From NBC via Bloomberg:
“I hope they raise their prices, because if they do, people are going to buy American-made cars,” he said, repeating the phrase “I couldn’t care less” two more times in his lengthy answer.
I think Trump doesn’t understand what a tariff does. It’s not that the pre-tax price of imports goes up (it likely stays constant or declines, ceteris paribus). Rather the post-tax/tariff-inclusive price goes up.
More fundamentally, if US automakers are profit maximizers, they should raise their prices. That happened when the Japan implemented voluntary export restraints (VERs) on imported autos (my first task as a RA for … Peter Navarro in 1982; also one of my first tasks as a RA for Robert Crandall). To see this, consider Figure 8.1 from Chinn-Irwin, International Economics. See Navarro, The Policy Game (1984).
Source: Chinn, Irwin, International Economics (Cambridge, 2025).
Prices of foreign produced autos as faced by US consumers rise from Pw to Pw(1+t). Imports fall from M to M’. US produces additional Qs’-Qs units at home IF US AUTO PRODUCERS ALSO RAISE PRICES TO MATCH Ps(1+t).
So Mr. Trump’s statement makes no sense. What is true is producer surplus going to US automakers and workers will rise. Of course, this partial equilibrium approach ignores the higher costs imposed on US automakers by tariffs on steel and aluminum, and other inputs.
