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Dev Diary #38 – Trade Routes & Tariffs

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If money is the sinews of war, then trade is the lifeblood of nations and in no period is this truer than the Victorian Era. Victoria 3 takes place in a period of time where the nations of the world pushed this concept further than before, through a period of industrialization and growing interconnectivity of first homelands and colonies and then among nation-states themselves. The trade routes on the map connecting our nations became the fabric that underpins many of the understandings of our modern world today.

But what is trade? It may seem obvious to some but to better understand the systems we need to make sure we understand the foundations they are built upon. Thus, trade is understood to be the movement of goods between two markets as a means of commercial transaction so that the other party is effectively paid for their services. Trade is not conducted between businesses and/or nations but is instead conducted through their national markets and by proxy their trade centers. While this may not seem a meaningful distinction, the market and economy of a nation is not synonymous with its national government; while that government may attempt to influence the economy it does not always have an absolute degree of control over it. Thus the trade that goes on in your market is something that you can influence and encourage (or discourage if you like) but never fully control (unless you are the only nation in existence I guess?).

While trade takes place between national markets at the behest of players and AI, it is conducted in the trade centers of those respective countries. Trade centers function similarly to urban centers, talked about in a previous dev diary. These are not buildings that are constructed manually but develop as a result of their engaging in trade routes as they are representative of the many gray areas of industry that necessitate the collection and movement of goods.

If you were to create an import route of goods for your industries, a resulting level of trade centers would develop within your nation. While urban centers tend to develop where you have placed many industrial buildings, trade centers develop in the market capitals and the ports of your nation. While you cannot paint the placement of trace centers outright, you can influence their development by creating ports in states that are naturally suited to such, where infrastructure and pops are readily available to staff them.

Where there is a port and people, there is likely to be trade, and hopefully profit!
DD38 01.png

Yes, trade centers must be staffed. Goods do not just appear in one nation from the next but require the maintenance of bureaucrats, laborers, clerks, and the like to offload and onload cargo, take account of it, tax it, and move it forward. These are for the most part privately owned enterprises that normally have capitalists in charge, instead of government run services. Without pops staffing your trade centers you will find yourself unable to conduct trade in accordance with your aspirations but that shouldn’t be too hard to manage as trade centers have also been historically known to be centers of migration, the first stop of migrants both domestic and international seeking a better life and sometimes finding it.

All the goods moving to and from New York means it's easier for Pops to hitch a ride.
DD38 02.png

Trade centers collect revenue on both sides of the routes they manage, in relation to how many goods are moved and how much the routes affect the prices in their respective markets. This revenue is allocated to the employees and taxed by the same logic as any industry, so who makes money off your trade is related to your domestic policies in the same way as the rest of your economy.

While trade is something every nation can take a part of, how they affect trade in relation to conducting it efficiently, preventing it when it hurts them, or profiting off of it when they can is dependent upon its trade policies, which also dictate how a nation can utiize embargoes and tariffs to achieve such. Yes that’s right, I said tariffs, cue historical excitement of the fanbase.

Where at first there was one law category, now there are two!
DD38 03.png

We’ve done a little restructuring of the economic laws in Victoria 3 since we wrote the Law dev diary, where originally your economic system affected both your domestic and international situations. It has been broken into economic systems which now cover the domestic economy, and trade policy which covers your international endeavors. As such trade policy governs how you interact with a customs union, your ability to set embargoes and tariffs, as well as the general efficiency of your conducted trade.

The Trade Policy laws are broken down into the four categories of ideology relative to the time period which interact with each of the economic systems you can put into place domestically.
DD38 04.png

Embargos represent the ability of a national government to extend its influence in protecting its national market and subsequent interests. Most, if not all nations can engage in embargoing a good but their effectiveness of doing such is dependent upon the trade policy the national government is centered around. A government centered around the ideas of protectionism has an easier time implementing a more efficient embargo on goods vs those that are committed to a more mercantilism or free trade policy. Notice I said influence, not authority there? While it costs authority to enact taxes domestically it costs influence to place embargos as whether or not they are able to be enforced is dependent upon your ability to influence other nations to respect them. Refusing to make fair trade deals will strain your diplomatic corp.

