I'm frankly stunned that there is an argument in the US about "who pays for tariffs". It's like dictionaries don't exist or something. The literal definition of the word reveals who the tax is effectively applied to.
I’ve noticed that people are often just lying as well. I’ve encountered people who will argue that someone else is paying them when it’s convenient to hand-wave away a tax increase for the sake of an argument, and later complaining about the same tariffs.
It’s very easy to be this lazy when you’re playing Politics: Tribes. There’s all sorts of dumb-shit slogans and obviously wrong memes about making china or Mexico pay, or cat boxes. They don’t care because it isn’t what’s important, it’s just expedient to parrot some shibboleths.
There is a debate. The issue is you have first order effects, second order effects, third order effects, etc. If we want to be naive, we only look at first order effects, which gives us the people tariffed pay the tariffs. If we want to be intelligent, we include first order and second order (and so on) effects. What certain people are doing is focusing on particular higher order effects while totally ignoring first order effects. For certain goods this might even be a roughly accurate analysis, but in general it is nonsense. But this is the genesis of the "debate".
The first order effect would be raising prices. A second order effect would be people buying different goods. A third order effect would be importers lowering prices to remain competitive (this is where we get the idea that they pay the cost of tariffs). Another third order effect would be local producers raising prices. A fourth order effect would be importers raising the prices again, because local producers raised prices also. The net effect is higher consumer prices, but potentially not by that much, while foreign producers might have to substantially lower prices. I don't know what good this would apply to, one that is neither a commodity, but it has a very competitive local market. Movies maybe? Trump also came up with the idea that local sellers wouldn't raise prices, and instead eat the price difference. This is highly questionable, but maybe for some goods it would work out...
You’re applying a literal definition, but in practice, it can be different.
For (a simplified) example, if there’s a 30% tariff on a $100 item, all else equal, the price is now $130, and the customer that originally would have paid $100 is now paying $130.
But what can — and I’ve experienced firsthand — happen, is that the US retailer will eat some/all of the tariff in order to not lose the customers business (or even just out of goodwill).
Also, the foreign supplier can do the same thing. Rather than lose the business of the US retailer, they may, in turn, eat some/all of the tariff.
I’ve seen both of these happen with products I’ve purchased over the past few months.
I’m not saying this happens a lot, but I don’t know that it doesn’t, either.
I’m just saying that it’s not as clear cut as the definition.
The supplier absorbing the tariff isn't sustainable, they will always ultimately pass the cost on to the consumer one way or another. And your $130 example still demonstrates that the consumer just ends up paying more.
The whole idea is to dissuade the consumer from buying a foreign product, and choosing a domestic one instead. But if there is no domestic alternative, then it is always just going to be a case of "pay more or don't have it".
Anyway I just think everyone in the US are very silly for allowing this to happen. Very silly indeed.
> The supplier absorbing the tariff isn't sustainable, they will always ultimately pass the cost on to the consumer one way or another.
I’m not arguing that it is. But passing the price on to the customer isn’t necessarily sustainable either.
And to be clear, I’m not arguing in favor of tariffs. Just saying that, in practice, it’s not always “suppliers and retailers still get their money, and the customer pays 100% of the tariff”.
> And your $130 example still demonstrates that the consumer just ends up paying more.
That example was the case when it does follow the definition. The exceptions that followed that were when it may not.
> The whole idea is to dissuade the consumer from buying a foreign product, and choosing a domestic one instead.
Not just the customer, but the retailer or manufacturer getting goods/parts from foreign suppliers.
> But if there is no domestic alternative, then it is always just going to be a case of "pay more or don't have it".
No argument, there. I’ve already seen some small businesses make the tough choice to close their doors because of tariffs.
>But passing the price on to the customer isn’t necessarily sustainable either.
It very much is in tariff loving countries. What are customers gonna do? Cry?
Even if a local alternative exists, why would they not jack up prices to be just around the tariffed prices of the imports? You don't get domestic products cheaper than the imports even if they exist.
If you pay attention you’ll see a couple of differences between what the EU does and what the US does. Your example is of a targeted tariff, directed at a specific industry, which is already present in the EU and that was deemed strategic. What it is not is indiscriminate, affecting all countries in the world and all industries with arbitrary rates that change every week.
Targeted tariffs have always existed, and the US and the EEC and then the EU were involved in a lot of trade skirmishes that did result in some barrier being put in place. This is not the same.
