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PaperclipPerfector  23d ago (text post)   32398 thread views

Culture War Roundup for the week of April 7, 2025

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Tariffs aren't as cooked as they seem

I saw this video on YT about the tariffs from the perspective of a dropshipper, and they are actually less than they might seem. In his example, on an item that retails for $600, 50% tariffs apply to the wholesale price of the item of $200, and the overall tariff tax burden is $100, or 17% of the retail price of the item.

This might seem bad, but to put it in perspective, countries in Europe have a VAT tax (similar to sales tax) of 20-30% on the retail price, and that's on top of any customs import duties/tariffs. Even though the calculation is different than sales tax, my understanding is that the total tax burden is always equal to the percentage of the final sale price of the item. And nobody is complaining that the sky is falling in Europe or that retail prices are crazy over there.

Even more so for cheap crap, the tariff burden is even less important. For <$20 crap sold on Scamazon, the wholesale price may be only $1-3, which is possibly less than the cost of the sea freight to ship it to the Scamazon FC. Then Scamazon will take $5-10 on FBA fees. So in the end even a 50 or 100% tariff may only account for $1-2 out of a $20 item.

It remains to be seen if US manufacturers can actually pick up any of the slack after the tariffs. A huge amount of manufacturing heavily automated and done in china due to the preexisting large manufacturing base as well as the lack of any good reason not to do it there. I saw this tweet about gpus, where semiconductors are tariff-exempt, but finished gpus are not.

Semiconductors including GPUs are exempt from the new 34% duties on Taiwan but graphics cards (which contain GPUs) are not.

If nothing changes those supply chains will have to re-arrange, either to do assembly in the US or to set up GPU clouds outside the US.

A top of the line AI gpu is simply a relatively small circuit board, with a huge chip on it and a handful of supporting components. There isn't even a cooler or bracket to worry about. You could order all of the components from china (negligible bom and tariff besides the chip itself) and set up a factory with just a pick & place machine and reflow oven, and pump out 100 $30,000 gpus per hour. There's no reason we can't do this, we just don't do it because we never had a reason to.

Even more so for cheap crap, the tariff burden is even less important. For <$20 crap sold on Scamazon, the wholesale price may be only $1-3, which is possibly less than the cost of the sea freight to ship it to the Scamazon FC. Then Scamazon will take $5-10 on FBA fees. So in the end even a 50 or 100% tariff may only account for $1-2 out of a $20 item.

Well that kinda sucks. Whatever you think about tariffs I tend to dislike the cheap-Chinese-goods-Amazon-industrial complex.

The plus side of this is that the tax incidence will be borne almost entirely by the manufacturer rather than the consumer.

In that sense tariffs are basically free money for the US gov, paid for by the people currently getting rich off import wholesaling.

The plus side of this is that the tax incidence will be borne almost entirely by the manufacturer rather than the consumer.

You can't tax one side of a transaction. If the US government taxes imported widgets by 20%, then the price for the consumer to buy those imported widgets will go up by 20% across the board, because all widget importers have had this cost added and the competitive pressures keeping prices down haven't changed.

Who pays the tax is determined by elasticity of supply and demand. If supply is inelastic as in this case, the producer ends up bearing most of the tax. The demand for overpriced Amazon tut is also quite elastic since people are very sensitive to small changes in price.

Compare cigarettes that are basically the opposite situation (classic textbook example). Demand is inelastic in the short run due to addiction, so consumers pay virtually all the tax.

And the more inelastic either demand or supply are, the less dead weight loss there is to the tax, because quantity sold drops less and more producer/consumer surplus is harvested by the tax rather than lost through unmet demand.

There’s an idea I keep reading that “lower/middle income buy most of their goods overseas and so will be hit harder by tariffs”, but I bet that if you look at actual dollar amount of imported goods, the wealthiest 10% eat up 99% of the dollar amount of imported goods. The Rolexes, foreign cars, lululemons, Canada goose, the multiple consumer electronics, the French fashion, the French wine, the obscure ingredients and cutlery at their restaurants, and so on. I hate all of this. So if Trump really does replace the income tax in the lower/middle class with the tariff proceeds, this may be incredible for redistribution. (Not that I think this will happen; who knows what he is going to do).

