Who really pays the tariffs?
One of the questions that permeates the debate over tariffs is WHO pays for them? As is unusual, the public debate is extremely theoretical.
President Trump says the nation upon which they are imposed pays them – and the money from tariffs makes a significant contribution to federal revenues. His opponents say that the cost of the tariffs are paid by consumers in the increased cost of goods – and that it is essentially a sales tax.
Before getting into the details, I feel the need to add a disclaimer. I believe in free trade and, therefore not a fan of tariffs. I understand their temporary utility when dealing with unfair trade practices or high tariffs imposed on the United States by other nations. In those cases, tariffs are not a policy but a weapon – and they should be short-lived.
Now to the headline question?
While Trump is correct that tariffs produce revenue for the federal government — and so far, his tariffs have generated an estimated $20 billion for Uncle Sam. But Trump is wrong when he says that the tariffs are automatically paid by the nation upon which they are imposed.
But … the Trump critics are also wrong when they say that the American consumer will pay them. Actually, the consumer has a lot of other options rather than paying for whatever additional cost slips through to the shelf price. You can rest assured that it will not be the full or theoretical cost calculated by economists and hyped by politicians.
There are a number of reasons why the average consumer may not feel the full impact of the tariffs.
- First and foremost, there is still uncertainty about the level of tariffs to be imposed on which nations that produce different products. Most of the numbers floating around the political sphere are speculative, hypothetical and unrealistic.
- If all goes well – and that is an “if” — the Trump tariffs will be temporary – either eliminated or reduced. Since the impact of tariffs is delayed, there may be no impact on consumer prices by a tariff that is imposed and withdrawn in a short time – usually after a deal has been struck.
- Some nations will cover all or part of a tariff to keep their export products competitive – but not 100 percent as suggested by Trump. China already subsidizes exports – essentially covering the cost to keep their products competitive. That is one of the unfair trade practices.
- Businesses affected by tariffs may consume all or some of the cost without increasing prices – increasing less than the tariff. A LOT of businesses have already indicated they will do that – at least in the short run.
- The most obvious way for a consumer to avoid tariff increases is to not buy items with high tariffs. They can purchase domestically produced items. The wide variety of groceries and department stores offer lot of options. Trump critics say that tariffs will add $4000 in costs to the average American. But that is only if that hypothetical “average American” purchases the tariffed items at the hypothetical maximum cost increase. It is a hypothetical number, but not a real number.
It is going to take some time before we even know what the overall tariff situation looks like – and even longer to know the impact. But we consumers have a lot of flexibility in dealing with our budgets.
(On a personal note, the cost of gas to fill my old 2009 Chevy Impala (I love that car) has dropped. And a couple months ago, it was going to buy a nice T-bone steak but took a pass at the $28.99 price — for one steak!!! I was back at the same grocery store today, and that same steak is $17.99. Eggs have also come down. But I digress.)
There may be price increases in our future – and some of them due to the tariffs and some due to economic growth — but the situation is not nearly as bad as what we have already gone through with the Biden inflation. We have not gotten completely over that yet – but it is getting better.
So, there ‘tis.
Frank Dunger should NEVER wave his penis at a nun.
“On a personal note, the cost of gas to fill my old 2009 Chevy Impala (I love that car) has dropped.” Oh my, I love the original Impala and tried the legendary v8 327 engine, or derivative, in a few cars.
Hopefully yours is not a fleet vehicle, otherwise check your OPTIONAL side airbags, could be missing. Yeah, only 5 recalls, hope you took advantage. One of them is a killer, literally. Just in case you missed one:
*https://www.consumerreports.org/cars/chevrolet/impala/2009/reliability/*
Hope you got the SS although the others look fairly perky. Just a V8 sort of guy although I will take a six if the turbo is offered.
What Larry left out was the impact on prices on domestically produced goods. As an example, long before the steel and aluminum tariffs were implemented, domestic producers raised their prices. In the end, the consumer takes the hit.
Today, Horist says: “But … the Trump critics are also wrong when they say that the American consumer will pay them. Actually, the consumer has a lot of other options rather than paying for whatever additional cost slips through to the shelf price. You can rest assured that it will not be the full or theoretical cost calculated by economists and hyped by politicians.”
Now that’s a Horist of a different color. And that color is hypocrisy.