Protectionism means that not only are embargoes easier to maintain, they are also more efficient.
DD38 05.png

And now for the potentially more controversial statement, embargoes are not absolute. Sure you may embargo trade of a specific good into your country but that’s not going to stop it outright, only hinder the ease of its trade. Another nation might try and continue to push goods into your country but it will certainly require more of an effort to facilitate such, it all depends. In history there’s certainly something we can agree upon, embargoing something, making it illegal, or hindering its trade reduces the flow of the good but does not stop it outright if there is a vested interest by another nation and a profit to be made.

Tariffs are the means where a national government extends its influence as an intermediary in the trade between national markets, if not for the means of protecting its national interests, to at the very least ensure it gets its fair share of the profits that such entails. Tariffs are set on both exports and imports leaving the national economy because yes the government is interested in its fair share and if it cannot get the revenue by means of a consumption tax it will find other means. The ratio of this tariff level is dependent on the trade policy set. A more mercantilist trade policy would seek to ensure exports exceed imports so tariffs on exports will undoubtedly be lower. Protectionism is equal in its ratio as it seeks to shelter the domestic economy from booming or busting on either side of the equation. Free Trade, well free trade cares not for tariffs and seeks to profit through other means.

While the laws set the tariff ratio of import/exports these can be customized further in the budget screen by setting their tax levels. Tax levels don’t just bring in revenues but offer incentives to your economic actors, your pops. Lower tariffs encourage trade while higher tariffs will hinder their efficiency because well if the nation is getting a bigger cut, how motivated can you expect the pop to be in engaging in such trade?

A higher tariff means minimizing the profit to be had by business and disincentivizing trade.
DD38 06.png

So how do treaty ports play into these systems, as they certainly existed during the time period? Treaty ports are a means to ensure that you have access to a national market despite such embargoes and tariffs. They are a wedge in the barriers to trade another nation may put up so the goods may be funneled out of the market. Treaty ports have the special function that they permit the bypassing of embargoes and tariffs set in land adjacent markets through trading. They are a more permanent means of opening the market to your access but in the same vein also require a more permanent investment. Since treaty ports are first and foremost ports they will certainly become trade centers and will require the infrastructure and staffing to function. As you invest in this profitable endeavor, be aware that you will need to protect such from the eyes of other imperialist nations who might seek to take it away from you.

At game start Portugal finds itself holding the Treaty Port of Macao, a very profitable trade endeavor, but will such profits attract the attention of greater powers?
DD38 07.png

How do Customs unions come into play here? If you recall from the previous developer diary, customs unions are an agreement between one or more nations where one nation agrees to subject itself to another's national market. By agreeing to subject your national market to another nation you are agreeing to take on the structure set into place by their economic system and policies. While you are still able to enact trade between that national market and another you lose the ability to set embargoes on specific goods and tariff policies across the market, though you do receive your contributing share of the profit of such tariffs. Sometimes this development can be beneficial, sometimes it can majorly hurt your national sources of income, as the previous dev diary goes to great length to summarize “it depends.”

And that's a bit about trade, tariffs, and more! I may not have succeeded in delivering a concise explanation this time but it's certainly a shorter one. Next week is going to be the Kaiser himself (Johan Jons) to talk about Shipping Lanes. I’ll let the fanbase craft their own conspiracy theories about whether or not we are being literal with that one.
 
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This comment is reserved by the community team for gathering up dev responses for ease of reading.


acidsun said:
Can you impose import tariffs on specific goods, making them more expensive so as to favour locally produced goods?

Or also export tariffs on specific goods, to ensure they do not flow to other markets and are cheaper at home?
Tariffs are not currently set on specific goods they are set across the board as a policy of all traded goods. Thats the intent for now - going into calling out specific goods beyond that is something that was considered but has not been put into play.

CalculusWarrior said:
How are trade routes created by the player? You mention a player can create an import route of goods, but how is that done? Is it created through the Trade Centre itself, or is there a separate Trade window one sets routes up in, similar to HOI4?

I also note that import routes have +/- buttons allowing one to adjust the size of them, but export routes lack that. Are exports then automatic?
Its one of those things that you kinda just expect that others know about and apologies for not making that clear. Trade is done either through the market screen or the lens for trade on the bottom of the UI, you can choose to import/export a specific good and then the market you wish to get it from/send it to. This interaction will then create a trade center. It is then summarized for ease in the Trade Center Menu (though this UI exists in the Markets summary as well).

Revolution 11 said:
Forgive me if this information is elsewhere but what is the list of Economic Systems and the effects of each system? What are the effects of the other 3 Trade Policies that are not in the screenshot?
I'm saving that for future leaking at some point in the future. Unless another dev wishes to spoil my fun and post it. It is very similar to the Economic Systems that were shown in previous dev diaries as it was trade policy that was split out of it.

