“Why can’t American firms buy these intermediate goods from US suppliers instead?” you might ask. In some cases, US firms no longer make them. In other cases, particularly for labor-intensive supplies, the US could not make them ...
- Trump’s dilemma is that withdrawal from NAFTA and high tariffs against China would cause enormous dislocation for American firms producing in the US; 40% of all US imports from Mexico consist of US content embodied in Mexican-assembled of Mexican-finished goods
- US exports are highly dependent on imported inputs, e.g. a fifth of every dollar of manufactured exports consists of foreign inputs
- US production of manufactured goods in general, and transport equipment in particular, are highly dependent on imported parts and supplies
- The countries that send these goods to the US, whether it be Mexico or China or Canada, are themselves part of intricate international supply chains in which their exports contain lots of foreign content, including US content
- The global ripple effects from a trade war would be enormous