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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Who Pays The Tariffs?

FYI: I had some very interesting discussions on social media last night on who is paying for the U.S.-China Trade War. It was kind of shocking that many didn’t even understand the basic tenets of economics yet have strong convictions held strongly. Not good in the trading business.

It reminded me of my days teaching frosh economics at the university and encountering the 18-year old ignoramuses who thought they were the second coming of Adam Smith, JMK, and Milton Friedman. I must now confess, I had a bias to grade these geniuses on a more onerous curve.
Regards,
Ted
https://global-macro-monitor.com/2019/05/14/who-pays-the-tariffs/

Comments

  • Nobody knows. It will be a combination. Not everything will be passed through to U.S. consumers as all of the Dems are saying. It'd be ridiculous to think so.
  • Okay maybe not everything, just like 99.98% or so. If you think that companies will just absorb the increases out of the goodness in their hearts you need to adjust your meds. The only business's that run at persistent losses, and proud of it, belong to your buddy.
  • edited May 15
    How much of the tariff induced cost increase in a product does the consumer pay? Like @JoJo26, I think it depends. If its a generic type product with unlimited non-Chinese sources and/or close substitutes, little to nothing more. If its a highly prized brand name Chinese product that consumers just have to buy "no matter what the price is", probably close to 100%. Most other products will fall somewhere between those two extremes...the consumer winds up paying somewhat more per unit and the seller winds up making somewhat less per unit. In the extreme, if no meeting of the minds on price occurs between the seller and buyer, sales drop to zero. So, the consumer again pays nothing more in that extreme situation and just carries on without the product. In aggregate, the overall economy probably suffers due to tariffs in the sense that less stuff gets consumed overall. But, factors like national pride, distribution of income, and national sovereignty may wind up "trumping" large scale economic factors.
  • davfor said:

    How much of the tariff induced cost increase in a product does the consumer pay? Like @JoJo26, I think it depends. If its a generic type product with unlimited non-Chinese sources and/or close substitutes, little to nothing more. If its a highly prized brand name Chinese product that consumers just have to buy "no matter what the price is", probably close to 100%. Most other products will fall somewhere between those two extremes...the consumer winds up paying somewhat more per unit and the seller winds up making somewhat less per unit. In the extreme, if no meeting of the minds on price occurs between the seller and buyer, sales drop to zero. So, the consumer again pays nothing more in that extreme situation and just carries on without the product. In aggregate, the overall economy probably suffers due to tariffs in the sense that less stuff gets consumed overall. But, factors like national pride, distribution of income, and national sovereignty may wind up "trumping" large scale economic factors.

    Thank you.
  • edited May 15
    My wife and I were discussing this subject at dinner last night. We talked about, of all things, garlic, using it as an example because much of the US crop is grown just to the south of us, in Gilroy, CA.

    Unlike msf, I'm not going to research the exact figure on garlic imports from China, accurate to two decimal places :) , but here is a little info from Wickipedia:
    In 2016, world production of garlic was 26.6 million tonnes, with China alone accounting for 80% of the total. India was the second largest producer with 5% of world production.

    The United States – ranked 10th in global production of garlic – grows less than 1% of China's production. Much of the garlic production in the United States is centered in Gilroy, California, which calls itself the "Garlic Capital of the World"
    OK, so a huge amount of the garlic consumed in the US is imported from China, probably well over 90%. Now, we increase the import tax on that by 25%. What's likely to happen next?

    ◆ The garlic grown in Gilroy will raise it's price so as to be equal to or perhaps slightly less than the new price of Chinese garlic.

    ◆ Since Gilroy cannot possibly grow enough, fast enough, to replace the Chinese product, US shoppers will, by and large, be forced to pay the import tax for the Chinese product.

    Now, granted that garlic is somewhat of an exception since the US local supply is so limited, and that certain other commodities, such as clothing, will eventually be imported from China's competitors. However: there will still be a huge number of products, which, like garlic, cannot be quickly or easily replaced by US production or alternate imports. Again, US shoppers will be forced to pay the import tax for the Chinese product.

    As JoJo26 says, "Nobody knows. It will be a combination. Not everything will be passed through to U.S. consumers." But it's also fair to say that US consumers are going to be paying a lot more for a whole lot of stuff. That's sometimes called "inflation".

    And it's worth noting that even as the White House is promoting a large increase in inflation, it's simultaneously trying to cripple the Fed's ability to compensate for that.

    Laurel and Hardy. It's Bozo time!
  • Here is how the impact of the new round of tariffs might play out for Walmart. It sounds like prices will increase. But, by implementing supplier changes and efficiency improvements, those increases will likely be held to less than the tariff tax being imposed:
    Walmart Chief Financial Officer Brett Biggs told Reuters that higher tariffs will result in increased prices for consumers. He said the company will seek to ease the pain, in part by trying to obtain products from different countries and by working with suppliers’ “costs structures to manage higher tariffs".