Palna Thoke said:
Is it possible to embargo (sanction) a specific country? Like only embargoing German coal but not coal from the rest of the world
It is not currently possible to embargo a specific country, though if we did put in such functionality it would have to be embargoing a specific national market - as countries themselves do not trade.

ABQGhostdog said:
In the Twitter Teaser Sulfur had a higher price in the US market, but still exported into the Texan Market. How does the Trade Center make a profit if the good its buying has a lower price at the goods destination then its source? Wouldn't the trade center lose money from the goods it's trading? and if so why would the traders continue trading?
So, didn't see the teaser until now and yes looking at those numbers it seems like that would be a loss/loss trade (assuming that its not a bug that the 53 and 59 are reversed and thats where the profit is in the marginal revenue - Entirely feasible the game is under development after all and bugs are common). Took me awhile to answer this one only because I had to go back and run some marginal revenue calculations to assume I wasn't going crazy because its late here and I am tired.

But lets assume that the trade is unprofitable, well that means there isn't profit to go to the trade centers, which means that they are conducting this trade at a loss. Now this loss may wash out in the many other profitable trades the trade center is conducting. Regardless to some degree this means that less profit is at the trade center, which means salaries are lower because profits are lower - if this was the only trade route well salaries would dry up - pops would look elsewhere for jobs and as a result of not being able to staff your trade center the trade route would not deliver goods.

anbeck said:
That's a massive shame. Import substitution relies on high tariffs on finished goods and lower tariffs on intermediate goods and raw materials. I think in his report on manufactures, Hamilton already advises as much (although predating the game's time frame). Probably influenced by Friedrich List, the Zollverein in the 1840s also adopted higher tariffs on finished products while keeping tariffs on iron and other raw materials moderate.

I could easily foresee dozens of scenarios in Victoria 3 where I want to fine tune my tariffs. How can I nourish my industrial base if I can only set tariffs across the board? Either I make everything expensive and nobody will be able to import raw materials and intermediate goods (and probably machines) to get my industry going or I make imports so cheap that it's not worth to produce these goods locally.
While you are not wrong that it would be cool to utilize such features (maybe one day in the future) you are quoting mercantilist doctrine that is a bit early for the timeperiod. That is early colonialist of the late 1700s mercantilism where it was understood that colonies were only methods on which to access raw materials and the industrial metropoles were the intermediate and manufactured goods. Hamilton's advice was for the US to become its own "metropole" of the Western Hemisphere. While the Zollverein also touches on this its at the tail end of that variation of mercantilist thought with its founding - I will remind you that it did not stay an absolute of what you describe throughout its entire history and adapted as the times did. By the late 1800s its less the aquisition of materials which determines the progress of industrialization but the capturing of markets outright as a means to sell to fuel the means of industrialization. While Empires still fought over specific reasources of importance it was the ability to sell to the market that becomes the prevailing factor. Colonies could not just be places to extract resources from, they needed to be rich enough to buy the goods back. Mercantilism is a strange economic ideology because it honestly shifts in its understanding throughout the timeperiod instead of just being replaced by a newer idea?

All this is to say economic thought changes, especially with politics because thats history and as I am quoted in the last dev diary saying "my god its hard to make a system to represent the fact that throughout history there's not always an agreed upon meaning (or many many outliers) when economics and politics get involved."

Economic thoery tangent short: There are plenty of other ways in game to nourish your industrial base including subsidizes, encouraging consumption, and embargoing specific goods coming into your markets which are available to you. It might not be the exact level of detail you want this moment but it is there.

And maybe oneday I will convince the devs to implement a more detailed tariff system.

IceTytanFang said:
Are Treaty Ports something that can only be gained in China, or it will it be possible to have Treaty Ports elsewhere? Maybe Russia forces Germany to turn Danzig into a treaty port, or Britain forces America open through taking New York City
If there's a state - and a power willing to fight for it - there's a treaty port to be had wherever that may be.


Being Earnest said:
How is ai set up to deal with situations where it does not have a car factory because it has no rubber, but it does not import rubber because it has no car factory to demand rubber?
Another question- are trade routes set up for a fixed amount of goods? How do shortages from the exporting market affect the trade?
The AI will have functions to determine that it should want to import a good because importing that good would let it build buildings that would then be profitable in the market.