Price increases due to tariffs follow the same economic process as price increases due to minimum wage increases. Back in his day, Larry was totally knicker-knotted over minimum wage increases DIRECTLY impacting prices. I said, NO, it is not a direct line and that I have priced hundreds of products and while cost was a factor, there is NO DIRECT LINE from cost to price. Matter of fact, I rarely looked at it in lieu of the more important factor: margin. I had things costing $1,000 that I charged $1,200 and things that cost $2 that I charged $1,000. Twas value, competition, and margin % that I priced to. Cost was a factor in margin, but given many parts to a product, the margin differed, sometime radically, like the example above.
Larry was adamant that I was wrong and that wage increases drop to price, dollar for dollar. Tariffs at one level are just cost. They only matter to the maker as part of the cost that the CONSUMER bears, but the manufacturer must live with, just like the cost of regulations. He would not relent that thought until his Felon King mucked with the market and suddenly the line tween cost and price was not as direct anymore. And then he called me nasty names, spoke of my intelligence or lack thereof, and I think at that time was comparing Tom and I (I miss the good Tom), to two characters from Sesame Street, his favorite PBS show.
7/11/19 Horist on minimum wage: “It will produce only four results. Fewer jobs, fewer future pay increases (essentially erasing any economic benefit from raise), increased prices and more robotics replacing workers. The youngest, less educated and minority workers will be hit the hardest.” You tell me that there’s a economic difference to price in tariffs versus wages to the cost of the product to the consumer.
4/7/24 Horist on minimum wage: “Wages and employee benefits are best left to market forces. Diddle with that and the market forces respond in punitive ways.
1. The most obvious is increases in the costs of goods and services – most notably in the economic sectors with the most part-time workers or lower income workers. The Newsom minimum wage has resulted in widely spread price increases – generally in the range of 20 to 40 percent. That impacts the purchasing power of millions of customers – and hits the low-income families the hardest.” And then the remaining bad news, according to Horist.
2. Reductions in work force. In order to avoid price increases –
3. Postpone future or anticipated hiring.
4. Reductions in hours worked.”
Pretty bad ju ju for a cost increase due to wages which, cost-wise, look the same as tariffs to the consumer. At least, according to Larry before his Felon King applied them.
8/19/24 Horist: “Harris would raise the minimum wage – a policy that has never helped the economy or the vast majority of workers. It causes an inflationary increase in prices and the loss of jobs.”
But not with tariffs anymore……no, that cost increase will not be that bad, consumers have alternatives, the tariff will never be fully borne by the consumer is the renaissance Horist on cost effects to price, this time via tariffs. Like Horist, I agree there will not be a direct line from tariffs to price, but there will be increases to price. The truth is there is no direct line to price from either minimum wage increases or tariffs. Both affect price, but not directly as there are many “buffers” that might change the price indirectly. I agree that tariffs, just like the minimum wage, will raise prices, but not directly. Also, rising prices means less purchases, means job loss, gdp growth loss, loss of value for the dollar, many bad things.
Larry also leaves other things out in his attempt to gild the lilly, one is market turmoil. Trump’s economic chaos, even if it was over magically tonight, will freeze many aspects of the market, and force needless change in others. So far, he has flipflopped 15 times on these tariffs. It’s a fucking moving target of chaos. Business will react to that by doing as little as possible until the dust settles. Needless change: companies in high tariff countries are investing time and money into finding and moving manufacturing to lower tariff countries. That work continues. They don’t trust Trump stability. Trump could raise the white flag today and business would still not hire, expand, open factories in America, whatever —- Trump’s chaos has frozen the market. He can say it’s fixed, but it won’t be for some time.
Look at the stock market, it’s gyrating as Trump puts his finger on the economic scale. Yes, he blinked on China and the market rebounded from the tariff crash. Yet, it’s still down trillions from when Biden led the economy. The message is clear, the stock market hates tariffs, but even without them, is not as confident under Trump as with Biden. Follow the money.
Meanwhile, he’s giving Horist another gift: the Trump Consumption Tax. At one level, tariffs are a tax to consumers who pay based on consumption of said taxed products. Trump seems to be settling on 10% for all once the dust clears. That’s what he did to UK, and that’s what he’s doing in the China freeze. I contend he will leverage that against the huge tax decrease he wants and Larry will cheer about a tax decrease that does not create an instant deficit as a miracle. It ain’t it’s just the math that both tariffs and income taxes flow to the General Account in the US accounting. It’s a pea under the walnut trick. And one that undoubtedly picks winners and losers and the consumption tax is most certainly picking both the middle class and poor as losers who will pay a greater percentage of income for more tariff taxes than the rich.
