Tariffs for Dummies

[retrofade]

This is a simple "Dummies level" explanation of tariffs and their impact on American consumers. 

• An American company imports basic shirts from China for $20, screen prints them, and sells them to customers for $40. 
• The US President places a 50% tariff on shirts imported from China, thus raising the import cost to the business to $30/shirt. 
• To maintain their profit margin, the American company raises the price of their shirts to $50.
• American competitors, seeing the price increase, raise their own prices, taking advantage of the new pricing standard without the additional tariff cost.
• American consumers now pay $50 for a shirt that used to cost $40 before the tariff was implemented.
• China does not pay the tariff to the American shirt company, as the US President wants you to believe.

Additional long-term impacts could include reduced demand for shirts and the American company losing business based on the new pricing structure, forcing them to lower their price even though they have a lower profit margin. This could lead to a potential reduction in the workforce or lower local tax revenue. That also doesn't take into account potential retaliation by China (or other countries for other potential tariffs), increased inflation, and lower consumer choice and/or quality. 

With that all in mind, can someone please explain to me how tariffs, utilized in the way that President-elect Trump has said he will wield them, will benefit the American consumer in the ways that he claims? 

 

[retrofade]

[Sactowndog]

On 11/11/2024 at 11:43 AM, retrofade said:

This is a simple "Dummies level" explanation of tariffs and their impact on American consumers. 

• An American company imports basic shirts from China for $20, screen prints them, and sells them to customers for $40. 
• The US President places a 50% tariff on shirts imported from China, thus raising the import cost to the business to $30/shirt. 
• To maintain their profit margin, the American company raises the price of their shirts to $50.
• American competitors, seeing the price increase, raise their own prices, taking advantage of the new pricing standard without the additional tariff cost.
• American consumers now pay $50 for a shirt that used to cost $40 before the tariff was implemented.
• China does not pay the tariff to the American shirt company, as the US President wants you to believe.

Additional long-term impacts could include reduced demand for shirts and the American company losing business based on the new pricing structure, forcing them to lower their price even though they have a lower profit margin. This could lead to a potential reduction in the workforce or lower local tax revenue. That also doesn't take into account potential retaliation by China (or other countries for other potential tariffs), increased inflation, and lower consumer choice and/or quality. 

With that all in mind, can someone please explain to me how tariffs, utilized in the way that President-elect Trump has said he will wield them, will benefit the American consumer in the ways that he claims? 

 

Just a note on your math.  Margin is generally a percent.  40-20 (cost of goods sold) = 50% Gross Margin. 
 

in your example to maintain the same gross margin versus gross profit dollars and pay the $10 tariff the cost would be 60-30 = 50% Gross Margin.  
 

so it businesses want to maintain their gross margin percent it actually worse than your example.   

[CV147]

Trump hopes that by raising tariffs he will stimulate creation of manufacturing jobs here.
It's smoke and bullshit. Like you wrote in your post, it will raise the price of American-made goods as well as imported, not only because what you wrote, but also because the difference in price will increase demand on American-made. Without a significant increase in supply, the price of American-made will increase to match the demand (econ 101).

[retrofade]

On 11/11/2024 at 1:14 PM, Sactowndog said:

Just a note on your math.  Margin is generally a percent.  40-20 (cost of goods sold) = 50% Gross Margin. 
 

in your example to maintain the same gross margin versus gross profit dollars and pay the $10 tariff the cost would be 60-30 = 50% Gross Margin.  
 

so it businesses want to maintain their gross margin percent it actually worse than your example.   

Correct, I was keeping it super simple. 

[InnZoneU]

So is he gonna put tariffs on all his Trump Merchandise that he ships from China?

[Akkula]

Trump is just trying to do giveaway to the wealthy.   He is going to replace progressive income taxes on billionaires like him with a regressive national sales tax (tariffs) levied mostly on the poor and middle class. 

[OrediggerPoke]

Using your example - What if the American company finds a manufacturer in Mexico able to make and deliver the shirt for $25? And in exchange for exporting more shirts, Mexico agrees to import more US manufactured machinery? Could this example perhaps result in increased jobs in both the US and Mexico thereby reducing demand to immigrate from Mexico to the US and reducing immigration and social service burden and strengthening economic ties with allies v foes? By reducing dollars flowing into China, could we also potentially reduce China’s investment into weaponry aimed at defeating the US and thus also reduce our needed tax burden for defensive weaponry? If by doing all this, the tax burden is thus decreased by $5 per T-shirt…then doesn’t the marginal cost of the T-shirt equal the same?

