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PaperclipPerfector  24d ago (text post)   32409 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.

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.

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.

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.

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