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Notes -
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.
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.
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.
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