Rolex doesn’t sell that many watches, on purpose (and in their specific case deliberately under supplies their most in demand models). The largest retailers in America are all low-margin, high volume.

Low-margin wins because you don’t deposit percentages in the bank, you deposit money. Costco is the largest and most-profitable wine seller in America because of their inexpensive white label offerings. “Yeah, we made a dollar a bottle on our $7 Argentinan Malbec. But we sold two million bottles last year.” Kermit Lynch doesn’t have similar income. The scale of low-margin business is tremendous.

Rolex may not produce many watches but the watches are expensive and this is why it results in ~ 2-3 billion in annual sales in America. Tariff it. I know a family who imports them, they live lavishly. Now consider there are hundreds of other brands that the wealthy obsessed over, and we ought to tariff them all, and give proceeds to middle class. Same with wine. Okay, a 30% increase on $7 wine doesn’t matter, but it begins to matter in the fine wine market and in clubs and so on.

Wine I know a fair amount about and at the highest end it doesn’t matter that much. Mouton Rothschild won’t have any trouble selling their next vintage, they’ll just send more of it to the rest of the EU, Asia (and very, very quietly as always) the gulf oil states. Neither will any luxury brand selling conspicuous consumption from Champagne, Burgundy, Bordeaux, Tuscany or the Piedmont. The American rich here will pivot a bit and pick up some of the slack on the decreased sales that will hit Nappa and the Willamette downstream of the trade war. RIP the middle class prices for Eola-Amity Pinot Noir, as the vineyards are younger and word hasn’t reached foreign markets.

You mentioned cutlery. We’re upper middle class. We already have Wüsthof for our kitchen and Zwilling for our table, and we’re done for life. No tariff on dropping them off for sharpening. The same for our Le Crueset and Staub cookware. Clean any carbon deposits on the enamel with baking soda, keep the cast iron properly seasoned, and we’re set until we die.

Tariffs are a consumption tax, pain is relative, retail consumption accounts for a larger percentage of working and middle class income, and the working class buys cheap crap they need to replace on the regular.

There’s no tariff on first and second mortgages; country club, dining club and town club memberships; summer homes; private school tuition; season tickets to sports and the arts; and vacations.

And all of this is moot since as of yet none of the tariffs are targeted.

Uh, lower and middle income Americans drive Asian cars, wear clothes from foreignstan, have electronics from foreignstan, etc. A lot of these aren’t really luxuries; they’re cheaper than the US made versions. Nissan is a great value for the money and Kia is the cheapest on the American market, after all.

Nissan is a great value for the money and Kia is the cheapest on the American market, after all.

No problems there:

https://www.kiageorgia.com/about-kia-georgia/the-plant/

https://en.wikipedia.org/wiki/Nissan_Smyrna_Assembly_Plant

Cars have been tariffed for a long time of course -- if anything it's a POC that tariffs can produce the desired effect. (onshoring manufacturing)

As a member of the top 10%, I want to note that it's extremely feasible to have cross-border shopping trips for expensive items where relevant. Especially if your job involves international travel. If I wanted lululemon, for example, nothing would stop me from getting it, and I still wouldn't pay tariffs. Actually, it would be a better status symbol than ever before as these luxuries would become less affordable for the middle class while remaining the same cost for me.

I would think the problem here is that luxury goods are substitutable whereas cheap goods are not, not for domestic production anyway. America does produce luxury cars which the rich can buy (though this won't even necessarily increase demand for American products because they will become proportionately less competitive abroad to the foreign rich), but there is no possible way for domestic products to compete on price for cheap consumer goods, so consumers will just have to eat the extra cost.