Trade routes can be setup in such a way that you cause quite crippling shortages in a market - that's why having a Protected Export Share or high tariff barriers can be important to protect your domestic industries. If there are more demands for export from a market than the market can actually provide, the relative competitiveness of each trade route determines who gets what share.

luxfelix said:
Are customs unions and national markets synonyms?
Not entirely. See the last dev diary for more details.

National markets are the well... national market of X nation. A customs union is when two parties agree that one nation will subject its national market into another. The nation who's market remains is the senior parter, the one who subjects its market to the other is the junior partner. There can be multiple junior partners in a customs union.

So a Custom's union is X number of countires who share a national market.

acidsun said:
What are the difficulties of implementing goods-specific tariffs (Game dev-wise)?

Say I want to protect my infant machine parts industry but don't have access to much iron.

I'd like to keep my iron imports as cheap as they can be but make foreign machine parts expensive through tariffs so that my own industries will buy locally.

Is that kind of strategy possible right now, somehow?
There's two principal issues:
1) It overlaps with how embargos function in that it is a reactive (or proactive) tool to protect a specific good.
2) Using embargoes in a proactive way would effectively be spending Influence on something that doesn't earn you any money, which wouldn't be a very good gameplay flow.

Something we've considered is the ability to selectively make goods duty-free where you want to encourage their import/export.

cokertonml said:
So with Treaty Ports, could any port city theoretically become a treaty port? Or is it locked to very specific cities as before? I do think having more flexible treaty ports, potentially all over the globe, would be quite fun and give them more variety, even if it would be quite hard to snag one in like the UK or something
Treaty Ports can be demanded from anyone. There's also some Treaty Ports at the start of the game, like Gibraltar and Melilla.

ismael2067 said:
How viable would economic warfare be with this system?
Trade can absolutely be wielded as a weapon. An example would be exporting their raw materials and flooding them with manufactured goods to destroy their domestic industries, especially if you acquire a Treaty Port or force them into adopting Free Trade so that they don't have too many tools to fight back with.

Brynjar said:
Does the AI really only take profitability of that specific goods into account when making such decions? That makes it sound like it could be possible to crash a certain market with the intent of making an AI nation shut down its factories, just to strangle their supply of that goods just to exploit the AI to cause unrest, lack of access to military supplies etc. once they have shut down their factories.
No, the AI doesn't just work on pure profit calculus. There's other factors that play into it as well, most importantly which economic strategy it's following. The important thing is that the AI is built with the intent that it should be able to predict opportunities instead of just being reactive - I'll go more into how this works in a later DD.

FaIconere said:
A further development of the tariff system would be really good. I feel like trade in its current form fails to tie itself to diplomacy as a game pillar, it seemingly lacks reactions. Trade during the 1800:s with the exception of the UK was reciprocal and bilateral , to my understanding, yet here trade policy seems to be an entirely internal unilateral proccess. Doesn't this system fail to model things like tariff wars, or diplomatic trade agreements like the Cobden-Chevalier agreement between the UK and France when you cannot diffentiate between nations?

I don't want to be needlesly negative though. This is by far the best model for trade made in a paradox game so far.
Trade Agreements are totally a thing within the diplomatic actions of the game and there are plenty of options you can take within diplomatic plays to pry open more walled off markets and get them to change their systems to better align with yours. While I am always on the lookout for how to tie trade further into the relations of diplomacy, what has been stated in the dev diary is not necessarily everything outright.

BrotherJonathan said:
I just realized that introducing treaty ports will also make those weird one-province outposts like Macau much more important and useful. In previous Vicky games they were almost more of a liability than an asset, since their only real use was as coaling stations for your navy.
Macau is in fact a Treaty Port and can give Portugal a significant leg up on Chinese trade at the start of the game. Hong Kong is another potential Treaty Port in China's main Trade Center.

Brynjar said:
Does that mean a country can not subsidise a trade center? In a world where those trade centers are the only way to import goods not produced in the country?
If you look closely at the trade center image you will notice it has a subsidize setting. Its just greyed out because its not currently allowed by the economic laws of that country.

Its totally possible for you to run just trades that would be a loss (maybe to conduct economic warfare?) and to subsidize the trade centers to ensure it takes place.

IceTytanFang said:
I want to go back on this. The way you worded this makes it sound like any state can be host to a treaty "port." Does this include inland states? Can Prussia open up Russia by having Warsaw be a treaty "port?" Or is this limited to coastal states?