And I don’t fucking digress.
Frank Danger. As much as I prefer to ignore your long obsessive intellectually challenged rants, you have outdone yourself with this one. While I understand you have an unfortunate obsessive desire to be the anti-Horist, I am actually flattered and shocked a the depth of your obsession — researching so many of my past commentaries. And as far as your simplistic and ignorant comparison of tariffs and minimum wage laws, you prove you are ill informed in terms of economics. I could give you a 2-0-2 level explanation, but you are not even performing at a 1-0-1 level. But here are a coupled of points. (1) Tariffs impact on a limited number of items — giving consumers many options. Minimum wage legislations impacts on ALL businesses. Consumers have no alternative options. (2) Minimum Wage laws go directly to the bottom line of the business, which is less able to absorb them. Especially small businesses. Tariffs not only leave purchasing options, but they can and often are absorbed at various stages. Foreign manufacturers can lower prices to stay competitive. Some nations — such as China — often absorb some or all of the costs. American businesses can also absorb some or all of the cost — and they do. (3) For the faults of tariffs (and I lean anti-tariff), they produce billions of dollars for the federal treasury. Minimum wage increases tend to add a burden on the federal Treasury. There is a lot more, but this should suffice for you to dine on humble pie. LOL Oh … and do not see this as an indication that I will be wasting time in the future responding to your constant obsessive contrarianism. I am not the obsessed one.
The casual economics untutored person in America happens to be in the majority counting those from all ideological perspectives. It’s a fact that when Trump began talking tariffs Google was inundated with search engine inquiries asking for information about tariffs. What a tariff is, how much of what we pay for something is tariff, where do the proceeds from tariffs end up, what’s the difference between tariffs and taxes, and the search goes on and on.
Then, considering who owns Google, can we trust Google for the objective facts without political spin?
I know individuals who searched Google for facts on tariffs and came away more puzzled than before when Trump introduced “tariff” back into American English.
Some people on the political right I heard saying that their trust in Trump as the deal maker is sufficient and they don’t need to know about the tariffs.
That anyone is that trusting of POTUS no matter which party POTUS is identified with is extremely scary and reinforces my fears about our country’s future.
Other people I know who support Trump believe that tariffs are beneficial for our national economy because tariffs go into the government like income taxes. The additional amount from tariffs the government can use to payoff the nation’s debt. Then, their income tax will be less.
I had hoped the National per person Intelligence Score was high enough and the people informed enough to see and separate truth from fiction.
Knowing that everything they hear from their preferred information source definitely is not what it appears to be.
A close look at our Constitution sit details the responsibilities of the President and the powers that are and are not available to him.
Trump is not operating within Constitutional law established parameters
We should not regard any action proposed by Trump with shock and awe. He has established a pattern of behavior that is beyond shock value. And the “awe” word is a preface and is used in dismay like “awe crap” or “awe that again” or “awe, he can’t do that”
Somebody’s gotta do something to stop him.
Mr. Horist: Why don’t you give us the 2-0-2 level explanation. I can use the laugh. Or maybe even learn what 2-0-2 level means.
One point you say: “Tariffs impact on a limited number of items — giving consumers many options. Minimum wage legislations impact on ALL businesses. Consumers have no alternative options.” That’s just fucking funny, it’s so stupid. Less than 2% of American workers get minimum wage. How much minimum wage is in your company. Based on the quality, I guess Joe pays a lot of minimum wage. (meow). I worked since 1979 in one company or another and never saw a minimum wage worker in any of them. Fortune 100 too for part of that. Plus, alternatives must exist to be able to choose them. And chances are, with Chinese products that either you pay more, or accept a substitute, not an alternative. You don’t know; you have to go product by product, tariff by tariff, country by country. Champagne has no alternative that is not Champagne; you can only get a substitute like sparkling wine.
BUSTED
Another point is: “Minimum Wage laws go directly to the bottom line of the business, which is less able to absorb them. Especially small businesses.” As I noted, there is no direct line in rising costs to price whether the cost is tariff, wage, or product. Trust me, seen it, felt it, been there. They do affect, but not direct. Small business can suck up cost too you know, not all are less able? My consulting firm in the 80’s was rolling in margin, many of our reports were based on previous work.