In any case none of this matters because the base assumption is just false. All deciles spend a very similar proportion of their income on imported goods. This does mean the top deciles will spend more in dollars on imports, but (obviously) the SoL impact will be much greater on the lower deciles which can't afford to take the hit - the distributional impact will be similar to ordinary inflation, except even worse because hourly workers' wages are more responsive to inflation than those of (on average, higher income) salaried workers.

https://www.federalreserve.gov/econres/notes/ifdp-notes/distributional-consequences-of-trade-for-us-consumers-20180403.htm.com

deciles spend a very similar proportion of their income on imported goods

“Proportion” being key here, because 134,000 households are sitting on 44 trillion dollars in wealth.

the lower deciles which can't afford to take the hit

This depends on where the tariff proceeds go. Your link is broken on my end so I can’t see the figures.

Your link is broken on my end so I can’t see the figures.

Essentially every decile consumes 10% of their income on imports +/-1% (and I'm not reading the table wrong it's just a funny coincidence the figure is 10%, it used to be all deciles spent 6.5% +/-1%).

“Proportion” being key here, because 134,000 households are sitting on 44 trillion dollars in wealth.

Well note it's by income, not by wealth. Post-tax income of the top decile is only about 30% of the total.

This depends on where the tariff proceeds go.

Given Trump's track record on distributional policy the chance of anything close to offsetting the disruption via distribution of revenues is near-zero. If reshoring does occur then there will be an increase in price with no concomitant revenue, and in a basically full employment economy it's difficult to see what benefit this reshoring would even have, you're just shifting workers into lower-productivity sectors (since they have been necessarily outcompeted in a freer market by whatever sector they're working in at the moment).

Most of those things are probably bought by the lower and middle classes on credit.

I saw this video on YT about the tariffs from the perspective of a dropshipper, and they are actually less than they might seem. In his example, on an item that retails for $600, 50% tariffs apply to the wholesale price of the item of $200, and the overall tariff tax burden is $100, or 17% of the retail price of the item.

If you are doing dropshipping (so no investment in the actual material business of retail, just running ads to send people to your portal to someone else's store) and taking a 200% profit margin, you are hustling idiots. In general retailers aim for a 50% markup, and give back a big chunk of that in discounts. So if the dockside price is $200 and port-to-store shipping is $10, the sticker price will be around $315 and the average price actually paid somewhere in the $250-300 range. So the tariff is taken on well over half the retail price.

This might seem bad, but to put it in perspective, countries in Europe have a VAT tax (similar to sales tax) of 20-30% on the retail price, and that's on top of any customs import duties/tariffs.

Tariffs work completely differently. VAT does not affect trade and VAT affect only the end consumer, tariffs affect everybody. You have a business that imports aluminum and makes cans and exports them abroad. With VAT you pay zero. With tariffs, you are hit with tariffs. Now your competitor abroad imports aluminum tariff-free and has 20% cheaper cans and squeezes you from your export market share.

Even for end customer, it works differently because VAT is applied effectively only once. Tariffs will hit you each time the product crosses border. You set up the supply chain that you import aluminum, make cans, ship them to Canada, and fill them with soda. Congratulations, you pay tariffs twice, first on aluminum, then on the soda can. If Canada retaliated, you pay them three times and basically your product is gone from the market while you scramble to reorganize the supply chain. If there is nobody who can fill your soda domestically (or there is shortage and will charge you exorbitant prices), you are even out competed with Canadian sodas that pay the tariffs only once.

You have a business that imports aluminum and makes cans and exports them abroad.

Duty drawback is a thing under is law as well. Idk the details but it should cover this case.

VAT does not affect trade and VAT affect only the end consumer,

If it affects the end-consumer, it affects trade, because that's where the 'demand' part of 'supply and demand' registers as a signal for the market. At the end of the day, trade exists to meet an unmet demand, which is signaled by the willingness of people to pay at a certain price point. When you affect the consumer final payment, you are effecting all trade upstream of the consumer as well, because that trade process exists to deliver to the consumer.

