Hacker News Reader

Comment by onion2k | Hacker News Reader

I imagine some manufacturers used tariffs as a reason to lower the price of their products that imported into the US while also raising the price outside of the US to balance that change, but that doesn't mean the manufacturer or their customers outside of the USA are paying anything towards tariffs. The entire tariff transaction is between the customer and the US government, and it's all transacted within the USA.

Tariffs are a tax, paid on the value of imported good, by US citizens who are buying things from outside of the USA. That's it. They are not paid by anyone outside of the US.

View on HN

Let’s say I’m a widget seller in the US, and my widgets cost $100 to import from Switzerland before tariffs. I retail them at $150 USD in the US, but I sell internationally. In the UK for example, I retail them at £113 (simple conversion, obviously it doesn’t really work like this).

Now tariffs are imposed, my import cost per widget is $139. Not only do I have to jack up my US price to $189, I have to jack up my UK price to £142, meaning UK customers are also paying the tariff now.

Even if you’re a bit smarter about your logistics and use an FTZ or drawback against the import duties, imagine you sell two widgets, one where you don’t pay import duties (bound for the UK) and one where you do (remaining in the US). Your total cost to import is $239.

Instead of making your US customers eat all the cost of the tariff, you might instead adjust your retail prices to $170 and £128 respectively. Again, now your British customers are paying an increased price due to the tariffs.

That only works if you have no competition in the UK. Why would your customers there continue to buy from you when you are now more expensive than the competition?

Edit: for that matter, if you could raise your prices without losing any customers, why did you wait for the tarrifs? You should have already done it.

Ok, so I should have said that I make gizmos which depend on Swiss widgets, I’m not just round-tripping Swiss widgets through the US, I’m adding some value somewhere.

I didn’t say I wouldn’t lose any customers. I probably will, but this way I probably lose the fewest.

True, and this is extremely important with cars, where China, the main upcoming competitor of established brands, is banned from the US markets.

It's very likely that for luxury items the price is what people are willing to pay. And it's adjusted for each country accordingly.

Thus, the change may simply be that profit margin for sales into the US drops (or rather than it skews that way).

But there are still many commodities where you're not pricing the product based on branding.

These commodities will likely still have the same price on the international market. And thus, consumers in the US will see the effects of tariffs in the price.

Such commodities could be finished goods, but also parts, machines or feedstock for industry in the US.

I'd also guess that if you look at what middle class people buy, these commodities make up a larger percentage of the expenditure -- than it does for wealthy people. Making tariffs a very regressive tax.

Most people won't care about the price of luxury watch. But most people will buy aluminum cans, etc.

Switzerland would sell the same widgets to the UK for much less, since they wouldn't be hit by the tariffs and also wouldn't be paying to ship Europe->America->Europe.

Ok, so I should have said that I make gizmos which depend on Swiss widgets, I’m not just round-tripping Swiss widgets through the US, I’m adding some value somewhere.

The manufacturer are subsidising the tariffs if they lower their price in the us to counteract part of the tariff. When they charge other markets more to make up for the cost, they are making those markets pay for the subsidy.

That might be a short term strategy to avoid losing market share in the states and it’s rational if you think the tariffs are temporary. For goods like iPhones which are truly global that might last. But It doesn’t look like a stable equilibrium in the long term for any food which can support multiple suppliers because manufacturers who don’t do this will be more competitive in non us markets.

Afaik it was distributors not manufacturers who sacrificed margin.

Reply on news.ycombinator.com