BUSTED
Another point is with tariffs you have alternatives as in you don’t with minimum wage or so you surmise. That’s like saying China has competition and alternatives, but minimum wage Walmart does not. Like McDondalds holds us captive, can’t just flip your own burger at home? I guess the Donny 2 Doll’s “just buy less” is an alternative you could apply to minimum wage?
You make your own point. China can absorb some costs. Gee, and McDonalds or Walmart can’t? Walmart with a 4% sales gain this quarter can’t give a bit for the Gipper? You prove yourself wrong. Most minimum wage is NOT small business but “small of large” like McDonalds or Walmart.
We don’t buy everything from China. Not all business employs minimum wage. I bet your business had zero minimum wage and it was a very small business. So small that it seems to have disappeared. One guy left and it folded probably. We sold our name and client list and so lived one. No minimum wage though.
As to the burden on Treasury and other governmental, economic negatives, there exist many a model that promotes that hypothesis, but little to no empirical evidence to that. I have both models and a fuck of a lot of empirical data that refutes your burden concept. But obviously, you are not open to data outside of your box and so I will move on.
Fact is cost is cost. Don’t matter whether minimum wage, tariffs, regulations, or God that causes it. Cost affects product price, but there is NO DIRECT LINE FROM PRICE TO COST. That’s called cost-plus pricing. Cost-plus pricing offers simplicity and guaranteed profitability, making it easy to implement and justify. However, it can lead to overpricing, ignore competitive forces, and discourage cost optimization. Better strategies focus competitive pricing, value-based pricing, and demand-based pricing. I managed $100M business lines, portfolios if you will. I had the advantage of using portfolio pricing able to offset low margins with high margins where competition, value, and demand gave me advantages and disadvantages.
After deregulation, I was on the team to price our entire legacy and upcoming line. We are talking billions in revenue evolving from a rental market to a purchase market where rental would always be the margin leader. Big time margin leader. Plus, our “pricing” was ridiculous with competitors pricing at 50% of ours. And they still couldn’t sell much. Now that’s brand loyalty. It was incredible taking a team of ten over a year. Conjoint analysis and massive focus group analysis helped determine how customer values on product attributes helping us design optimal price strategies by simulating real-world buying decisions across different product combinations quantifying preference. I ate well at those focus groups. Thank you, McKinsey. I was the competitive expert responsible for all the prices, ours and competitors. At that time, I was the best in the world at competitive small business phones, bar none, but not that cocky —– not like a lot of people wanted the job and I just fell into it after college having a knack for people to tell me what they charge. My pricing database was incredible covering every product in the market. FYI: the end prices selected were within 5% of my initial recommendation used as a benchmark, but McKinsey, Booz Allen and the other’s we paid millions too while I got minimum wage (kidding, but I was cheap, based on the initial raises). I always said they had to pick a different price to cover their reason for being. But they had the conjoint and I was too stupid to refute that. FYI — this competitive knowledge is what I traded to become a Product Manager to get my own portfolio and P&L a few years, and similar input to our anti-dumping case against Japan, North Korea, Taiwan, and others. Oh my, that was a trip.
So, yeah, tell me about product pricing strategies. I have forgotten more than you can ever know.
Larry, one more point. Our top import is electronics followed by nuclear/machinery, followed by vehicles and then mineral fuels/oils meaning imports touch almost everything we consume as imported by our top retailers. I think when our top retailers are the top importers, your idea of alternatives gets weaker and that, as the Walmart CEO said, higher prices are coming. Not to mention other effects of things like the Port of LA going silent. HUGE inventories being held, for a price, in duty-free locations OR at the manufacturing source. Distribution and transportation workers being furloughed. All sorts of unintended circumstances harming individuals, with longer term economic effects, based on the whims of one man. These will trickle down over the next quarter, but rest assured, his actions that take a minute have results that will last for months.
The top importers, in order: Walmart, Target, Home Depot, Lowes, Amazon, Samsung, IKEA, Ashley Furniture, Costco, and Dollar Tree (now renamed Donny Two Dollar Tree :>). It appears that most of the foreign stuff comes from the places we buy the most. Gee, with some of these we could double-down on tariffs and minimum wage increases!
