alt Hacker NewsTwo typical scenarios that we know from the past in industries like cars for example.
Corp one has two factories one smaller one in the us one bigger one in the eu. They will now shift more of the production to the us from eu to avoid tariffs.
Corp two only has a factory in the eu. They will now build another factory in the us to be able to avoid tariffs and keep selling their goods at competitive prices.
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> They will now build another factory in the us to be able to avoid tariffs and keep selling their goods at competitive prices
They won't be competitive prices though; they'll have to charge more because of the capital costs in setting up a whole new factory and supply chains, increased labour costs, and having to pay tariffs on importing parts.
I imagine that not being able to export cars from this factory due to reciprocal tarrifs will also drive up prices, due to things like lost flexibility, redundancy, and economies of scale.
If corp two could have factories in the US and still sell them at competitive prices they would've done that already no? The fact that they haven't indicates it didn't make economic sense. So then doing so would mean their costs would go up, which would either mean they have to eat the extra cost and reduce profit or pass the extra cost to consumers.
In the first scenario the investment isn't astronomical, and if there is surplus capacity you can definitely shift around to avoid tariffs. I think Volvo already announced this wrt. to their US plants. They can take some production from the EU or China and use capacity in the US to build cars. The parts are still imported from China and the EU so will be more expensive, but they still seem to think this can help.
But the second scenario is a massive investment. It not only requires the economics of it to work today, it requires knowing what the situation is 1 or 2 decades down the line. You can't build a car factory in two years. Barely in four. And even if you do, it doesn't matter if it's likely to operate at a loss in 8 years!
The most important thing for that type of investment is stability and predictability, not just "the costs will be lower for at least 2 years now! or maybe 2weeks we don't know since the tariffs seem to come and go depending on which side of bed the local czar wakes up on".
No corporation is building a factory based on a policy that has a lifetime of four years.
You just made me think of another scenario, Corp three has mostly idle factories at important locations around the world but designs their factory lines to be packable and shippable around the world to hedge against tariffs. The carrying-cost of buildings is considered insurance.
Forgive me my ignorance, but: parts from which cars are assembled (or raw materials from which parts are manufactured), are also subject to tariffs, aren't they? So the only shift that would happen is that of the labour (and US labour is not the cheapest, IIRC).