 

I don’t believe your example is so simple.  The global dynamic and taxpayer burdens create a very complex interplay.  But I don’t believe China is our friend and I don’t believe helping China’s economy makes the US a safer place.  

[Madmartigan]

On 11/11/2024 at 3:42 PM, InnZoneU said:

So is he gonna put tariffs on all his Trump Merchandise that he ships from China?

I hope not. I've been wanting to get my hands on one of them there $60 Trump bibles for some time now. Been saving my pennies to afford one. 

[Dogs4Me]

On 11/11/2024 at 12:01 PM, retrofade said:

We buy our beans from Hawai’i…

[RSF]

The United States' top coffee suppliers are Brazil and Colombia, which have been the top two exporters of coffee to the US since at least 2009: 

 

 

 

• Brazil

  In 2023, Brazil exported $1.35 billion worth of coffee to the US. Brazil is a major global producer of Arabica-variety coffee beans. 

   

   

   
• Colombia

  In 2023, Colombia exported $1.38 billion worth of coffee to the US. Colombia is also a major global producer of Arabica-variety coffee beans. 

   

   

   
• Other suppliers

  Other countries that supply coffee to the US include Switzerland, Canada, and Guatemala. 

   

   

   

The US is the world's second largest importer of coffee. In 2022, the US imported $8.89 billion in coffee. 

 

 

[Madmartigan]

On 11/12/2024 at 5:16 PM, RSF said:

The United States' top coffee suppliers are Brazil and Colombia, which have been the top two exporters of coffee to the US since at least 2009: 

 

 

 

• Brazil

  In 2023, Brazil exported $1.35 billion worth of coffee to the US. Brazil is a major global producer of Arabica-variety coffee beans. 

   

   

   
• Colombia

  In 2023, Colombia exported $1.38 billion worth of coffee to the US. Colombia is also a major global producer of Arabica-variety coffee beans. 

   

   

   
• Other suppliers

  Other countries that supply coffee to the US include Switzerland, Canada, and Guatemala. 

   

   

   

The US is the world's second largest importer of coffee. In 2022, the US imported $8.89 billion in coffee. 

 

 

Does the demand for coffee make it price inelastic? I think it’s close. 

[Bison]

I imagine Black Friday is going to set some records.  As an avid video gamer, I was thinking that video game consoles could be hit with such tariffs.  Just imagine how much the PS5 Pro ($700 MSRP) will cost if tariffs were applied?  On the bright side, I got the electronics I want for at least the next five years.

 

[stanfordchef]

On 11/12/2024 at 4:11 PM, Dogs4Me said:

We buy our beans from Hawai’i…

There isn’t near the volume grown in Hawaii to satiate nationwide demand. Nor could there ever likely be given the geography of the big island. 

[Dogs4Me]

On 11/13/2024 at 12:20 PM, stanfordchef said:

There isn’t near the volume grown in Hawaii to satiate nationwide demand. Nor could there ever likely be given the geography of the big island. 

Agreed, it’s just for entitled white snobs like me.

[RSF]

On 11/13/2024 at 2:20 PM, stanfordchef said:

There isn’t near the volume grown in Hawaii to satiate nationwide demand. Nor could there ever likely be given the geography of the big island. 

 

[retrofade]

[FresnoFacts]

Google searches for 'tariff", "what is a tariff", and similar wordings spiked suddenly the day AFTER the election. Seems like something that voters should have researched before the election.

 

[Laconian]

On 11/11/2024 at 12:01 PM, retrofade said:

Where are parts for farm equipment manufactured? I'd imagine that might affect food prices.

[FresnoFacts]

On 11/13/2024 at 4:36 PM, Laconian said:

Where are parts for farm equipment manufactured? I'd imagine that might affect food prices.

I don't know about farm equipment parts. But if it is the same as auto parts, well, the CEO of AutoZone said in the September earnings call:

"If we get tariffs, we will pass those tariff costs back to the consumer. We’ll generally raise prices ahead of — we know what the tariffs will be — we generally raise prices ahead of that.”

https://www.cbsnews.com/news/trump-victory-china-tariffs-taxes-inflation/