down for talks, although occasionally one side or the other paid lip service as America stepped away from the table. We did that to ourselves, not bin Laden. That was our choice.

And then we elected Donald Trump in 2016 in xenophobic craze, and he targeted a new bogeyman, China. The Chinese government plays a bad guy right out of central casting: they persecute minorities, put profit before principle, and fully believe that might makes right, but are otherwise incompetent in a crisis. Sounds familiar? Meanwhile we ignored the threat of Putin for over two decades. Meanwhile, over 1.2 million Americans died of COVID, and a gun violence epidemic ravages and terrorizes our youth. We did that to ourselves. It was our choice.

We could keep making the same mistakes based on fear.

American youth watch U.S.-Sweden soccer match at the 2011 FIFA Women's World Cup in Wolfsburg, Germany, on July 6, 2011

But on this 9/11 I see a bit more hope. We have, I think, healed at least a bit. For the most part, we no longer look through the lens of that day. We are beginning to show some resilience. And this has been coming for a while. Each year I see more glimmers of President Reagan’s “shining the city on the hill”. Of course there are always new challenges, my favorite being climate change. Here’s one for you: China plans to activate thorium nuclear reactors next year to reduce its carbon footprint. Yeah, that big bugaboo, China. Maybe just maybe, there are now more of us who have gotten beyond fear, who are seeking to grab onto the possibilities before us, who don’t define themselves by who or what they hate, and can lead the way to that city on the hill out of a sense of hope.

May the memory of those who died on that day and because of that day always be a blessing to all who knew them, may we all live in peace; and may we learn from our mistakes, and may we not live in fear of the future.

Who Should Have Whose Back? Memo to the Washington Post

No, WaPo: Tech needs to have our backs.

I do not blog as much as I used to, but I found something disturbing in a Washington Post article that was asking whether Kamala Harris will have policies friendly to Silicon Valley.

I have two problems with this article:

It would lead the reader to think the Biden administration has had no tech policy. That’s not true.
It seems to imply that the tech companies have done their part in helping society. They have not.

Let’s start with the first.

The administration has pushed hard in an area no other has: cybersecurity. President Biden issued executive orders to improve the posture of IoT devices and software, by requiring transparency of vulnerabilities for all products sold to the federal government. DHS, NIST, FCC, and other branches of the government have worked hard throughout the last three years to get our infrastructure on a better footing. 1990s gave us Section 230. The 2000s gave us an Internet governance model that the Obama administration fought to retain. The Biden administration is fighting for the safety of our infrastructure. And that is something that all sectors of society, especially the tech industry, need, as they can’t sell products that are viewed as unsafe.

This brings me to my second point. The question should not be whether Harris has the Valley’s back, but whether Tech has our backs. Social media companies have been all but mute about adversaries like Russia, China, Iran, and North Korea taking advantage of offerings to harm our interests. They’ve profited over strife and discord in a way never seen, some of which has been sown by those same countries. At the same time, we all now heavily rely on the Internet infrastructure, as Crowdstrike painfully demonstrated. And yet the Valley is still playing the same hand they had in the 2000s: “We got this.”

The game has changed. The only real question is whether tech companies will accept that and work with the next administration and Congress to find new and innovative approaches that work for society.

What can the IETF learn from History? Lessons from Heisenberg

Can we learn something about inclusiveness from history? A look at the 1920 physics conferences.

The Internet Engineering Task Force has had an ongoing debate about inclusiveness in many dimensions. Many of us lament that there are not more women engaged in the industry; and that we are unable to engage in a better way engineers from developing countries. However, there is also a debate about the interdisciplinary aspects of our work, where the merits of engaging beyond the engineering discipline becomes a bit less clear.

In the early 1990s Marshall Rose somewhat cynically coined the term many fine lunches and dinners to describe conferences like the IETF.¹ It is comforting, therefore, to have learned that we were following in the footsteps of great minds.

In the 1920s, there were a number of physics conferences, and one in particular in Brussels that featured Bohr, Einstein, Planck, Born, the Joliot-Curies, Pauli, Heisenberg, and others. The vast majority of the attendees were Europeans (and men). The European aspect was due to location of the conference and the difficulty of traveling across continents.

“God does not throw dice” was the hotly debated statement versus quantum theories. Heisenberg later recounted that they all stayed in the same hotel, and that the real discussions occurred not during the paper presentations, but at dinners.² I don’t think we can say that those conferences were where the true discoveries occurred, but I think they helped in directing researchers in the right direction. This is why the IETF meets in person from time to time. This is also why hybrid work is so important, where one splits time working with others and on one’s own.

People who attended those conferences in the 1920s were physicists, and they were very focused on a very narrow a particular aspect of physics, even though those aspects had profound consequences to society. Had they invited philosophers, my take is that the philosophers would have gotten in the way, and neither group would have gotten anything out of the interchange.

IETF conferences and work styles are aimed at engineers. That aspect should not change, and in some cases perhaps it should even revert a bit. However, the practice of engineering evolves, just as the understanding of physics did back then. A colleague of Einstein’s dressed him down for using such a simple platitude as an argument, and you can read in the record how the “old guard” (yes, even Einstein) was slow to accept new concepts. This sounds eerily familiar, and is a cautionary tale to those of us in that group to pay attention to new concepts.

Engaging new blood is key to any organization. Traveling internationally to new places to find new people may or may not be valuable. The IETF tried this in 2014 by traveling down to Buenos Aires, to see if we could engage more people. The answer seems to have been no, but the costs of going to Argentina also seemed relatively small. To me, it increasingly difficult to justify in this day and age that the conference has not been held in India.

Rose, M., The Open Book: A Practical Perspective On OSI, Prentice Hall, 1990. ↩︎
Rhodes, R., The Making of the Atomic Bomb, Simon and Schuster, 1987. ↩︎

The Israeli/Gaza War

Let there still be hope.

Everyone wants everyone to say something about what is happening in Israel and Gaza. Here in Switzerland the conversation since the attack has been All Israel All The Time. Everyone around the world has an opinion, of course. Here in Switzerland, the discussion is thoughtful. You would not hear anyone defend Hamas’ murderous actions.

It’s one thing to have opinions; it’s quite another to be grieving the loss of one’s friends and/or family, and worrying about one’s children who have been called up. My employer’s Israeli offices are somewhat emptier for that reason.

President Anwar Sadat, Prime Minister Menachem Begin, and President Carter

I look up at my office wall these days and see a response from President Ford’s staff to a letter I wrote him in 1975 about Israel when I was a child. I remember writing him, suggesting that he throw both the Israeli and Palestinian leadership in a room and not let them out until they have a peace plan. Back then I knew I had the answers.

Prime Minister Itzak Rabin, Chairman Yasser Arafat and President Bill Clinton.

Over the years, there have been signs of hope. Seeing Sadat engage Israel, or the work that successive administrations undertook that led to the famous handshake you see here. Those days led to the hope that Israelis and Palestinians could live side by side.

Now I worry that this conflict will survive me and my generation, as it will have our parents. I hope and pray that it does not outlive our children, and that they will be more imaginative than us.

You may have seen my #MusicMonday list. Last week’s contribution was Hatikva. The Hope survived, even as many of the children in that video did not. The hope of peace and prosperity must survive for all. My only plea is for all parties, Israelis and Palestinians in particular, to work to preserve that hope.