> But what can — and I’ve experienced firsthand — happen, is that the US retailer will eat some/all of the tariff in order to not lose the customers business (or even just out of goodwill).
Please show me retailers that have 30%+ margins that let them happily absorb all of the tariff. Walmart's margin is 3-4%.
Even if they absorb just some of the tariff, it means the customer still ends up paying more.
> we will work with Splotter to bring these in direct and if it costs us more money than originally intended we will just eat that cost. Hopefully this leads to new relationship for us and one that can be more transparent and beneficial for both parties.
> We’ve said from the beginning that we wouldn’t pass any tariffs on to our backers. And unless something truly catastrophic happens in the next couple days (knock on wood), that promise still holds. You will not be paying extra tariffs on your copy of the game.
These are just two examples that I’ve encountered personally.
Again, not claiming that it’s normal, but just saying that there are definitely exceptions to “customer pays 100% of tariffs”.
Those are for goods already sold to customers at a certain price. Their next product will include the price hike. Retail does not have the same restriction that preorders have.
The cost for sure will be greater than expected but it's not anything we would ask of our preorder customers. We did have to make a minor adjustment in price moving forward.
--- end quote ---
We don't know how much of a loss they are taking on those pre-orders.
> One more:
Another great example if you only understand what's written, emphasis mine:
--- start quote ---
We’ve said from the beginning that we wouldn’t pass any tariffs on to our backers.
But that doesn’t mean we’re not getting hit by them. We are. Hard. And the costs aren’t small.
So instead of a tip jar, we made something for you.
Introducing the Tariff Buster Promo Pack: a small thank-you gift to help us absorb the hit
While that obviously doesn’t cover the full cost of tariffs on each game, it helps us a little
--- end quote ---
Companies absorbing a hit and losing money on a one-off product is somehow "examples of retailers with 30%+ margins".
> just saying that there are definitely exceptions to “customer pays 100% of tariffs”.
These exceptions show that the only way to do that is to lose significant amounts of money to keep a promise on one-off products.
None of these exceptions show that they have 30%+ margins (quite the opposite), or that they absorb them happily (quite the opposite).
And yes, after pre-orders and backing have been fulfilled, if the companies don't fold after losing money, the product that hits the shelves will cost more.
> But what can — and I’ve experienced firsthand — happen, is that the US retailer will eat some/all of the tariff in order to not lose the customers business (or even just out of goodwill).
There are limited cases where this might happen, but when you're talking about the likes of Walmart... Supermarket profit margins are generally below 5%. There is not much scope to absorb additional costs without passing them on.
Walmart is not just a supermarket. They sell a wide variety of goods—and since my wife was in the wholesale costume industry for a while, I happen to know that they tend to have retail margins of roughly 50% (or at least, they did 10 years ago).
Walmart does tend to operate more on volume than margin, but they're definitely not stuck with grocery margins on everything.
Grandparent's 5% or less is "earnings as a fraction of revenue", which is called "net profit margin" or just "net margin", whereas your 50% is gross margin.
According to an LLM I just consulted Walmart's net margin for the last 5 years for which we have data never got above 3%.
To calculate net margin, we include every expense, e.g., management salaries, e.g., the cost (rent of depreciation) of the stores. To calculate gross margin, we include only the expense of obtaining (buying or making) the goods solds.
When considering whether a retailer can eat the cost of tariffs or must pass them on to the consumer, net margin is more relevant than your figure, which is gross margin.
As someone else mentioned, that's gross margin, ie revenue minus cost of goods sold. I think in the tech industry we tend to fixate on gross margins, on the basis that for your average SaaS there's virtually an infinite market, and other costs won't scale linearly as it is addressed, so net margin really is less important (mind you, people sometimes go a bit too far in discounting it) but for, say, a gigantic retail chain, things are different. Walmart can't just scale up its sales 10x, and even if it could it would need lots of new premises etc. For Walmart, what really matters is net profit margin, and that is low.
The article we're commenting on shows that in reality, the retailers are actually increasing their margins in the face of increased costs due to tariffs.
Not defending tariffs. I think, in this particular case, they’re mostly harmful. But I’m actually not educated enough on the subject to really have strong opinions one way or another.
My argument was that there are exceptions to the “customer pays 100% of tariffs” rule, as I’ve experienced firsthand (see examples in a response to a sibling reply).
