Quote:
Originally Posted by CoachKandSportsguy
In the mean time, here is how the business imports currently works:
A small business orders $100,000 of widgets from China.
The tariffs are 50%, easy math, the company owes $100,000 to the supplier, and 50,000 to US customs.
The business has to pay prior to getting the widgets released, or pay by owed date.
If they don't pay, most likely end of business, bankrupt.
Does the business all of a sudden have enough working capital to pay the US tariff?
The predominant answer is no, so needs an additional line of credit to pay the tariff.
OK, so the business gets one. . pays the tariff, and gets the widgets.
The next question is if the small business has enough product pricing power to pass that 50% increase on to customers?
Lets say gross margin is 20%, so prior to the tariff:
Pre Tariff Math = $125,000 Sales - S100,00 Cost of Goods Sold = $20,000 Gross margin to pay fixed overhead costs
Post Tariff Math = $175,000 Sales - $150,000 Cost of Goods Sold = $20,000 Gross Margin to pay fixed overhead costs.
175,000 / 120,000 - 1 = 40%
Now the cost of product is 50% higher, so in order to get the same margin dollars to pay for US overhead expenses,
the sales price must rise 40%. .
The only way for sales to remain at 40% higher, is for all competitors to raise prices 40%,
and for the demand being inelastic, meaning that people will buy the widget regardless of price.
However, demand being inelastic is highly improbable, so
1) the consumer will continue to buy with 40% product inflation?
2) reconsider the purchase and delay / not buy any more?
That is how the Great Depression happened.
Good Luck to us!
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Isn’t part of the idea of tariffs on China to convince Americans to just stop buying Chinese products because they are no longer good deals? (And likewise for other countries.) If that leads to us not buying that product from anywhere at any price, at least the money hasn’t gone overseas. So, iPhone buyers don’t buy a new iPhone because they don’t want to pay an extra thousand for it. They keep their perfectly good old phone. Similarly, Lexus drivers in The Villages may buy a new Lincoln—though the price will go up because so much of it is made elsewhere—or maybe they will buy nothing. Same for Toyotas, Hyundais, Subarus, etc. the real idea is less making money off your purchase as a tax, though if you BUY something with tariffs, that’s essentially what it is. The idea is to get patriotic Americans to stop buying products from overseas, period, whether they buy an American product instead or not. Then the trade imbalance stops. After all, people in other countries don’t really want to buy more things that we make because they can’t afford them, even without tariffs.
Think about it. If you stop buying products with levied tariffs because you aren’t willing to pay an extra 20% or 50% or 100%, you will need to stop shopping at WalMart, the Dollar Store, Home Depot, etc. These stores may be forced into bankruptcy if tariffs continue for a year. But that is how the trade imbalance is solved. The alternative is for the foreign countries to stop subsidizing their own companies and let the cost of the items rise to what they actually cost to produce and sell. Oh, but doesn’t that raise your costs when you go shopping? Yes. For a lot of things you like to buy, there are no completely American equivalents. You will either have to do without or pay higher costs for the overseas product you love, and your purchase at least, at that higher price, will put more money in our U.S. Treasury. It’s a bit like a Luxury Tax, but a Luxury Tax on WalMart Shoppers who used to buy products there because they were less expensive.