Point is Trump tariffs sure look like a broad brush against many of our imports from the places we buy the most. Anything US made will increase the price, period. Chance are manufacturing will move to low tariff countries and may open some US manufacturing for PR window dressing. After all, cost is cost and it costs more to be made in America. Walmart had a good 1st quarter while issuing the proclamation that prices will rise. I did not hear him say, but we have alternatives. Other top retailers have stepped back from even offering future financial estimates stating the economic climate is uncertain and unstable. That may be a first. You don’t think investors are thinking the same thing about new investments? Yes, the market bounced back from the first Trump shock n awe, but it’s still down trillions from Trump’s ascension to the throne. It’s not a bull market by any definition, just goes in and out of bull and bear territories in a very herky jerky fashion due to Trump’s proclamations
Larry, here’s a great summary on imports, products, importers, and more: *https://www.usimportdata.com/blogs/top-10-us-Imports-data-by-country-product-hs-code-database*
At it’s simplest issue description, his one is so obvious that I am amazed that anyone who believes in free market capitalism doesn’t notice who is harmed when a market is no longer free. Much less a card-carrying free market conservative with a degree in economics. If one company controls a single market, there is harm to that market and potentially the entire market. If one man controls a market, there is harm. If one man puts his hand on the economic scale for the entire nation, the entire economy, there is national harm. Harm to the economy, harm to our national defense, and harm to individuals because whatever this one man does to control markets, there will be winners and losers. He can be well intentioned, he can be pursuing the right goals, but when he tips the scales of the economy, there will be winners and losers and individuals will suffer because of the choices of one man.
You can say prices are good, inflation is down, “the situation is not nearly as bad as what we have already gone through with the Biden inflation. We have not gotten completely over that yet – but it is getting better” which says it all. Biden’s inflation is still affecting us says the author. What does he think about stock market crash effects? Can be fixed overnight by blinking on some tariffs? How about business expansion efforts put on hold? How about the dormant docks at the Port of LA? Can turn down or turn up without lasting harms? Trump puts controls on markets overnight, then he takes them off; markets do not change as fast, but they do change when one man pulls the levers for his own delights.
Take the stock market. It began to fall early February when Trump tariff wars looked like a reality rather than braggadocio. Then on his announcements, the market crashed. He blinked, pretended he had some agreements, backed down on some, and the market rebounded to pre-crash levels while only losing about $4T so far on Trump’s watch. This is now a 4-month market slippage with a negative gdp growth for the quarter weighing heavy. As of the end of April, consumer confidence is at a 13-year low under Trump’s watch. He just got gifted a $400 used plane, he’s got billions in new business from the Muslims; he’s doing great. You, prepare to buy alternatives, buy less, and continue to tighten those belts.
Fact is we let one man control the entire economy and he seems to act on his own whimsy destroying an economy that was in pretty good shape. Perhaps not for all, but pretty good for most. Worse yet, when he makes decisions chaotically in a mercurial fashion, the instability causes further market disruptions. If the market does not know where it’s going, it often freezes to wait it out. So, what’s that plan, why we doing this to ourselves? One day it’s just say no to fentanyl, another day it’s unfair low prices, another day it’s trade imbalance, another day it’s looking to add US factories, protect jobs, buy more American, stop border crossings and sometimes — to put money in the Treasury in the same place as income taxes. He says his NAFTA replacement is beautiful when he did it; four years later and it’s Biden’s crap. It’s all just weird. We have no transparency as to what is happening, we are facing a scattershot of goals, actions, reactions, and explanations. Like the proverbial turtle, the market is pulling itself into it’s own shell.
Here’s another obvious part some may not be seeing. Not only did we cede market control to one man, but we also allowed him to tax us without Congressional support. That’s right, Trump’s tariffs are taxation without representation. Our elected representatives responsible for taxes have been left out of this process. Taxation without representation is not a revolutionary idea, but it did spark a movement once. Perhaps it’s time for a Declaration of Independence to be handed to the President.
I don’t know about you, and maybe it’s just me, just New Jersey, but since Trump took office, my electricity price went up 20%. My homeowners insurance bill is up 20%. Today I got my trash bill, it’s up 30%. Pretty soon I will be crying to bring back Biden’s 20% inflation to save my bottom line. Trump’s promise of lower prices is killing me. At least under Biden, we got 19% salary increases to help mitigate. Donny 2 Dolls is suggesting we just get by with less. Pretty hard to do for basic stuff of life like electric, food, and insurance. Donny 2 Dolls is now directly telling Walmart to eat the cost increases. Our Presidents traditionally have not put their fingers on the economy’s scale so hard as our Felon King is doing. You make not like me or liberalism, but certainly this is not conservatism either.