tariff math: no, a 30% tariff does not mean end consumer prices go up 30%

[unblock]

all politics aside, just focusing on the math --

a tariff is placed on the imported raw materials or product, not the end item as it sits on the shelf.

if i'm running a profitable business, i might import a $40 item and sell it for $100. the profit margin isn't nearly as big as it might seem, because i have to pay rent on stores, shipping and trucking and storage costs, labor, taxes, fees, insurance, advertising, etc.

tariffs generally only apply to the raw materials/goods, only. even if my sold goods are 100% imported. the effect is less if some of my raw materials are domestic; there's no tariff on trucking the goods across america to my local stores, e.g.

so let's say there's a 30% tariff on the $40 imported product; that's "only" $12. if i pass on 100% of this cost, that "only" increases the cost of the end good from $100 to $112, a 12% increase, not 30%.


as a further subtlety, a few of the "domestic" costs might actually go up with the cost of raw materials, such as insurance and financing costs, but this is a relatively small effect. similarly, some of the extra costs might be absorbed by the importer and/or the foreign seller so that they don't lose as much sales.

so the final result might be a price increase to $110, or a 10% increase.


now, that's still a staggering increase that highly distorts the market, it's highly inflationary and a major headwind on the economy. a recipe for stagflation. what i'm saying isn't meant to mitigate the stupidity and harm of all this.

i just want to get the math right, so people aren't surprised when prices don't actually go up a full 30% and thing anything magical happened, and i certainly don't want republicans taking credit for the price hikes not being the "full" 30%.

[Walleye]

1. The price of Greek yogurt and Mexican mineral water went up 30% almost immediately in the store

I really believe retailers are going to charge what the market will bear

[unblock]

4. there are always multiple factors in any specific market, so it's often a mess to tease out what's going on

first, sellers sometimes "test the elasticity of the market", i.e., they jack up prices to see how much sales they lose, and if it's more profitable to sell less for more. i.e., yeah, they gouge to see if they can get away with it.

but also, they may be competing against an alternative that is going up even more (perhaps because it is subject to an even larger tariff), allowing them to raise prices even more than their own costs are going up.

then there are legitimately unrelated factors, such as commodity prices, which are highly volatile to begin with.


one thing for sure, many sellers in many industries are quick to increase prices and slow to decrease them. so just the uncertainty and volatility has a significant cost, never mind the tariffs themselves....

[Walleye]

6. I think your last paragraph describes the situation quite accurately

[mitch96]

22. "many industries are quick to increase prices and slow to decrease them" Like when the cost of crude oil goes up

The next day it goes up.. When crude goes down it take a few weeks for it to go down...uff
m

[Ms. Toad]

12. Most Greek yogurt is not from Greece.

It is a style, rather than a source of origin. Even if it was, the tariff on goods (other than steel and aluminum) from Greece is 20%. And - the first goods hitting our shorelines which are subject to tariffs came last week Tuesday.

So if the price on Green yogurt went up 30%, it was price gouging.

[Walleye]

13. Maybe price gouging but it doesn't seem too different from normal business practices.

The price of gas goes up and down, depending on the wholesale price of the oil. They need to charge what it will cost to replace it.

[Aviation Pro]

2. Technically correct

But what's left out is the middle as the product travels from the point of transfer in the U.S. to the consumer. Fees are applied all the way to the point of sale, which is why that original $40 product costs $100 at market and why that $40 dollar product will cost $130+ value added after the tariff sales tax and the cuts are paid out.

[unblock]

7. only some of the costs go up in proportion to the costs of the imported goods.

as noted, insurance and financing costs would go up, but the trucking costs likely wouldn't, and the advertising has little to do with the costs of the goods. so yes, some of the intervening costs are affected, but most aren't.

a further note, all this is inflationary, which forces the fed to keep interest rates higher than they otherwise would. this leads to macro effects that eventually cause an increase in all other costs, though in theory this effect should be pretty small relative to the direct effects of the tariffs themselves.