    Moody’s analyst Charlie O’Shea said.....“We believe Walmart has the wherewithal both financially and via its vendor relationships to minimize the impact on both itself and its shopping base,”...”
    https://reuters.com/article/us-walmart-results/walmart-says-higher-tariffs-on-china-goods-will-increase-prices-for-u-s-shoppers-idUSKCN1SM15O?il=0
  • This is a negotiating tactic for a better deal with China. We've been getting shafted by them for a long time now and it needs to end. I applaud the administration for attempting to do something all others in the past have quite frankly been scared to do.

    In the end, I believe, we will strike a better trade deal with China and ultimately be better off. In the mean time, China is going to be hurt by the tariffs.
  • Maybe not so much scared as pragmatic. Time will tell if this approach was the way to go but in the meantime everyone will be hurt by the tariffs (except some US farmers).
  • Oop's, my bad, spoke too soon.

    "Trump administration showers Brazilian crooks with $62M bailout money meant for struggling U.S. farmers."

    So... tariffs hurt soy farmers, China turns to Brazil to get soybeans, and then we give Brazilian a bailout?

    Cool policy bro.

    See here
  • As everything trade and tariff related is very complex, I offer this piece of history; which I relate to from my youth and having a 9 transistor Sony pocket radio.

    --- The Sony radio that seemed to change the entire electronics world forever was the TR-63. Released in 1957, it was considered the world’s first, truly pocket-sized radio and was the first to utilize all miniature components. It was also the first Japanese radio to be imported into the U.S. (several other early Sony radios were sold in Canada in 1956).

    Once Sony opened the U.S. market
    , other names like Toshiba, Hitachi, Sharp, Standard, Sanyo, Matsushita (Panasonic), Mitsubishi, Aiwa, Realtone, Global, and Zephyr arrived on North American shores and attracted the youth market with their smaller, more affordable and more colorful pocket radios. The simultaneous arrival of imported pocket radio and rock n’ roll conspired to change the electronics industry forever!

    By the late ’50s and early ’60s, many American companies had opted to have their radios made in Japan but retained their American brand names, such as Trancel, Penny’s, Channel Master, and Bulova. Even giants like Zenith, RCA, Motorola, Philco, and G.E. had their radios made in Japan. They could no longer compete with the lower prices and more attractive designs coming from Asia.

    My thoughts >>>>> But one asks, "How could this happen?" Where are the protective tariffs, that were more normally used during this time period to protect a product area of a particular country? The answer for this particular circumstance may possibly be buried inside whatever legal language was in place; and briefly noted next. I do not have access to the formal agreement. I suspect the "trade off" of apparently no/low tariffs on Japanese radios at the time, has everything to do with what would become a very large U.S. military presence in Japan for many decades; to help secure/protect an ongoing unstable Asia. Just my 2 cents worth for this.

    --- U.S. policies toward Japan after 1947

    During the Cold War, strategic interests led the U.S. to allow Japan to export to the US while protecting its domestic market, enabling the formation of cartels and non-market driven factors in Japanese economy, and the development of an asymmetrical trade relationship with the U.S. The export-driven economy that Japan consequently developed also benefited enormously from an international market of low tariffs (by joining the GATT, forerunner of WTO), low prices of oil and other raw materials needed for industrial development.
    Because Article 9 of the Japanese constitution forbids Japan from rearmament, Japan has lived under the umbrella of U.S. military protection, spending only 1 per cent of their GNP on the military's defensive abilities (which is a huge sum of money as the Japanese economy grew to be the second largest in the world), which, percentage wise, helped save the Japanese much money if they were militarily on their own.
  • @Mark You are being too harsh! After all, JBS is just trying to do good by assisting struggling US farmers!...
    JBS declined to comment beyond a statement it issued in January saying that, despite being foreign owned, it is “proud to partner with U.S. family farmers and ranchers, helping to create economic opportunity in hundreds of small, rural towns.....A spokesman for the Justice Department declined to comment. The White House referred to the Agriculture Department, which also declined to comment. The Agriculture Department has not explained its thinking in bailing out JBS,...”
    https://nydailynews.com/news/politics/ny-trump-administration-bailout-farmers-brazilian-criminals-20190516-6rdb3ithvfec7fttem7qrny54y-story.html
  • But Wait, There's More.....

    Smithfield, a Virginia based pork products company that was purchased in 2013 by the WH Group of China; may be eligible for agri related subsides.

    Multi source search for the topic

  • So much winning! maga
  • Howdy folks,

    That vast majority of any sort of additional tax on goods and services will always be reflected in the price. As mentioned, raise the tariff by 25% and not only will those goods reflect that in their price, but the rest of the market will raise their prices some large percentage of that 25%. US Steel raised their prices immediately after the tariffs were applied to foreign competition.

    As for those nasty Chinese cheating all these years. Shit. Everybody cheats and that's why you have a world trade organization to sort things out and bring transparency the market place. Do you know how long the US has manipulated the sugar market? Longer than we've been a country. Still do. What you want is transparency so things can be better valued.

    NO TARIFFS ARE EVER GOOD. They distort the free market.

    and so it goes,

    peace,

    rono
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