There is no difference in kind whether increased costs for the consumer are a result of multiple price-hikes along the way (your critique of tarifs) or one-off taxes along the way (your defense of VAT). There might be a difference in degree. There might be a difference in political costs associated with applying it. But the consumer is making their judgement on the final cost, regardless of how it comes about.

VAT applies equally to imports and domestic goods. It is a consumption tax which of course affects the consumer but any tax (maybe apart from property taxes) affects the consumer. My argument is not that VAT is some kind of magical tax that is free of consequences but that it is significantly different from tariffs.

There is no difference in kind whether increased costs for the consumer are a result of multiple price-hikes along the way (your critique of tarifs) or one-off taxes along the way (your defense of VAT). There might be a difference in degree

Well there is because tariffs don't apply to everything in the way that VAT does, or at least not in the same way in the case of countries which exempt food etc. from VAT, and are therefore much more distorting.

'More distorting' is a difference of degrees, not a difference in kind, for how consumer- end impacts shape demand, which affects the rest of the trade system.

If you want to argue that tariffs are worse than a VAT, that is not what is being argued against. The argument above is that VAT does not affect trade, only the end-consumer, which is a fundamental misunderstanding on how the consumer affects trade.

If you like, but it's a very important and large difference of degree. VAT is non-discriminatory and applies to all production equally, tariffs apply only to particular sections of production.

Could you elaborate on the distinction here? I don't immediately see a difference in the simple case: if I import a widget for $1 completely manufactured from scratch in [country], I'd pay a percentage of that value as a tariff. Or I'd pay a (similar) percentage in a VAT regime, because it seems to me that in both cases all of the "value added" comes from one place. I guess there is a distinction for supply chains that go back and forth across the border in question to produce final products, but is that the modal case?

Would a tariff carve out for reimported intermediate products (excluding the value of American-made semiconductors used in iPhones, for example) meet your goals?

The difference is that domestic producers you compete with will also add VAT to their final price and transfer it to the relevant tax authority, so being an importer doesn't disadvantage you.

There isn't even a cooler or bracket to worry about.

You sure about that? 350W to 700W TDP depending on configuration. If you look for images of actual installations, they all feature large blow-through heatsinks (sometimes very large) or custom-made water cooling.

Funnily enough, if the US is forced to fully reindustrialize, one of the biggest winners will be Germany, which has thousands of medium sized businesses that produce a lot of the specialized industrial equipment used to make products. The Chinese have bought enough now, and are slowly figuring out how to make their own, but the US would take a long time to figure it out.

Thanks, Trump! Now we only have to figure out how to get all the Bürgergeldempfänger to work at these businesses...

Easy: Stop paying Bürgergeld and similar incentives to parasitism.

Ha, I thought that translated as 'fast food workers'.

Government Subsidized Big Titty Goth GFs, but only if you work.

You could order all of the components from china (negligible bom and tariff besides the chip itself) and set up a factory with just a pick & place machine and reflow oven, and pump out 100 $30,000 gpus per hour. There's no reason we can't do this, we just don't do it because we never had a reason to.

But what does this actually accomplish? It isn't reducing our dependence on foreign chips in any way. All it does is introduce a middleman to increase prices.

You have to have someone do this step, why not do it in America? Whatever factory in China that does it currently just has a pick&place and reflow oven, and orders in all of the parts from suppliers.

If we built up a base of pcb assembly and local logistics of parts, this business could be done locally, capturing a lot of value add. Currently it's dominated by players like jlc pcb, and due to their ultra-low (possibly state subsidized) prices, nobody outside of China is even trying to play.

With pcba and appropriate design for manufacturing, you can dropship completely custom products (CYD, SAO etc...) simply by uploading the design.

Agree. I think most of this is overblown. That's not to say it isn't bad, but it's not going to lead to crisis as many are predicting. Consider a $5 cup of cofree from Starbucks. The bulk of the price is the advertising. Raw goods are only a small percentage of the final price of a good. The beans, which are imported, are a tiny percentage of the final price, so the math works out to a final inflation tally that is much less than the touted 10%.

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