[SheltieLover]

3. I'm thinking 145% plus 30%

[Ocelot II]

5. A tariff on everything will have a significant effect on costs for consumers, regardless

whether it's 30% or 145%. Most tariffs are targeted narrowly to a specific imported product to as a way to prevent unfair competition with the American-made product but tariffing everything, including things that can't or won't be made here (and never will), is just stupid and inflationary. As he always does, Trump blinked when he got pushed back. He reduced an insane tariff to a very stupid tariff, but it's still stupid. He'll claim a win because 30% is less than 145%, but it will be damaging nevertheless and God knows what will happen in 90 days.

[unblock]

10. absolutely true.

broad-based tariffs are incredibly and demonstrably stupid, and the world's unanimously strong push-back is clear evidence of this.

"hey, you know that thing that turned the 1929 market collapse into the great depression? let's try that for no reason!"

seriously, it's almost as if he thinks his job is to destroy america, like that's what putin told him to do. hmmm....

[Prairie Gates]

8. Good post

[Doodley]

9. Google says: The average gross profit margin for a small retail business typically falls between 30% and 53%,

with some variations depending on the specific industry and product type. Online retail may average around 41.5%, while apparel and other product categories can vary,

[Beachnutt]

11. 👇

[unblock]

19. Way more than 30%. But yeah, these huge, broad-based tariffs are incredibly destructive to our economy.

[Quixote1818]

14. It can also depend on the product and what it is made of. For instance an aluminum bat might have several different

tariffs on it.

From ChatGPT after I asked this question:

Here's how it typically works:
The 25% aluminum tariff is a Section 232 tariff specifically targeting aluminum and aluminum-based products, applied in addition to standard tariffs.

The 30% tariff you’re referring to is likely the temporarily reduced Section 301 tariff on general imports from China.

Combined Effect:
If both tariffs apply to the same item (which they can), they are applied sequentially, not simply added together.

Let’s say:

The declared customs value of the bat is $100.

Here's the likely tariff calculation:

First, the 30% Section 301 tariff applies:
$100 × 30% = $30

Then, the 25% aluminum tariff is applied to the new subtotal ($100 + $30 = $130):
$130 × 25% = $32.50

Total tariffs:
$30 + $32.50 = $62.50, or 62.5% effective rate

So, yes, it ends up being more than 55% due to the compounding method.

[unblock]

20. Yeah. It quickly gets very complicated.

This allows Donnie to pick wingers and losers and to shake down specific businesses for bribes in exchange for exceptions and adjustments.

Corrupt as hell.

[frogstar0]

15. Thanks! This is a clear description of the factors involved with any price increases

Thanks for posting this. We all need to understand how stuff works, and deal with the real world facts.

[Johnny2X2X]

16. Risk

Corporations price in risk. Risk is a different equation for different businesses. So if you're outlaying $100K for a shipment, you have to get a certain margin to cover your risk, if that is then $130K, your risk goes up so you aren't just going to pass along the 30%, you're going to add a risk factor to it.

And then there's your competitiors who see that you now are charging more, so they can then charge more too.

[unblock]

21. Indeed, there is a cost just from the uncertainty.

[Aepps22]

17. Greed Always Wins

I agree with your analysis. I suspect most of these companies will slowly raise prices but they will be aggressively looking to capitalize on the situation for their own benefit. I think companies will use the tariff situation to raise prices like they probably want to anyway but they’ll get little blame and Trump will be left holding the bag.

[JustAnotherGen]

18. You still have on COO China

An additional 25% On many parts and components.

[WarGamer]

23. 100% correct.

a gadget on the shelf that is $100 retail isn't going to $130.



That gadget is imported from China for $13.

By the time you pay brokerage fees, transport... advertising, labor, overhead... taxes, regulatory, benefits and such things...

That gadget might cost the company $35

Then they sell it to the wholesaler for $50 who sells it to the retailer for $70 who sells it for $100

The cost of the imported gadget probably goes up $2 fro tariffs.