Tariffs

[rsporsche]

Well- you didn’t take into account that the product was purchased before tariffs were unexpectedly raised. It is that sudden change of tariffs that were 10 fold the previous tariffs that caused my business to eat those rates that were so high that my purchases were no longer profitable on the secondary market.

So your argument is worthless in regards to my purchase before tariffs were imposed.

University of California Irvine
Economic Analysis of Law 1980

yep - completely agree. similar to our agreement to buy furniture. i am going to do my best by not spending any money so that i can avoid getting screwed by tariffs. so where i am from, instead of who, what when, where and why ... we would use dis, dat, deese and dose. where y'at?

tulane university - master of architecture 1980

 

[BarneyT]

The tariffs were completely not needed, and to apply /remove / adjust them like is happening should be criminal the amount of capital/goodwill/relationship lost will take many years to rebuild/replace…

 

[ScottAndrews]

So, based on this erudite discussion, full of impenetrable econobabble, there are three parties involved.

Foreign manufacturers and their distributors (the foreign "producers")

The in-country distributors, manufacturers and retailers (the "importers")

And the in-country "consumers".

So the scenarios are:

1) Foreign producers seeking to preserve their markets either reduce their prices to offset the tariffs, or they seek other non-tariffed markets

2) Importers offset the tariffs by paying them from their margins (thereby reducing their profits)

3) Importers pass the cost of the tariffs through to the consumer, who pays them with higher prices.

Of course all three of these scenarios may occur simultaneously. So the in-country impact may be some fraction of the tariff.

As for what is or is not "inflationary"...

If we only measure inflation in terms of consumer prices, then the first two of these are not inflationary. They are also not anti-inflationary, since there are no price reductions to the consumer, just the same prices they had before the tariffs.

However, if any in-country party has to pay more for something because of the tariffs, then they are experiencing inflation. How will that manifest inthe economy? through lower profits, which then results in reduced hiring, lower capital investment and lower dividends or higher consumer prices (or all of the above). Reduced income in an economy with stable prices may not meet the textbook definition of inflation, but it means lower buying power and lower economic turnover.

So the only scenario that does not have negative economic consequences for the tariffing country is that the exporters (the producers inthe tariffed country) reduce their prices. As @bmw2800cs noted, if that tariff is modest, then there may be some accommodation, but monumental tariffs will simply drive those producers to other markets. IMO we are in the slow motion process of dismantling 80 years of international trade, and in the process enabling the next largest economies (China and the EU) to expand their influence. Not a great strategic move, IMO.

In the end these tariffs will either produce inflation, or is cousin reduced economic turnover, or they will shift international markets away , and strengthen alliances between foreign countries and isolate us.

BSEE University of California, Irvine
MSEE Stanford University

No formal economic training, but generally intelligent enough to see a bad deal...

Scott

 

[ScottAndrews]

Is it just me, or are others enjoying seeing the rather well-educated palmares of our fellow forumnites?

 

[ScottAndrews]

One thing for sure is that these "simple" tariffs are a variable depending on who, what, when, where, and why.

Western Michigan University
BS, Aircraft Engineering 1986

And whether someone has "kissed the ring"... (AKA made the appropriate "donations"...)

 

[rsporsche]

So the scenarios are:

1) Foreign producers seeking to preserve their markets either reduce their prices to offset the tariffs, or they seek other non-tariffed markets

2) Importers offset the tariffs by paying them from their margins (thereby reducing their profits)

3) Importers pass the cost of the tariffs through to the consumer, who pays them with higher prices.

Of course all three of these scenarios may occur simultaneously. So the in-country impact may be some fraction of the tariff.

foreign market producers have another option - other than making their products here ... move their products to a country not as affected by tariffs and export them from there. this happened 6 or 7 years ago when Chinese furniture manufacturers and North American furniture manufacturers having products made in China moved products to Vietnam to complete + export - zero tariff.

 

[Dick Steinkamp]

Yesterday I bought a bagel for $3. Now I have a $3 trade deficit with the bagel shop. So I'm imposing a 145% reciprocal trade tariff on them. Today my bagel cost me $7.35. Art of the Deal!

 

[Arde]

So, based on this erudite discussion, full of impenetrable econobabble, there are three parties involved.

Scott's analysis goes here

BSEE University of California, Irvine
MSEE Stanford University

No formal economic training, but generally intelligent enough to see a bad deal...

Scott

Good stuff Scott, I omit more comments because they are minor compared with what is IMHO the biggest flaw. Large irreversible changes in investment will not be made unless the tariffs are legislated. I am talking about Hyundai type of investment, if they know that by the time the factories are up the tariff profile may be changed again by executive order, what is the point? The administration has less than 4 years left and the President is 79 years old, not a recipe for long term planning.

The one exception that should and would survive is the TSMC factories in the US and the related Apple investment.
The TSMC factories are meant to solve the conundrum of China invading Taiwan and drying up semiconductor supply for the US. China even names the date by when they will take over. Without TSMC there is no high tech here. And this one is done because their customers are begging for that (Apple, Nvidia, Broadcom, Cisco, Arista, Meta, Azure, Google, Oracle, OpenAI, Marvell, Tesla, etc.). Just add the market cap and employee base of that list...