If the former, this would bring the treaty port game up a whole other level.
Limited to coastal states - treaty ports require ports at current.
The former is a neat idea to consider for the future but scope creep upon scope creep means the game never gets released sadly.

dongwookuk said:
I’m curious: so the way that treaty ports are structured - is there any benefit to holding more than one treaty port, in terms of levels of access to the captive market? Maybe that was clear from the diary but I didn’t understand!
Having more than one treaty port (if managed) means that your trade centers will likely be balanced between the two ports which puts less stress on infrastructure and makes it easier to maintain a larger volume of trade. It also means more ports to defend so take it as you will.
 
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Good evening,interesting dd,i really like the fact that the embargos are not 'absolute'.It would have been too exploitable otherwise.However,i have a few questions:
Can Tarrifs and Trade route compettiveness be modded as a modifiers outside of just Laws,by decisions or event for example or it's not possible?
Are Tarrifs level fully moddable?
Thanks for any replies about this.
 
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Man, Center of Trade really came a long way since EU1 innit?
 
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So Treaty Ports allow you to side-step local regulations on goods. Now I need to play a campaign as the EIC/British Raj and drown every market in the world with Opium, Liquor, and Wine. Libertinism will triumph over Temperance!

More seriously, thanks for separating Trade and Economic Policy: it was kind of weird to have them be the same in an economic game in the first place.

But is there a reason why both kinds of tariffs have to be increased at the same time? I can see many situations where you want to import a lot of goods (i.e. temporary war/disaster shortages) but still want to avoid choking your export-based economy.
 
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I really like the immigration boost from trade centers. It creates an organic way for most nations capitals to gain the lions share of the growth without leading to strange situations like Washington DC becoming an ecconomic powerhouse just because the president hangs out there.
 
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Next week is going to be the Kaiser himself (Johan Jons) to talk about Shipping Lanes. I’ll let the fanbase craft their own conspiracy theories about whether or not we are being literal with that one.
Admit it, you really enjoy making us suffer, don't you?
Edit: yes you do >: (

KJohanPls.png
 
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acidsun

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Can you impose import tariffs on specific goods, making them more expensive so as to favour locally produced goods?

Or also export tariffs on specific goods, to ensure they do not flow to other markets and are cheaper at home?
 
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pizzayolo

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Nice DD! Will tariffs impact a nations relationship with others?

For example: If I raise tariffs on a certain good that nation A exports to me, will nation A raise tariffs on a good that I export to them as a response to me raising tariffs first?
 
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Ramidel

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Can you have a treaty port and a customs union at the same time? Do treaty ports bypass a CU, and will potential CU partners take the treaty port into account when deciding whether you're a good customs partner?
 
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Forgive me if this information is elsewhere but what is the list of Economic Systems and the effects of each system? What are the effects of the other 3 Trade Policies that are not in the screenshot?
 
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Izokia

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So how does having a treaty port work for a great power? Does the UK having hong kong bring china into the british market or does it just turn off all embargoes and tariffs between the two groups? Also, can two countries hold treaty ports in the same nation?
 
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Xain

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I absolutely love everything about this DD. And @PDJR_Alastorn , you kept answering all my questions as they appeared in my head.

However... It seems to me that it explores trade centres more than trade routes?

We still do not know how to a trade route will be set... Or am I missing something?
 
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How are trade routes created by the player? You mention a player can create an import route of goods, but how is that done? Is it created through the Trade Centre itself, or is there a separate Trade window one sets routes up in, similar to HOI4?

I also note that import routes have +/- buttons allowing one to adjust the size of them, but export routes lack that. Are exports then automatic?
 
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Since the embargoes are not absolute, will there be some similar level of bleed through on products with high tariffs? Otherwise I could see a scenario in game where you could more effectively embargo a good by just putting a high tariff on it instead of an outright embargo, when in reality that would create the same ‘black market’ analog that an embargo would create…
 
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cristofolmc

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Im curious to know what's the rationale behind not letting the player set the import and export tax separately so i can tax 100% an import and 0% a certain export.

I suppose tariffs will also acts as a kind of embargo, right? If i set the tariffs to the highest level.

Also, could you elaborate a bit on trade routes please? You barely touched on that. Does the player create them nanually? Is there a cap on how many can you have? What is the cap based on? Do they cost something to upkeep?

Thank you
 
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