PSA

[Some of my textbooks on international trade and trade policy.]

Tariffs. The president-elect has promised tariffs, particularly with respect to China. As high as 100%. He says this will fund the tax cuts and it will come out of China’s pockets. Wrong!

Thought experiment (Stay with me; the numbers aren’t hard!)
You own a Chinese firm exporting sneakers to the U.S. at a price of $50, which covers your cost and provides you a bit of profit. The MAGA U.S. president levies a 50% tariff ($25) on your sneakers. What do you do?

You now charge the U.S. importer $75 so you can pay your bills, provide you with a bit of profit, and pay the $25 tariff to the U.S. government.

Now the sneakers hit the retail shelves. Suppose the U.S. retailer wants a 10% markup on the sneakers.

Before the tariff, the U.S. retailer will charge $55 (the $50 plus the 10% markup, which is $5).

After the tariff, the U.S. retailer will charge what? It’s going to be $82.50: the tariff-inclusive $75 plus 10% markup ($7.50).

The U.S. government is getting its 50% tariff ($25), but who’s actually paying it? The U.S. consumer.
Myth broken: It’s not China.

Although this is more technical than most people may be prepared to digest, Khan Academy has a 7-minute video explaining the consequences of a tariff; see the video.

When the prices of imported goods rise with the incoming administration’s tariffs, nobody should scratch their head and wonder, Whoa! Who saw that coming? Trump said he was going to fix high prices and “inflation.” Yeah, well, maybe they didn’t teach tariffs at Wharton…

» More (a more business page-oriented presentation)

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[Casablanca]

Nicely explained and completely accurate. Exactly how it works. This will be no exception.

[Thom Mitchell]

@casablanca This is over-simplified, of course (as is the Khan video), but the essence of the example is correct. The wrinkles will be how China (and other trading partners) respond to the tariffs. They are unlikely to roll over and take the high rates promised without some sort of response. There are such things as tariff wars in which the rates just keep escalating.

[Casablanca]

@rhoing Exactly. Tariffs creating tax is a complete myth in the simplistic form it has been sold to Trump followers in. Someone has to pay for it and no canny business is ever going to dent their own profits and livelihood by covering it themselves. Naïve to think otherwise.

[Brooke Lindsay]

This post made me laugh simply because I had just posted about the musical Suffs- in an early scene in the show (as taken from historic accounts), Woodrow Wilson puts off the suffragettes political concerns by insisting he needs to focus on tariff reform during the election years. I need to brush up on history but perhaps tariffs are a common tactic for presidential candidates?

Either way, as a lay person, I had always been inclined towards the conclusion you have come to regarding Trump’s proposed tariffs.

And its’s a nice layout of your textbooks for the photo!