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Surely the most politically powerful argument against any American trade policies that involve tariff-ing imports holds that such moves will raise the prices consumers pay for goods and services directly and indirectly, imported and U.S.-made alike. That’s why the claim is made constantly both by domestic interests who favor the trade status quo (like offshoring-happy multinationals and retailers), and by American trade partners whose growth heavily depends on exporting to the United States. And let’s not forget most of the world’s economists. 

But now an admission has just come from a major multinational manufacturer that the real pricing impact of tariffs would surely be much less dramatic – to say the least.

The source is no less than Carlos Ghosn, who chairs both Japan’s Mitsubishi Motors and Nissan Motor Co., as well as France’s Renault. On a Fox Business program last Friday, Ghosn expressed his expectation that the global automotive sector would “adjust” to any new trade restrictions put in place by President Trump.

That’s not terribly newsworthy. After all, per the tariff critics, that could simply mean that Ghosn’s companies will raise consumer prices in order to compensate. Nor, given the corporate rush to curry favor with Mr. Trump, was it particularly newsworthy that Ghosn told anchor Maria Bartiromo that “All car makers today are paying attention to what the president is saying” (his words) and that “companies are looking at adding capacity and hiring more workers in the U.S. as a result of Trump’s plans” (as an accompanying Fox Business post put it).

What was terribly newsworthy was Ghosn’s prediction that “I don’t think anybody can sit comfortably with a price hike.” In other words, the head of an enormous worldwide automotive “alliance” has just made clear that new tariffs probably won’t lead to higher consumer prices – at least not on any sustained basis.

Ghosn didn’t specify why the industry would likely hold the line, but leading reasons aren’t tough to imagine. In particular, the U.S. automotive playing field would remain filled with players and therefore highly competitive, and American consumers these days don’t have access to infinite amounts of money, either in the form of paychecks or credit. If he’s right, then there’s no reason to suspect that these limits on pricing power are restricted to the auto industry.

Another business voice has just offered some other insights into why automatic price hikes can’t be assumed to result from tariff hikes. Arthur Taylor founded and runs Black Dog Manufacturing in Hyde Park, Utah, a producer of custom wood and metal fixtures and other products used by retailers and other vendors in malls and stores. He’s also one of the sharpest observers of the globalization and manufacturing scene I’ve met.

As Taylor reminded me in a Facebook message over the weekend, automatic price hikes can’t be assumed after tariffs because, contrary to what’s apparently believed by most economists (and argued by those business and other interests with big stakes in preserving the trade status quo), there is no pat formula businesses employ to determine the prices they charge. More specifically, they don’t use any of their costs – whether of labor, or of any domestic or foreign inputs – in any predetermined way to calculate what they charge to customers (whether individual consumers or other businesses).

Instead, “price is determined by what the buyer will pay and in business, the majority of our efforts are dedicated to getting the highest price we can for the volume we’ll accept.” In this vein, “Businesses always start with ‘how much can we get for this?’”

Of course, costs always factor significantly into pricing decisions. But they generally are not seen or treated by producers as considerations that either justify giving customers a break when they are low or falling, or entitle them to pass-throughs when they are high or rising. Rather, sellers make judgments about what buyers will pay. If necessary, they try to make the adjustments needed to produce revenues and profits that they and/or their investors consider acceptable. If their performance is unsatisfactory, sellers either try to make further changes in pricing or production techniques, or in their sales and promotional efforts; or they modify their revenue and profit expectations; or they conclude that their business is not viable and abandon the venture.

In other words, prices are produced by the functioning of an ultimately psychological system of value identification by both buyers and sellers that’s called a market. And one of the key elements of value identification for a seller has always been what a market will bear. Executives like Ghosn and Taylor recognize markets’ complexity and subjectivity, as well as their inescapability (that is, if markets are indeed viewed as the best basis for organizing economic activity).  Is it too much to ask that economists – and the politicians, journalists, and think tank hacks they influence – develop and/or purvey equally realistic views?