Scott McNealy had a perfect expression for what is going on, we are watching in slow motion the collision between two garbage trucks. Not fun.

My Masters is from Brooklyn Polytechnic in Engineering, I am the black sheep in a family of economists. Two handed economists of course.

 

[deQuincey]

Is it just me, or are others enjoying seeing the rather well-educated palmares of our fellow forumnites?

Oh it is great actually
Interesting to learn the background of the people you share this hobby with

 

[Dan Wood]

Yesterday I bought a bagel for $3. Now I have a $3 trade deficit with the bagel shop. So I'm imposing a 145% reciprocal trade tariff on them. Today my bagel cost me $7.35. Art of the Deal!

Here is another variation:
I bought gas the other day from the local gas station for $50. They didn't buy anything from me so I placed a 145% tariff on the gas station. Now they won't sell me any gas and I am out.
P.S., I am sure they will call any day now to negotiate.

 

[Rek]

I disagree. Any seller takes into account tariffs in a negotiation, regardless of who actually forks over the money. If there is competition from other countries, or domestically, the foreign company is going to have to reduce it's FOB price in order to make the (tariffed) sale. If the foreign entity has a worldwide monopoly, it will try to pass on the entire tariff but again, at the risk of losing the sale entirely so even then, it may eat part or all of the tariff. It all comes down to demand elasticity.

Sorry Mr. Moderator, I studied economics at MIT.

The tariff is always paid entirely by the importer. Thats a fact. The effects on the profit margins by the producer might compensate for some of that tariff cost, but the actual tariff is always on the importer. Thats how they work.

 

[Rek]

Approaching from a different angle can you say that the producer pays the entire tariff but then decides how much of that tariff they want to pass on to the consumer. If they don't have much of a profit margin they are either forced to exit the market or pass the entire tariff on to the consumer

Good stuff Scott, I omit more comments because they are minor compared with what is IMHO the biggest flaw. Large irreversible changes in investment will not be made unless the tariffs are legislated. I am talking about Hyundai type of investment, if they know that by the time the factories are up the tariff profile may be changed again by executive order, what is the point? The administration has less than 4 years left and the President is 79 years old, not a recipe for long term planning.

The one exception that should and would survive is the TSMC factories in the US and the related Apple investment.
The TSMC factories are meant to solve the conundrum of China invading Taiwan and drying up semiconductor supply for the US. China even names the date by when they will take over. Without TSMC there is no high tech here. And this one is done because their customers are begging for that (Apple, Nvidia, Broadcom, Cisco, Arista, Meta, Azure, Google, Oracle, OpenAI, Marvell, Tesla, etc.). Just add the market cap and employee base of that list...

Scott McNealy had a perfect expression for what is going on, we are watching in slow motion the collision between two garbage trucks. Not fun.

My Masters is from Brooklyn Polytechnic in Engineering, I am the black sheep in a family of economists. Two handed economists of course.

Arde, this is the key fact. The business environment and the effect on long term investment decisions. As I see it this is a major upset to the stable business environment especially one looking for domestic production to perform import substitution. Great in theory but in practice it won't happen as no-one will invest heavily in such volatile conditions.
As for whether tariffs are inflationary, they always are unless the currency strengthens, which the bond market still thinks is unlikely hence the ongoing rise in yields. Once that inflation feeds into the reported quarterly data, it could get much worse. With £38tn of debt with a large chunk in bonds there is likely to be an adverse response leading to another reversal of policy.

I like the garbage truck analogy. With the scale of the national debt, it is like a large turd sitting on the ground which skilled practitioners of economics know is there and step around gingerly, avoiding it for years as it doesn't affect them adversely, until an unskilled economist picks it up firmly and walks determinedly but unknowingly in search of a fan.

As we are parading our credentials, I studied economics under Patrick Minford at Liverpool, when he was the Economic Advisor to Margeret Thatcher. No wait! He also advised PM Liz Truss who trashed our economy (once again through bond markets). But we meet from time to time and he did say that she didn't follow anything he said. Not the first economist to be taken for a ride by politicians.

 

[lip277]

IMO -
It really doesn't matter who pays the specific tariff/tax/fee at the time (as discussed above).
The specifics of that transaction can vary widely as these things settle into whatever they become..

In the long term, the consumer (public) ends up paying more in the end to accommodate whatever the product 'costs' in for getting that product to where it goes to market. The overall costs of that product to the market will drive behavior to the point of creating a new balance in supply and demand.

California Polytechnic State University, San Luis Obispo (or more simply Cal Poly to those more familiar with US universities)
Aeronautical Engineering, 1988

 

[ScottAndrews]

Good stuff Scott, I omit more comments because they are minor compared with what is IMHO the biggest flaw. Large irreversible changes in investment will not be made unless the tariffs are legislated. I am talking about Hyundai type of investment, if they know that by the time the factories are up the tariff profile may be changed again by executive order, what is the point? The administration has less than 4 years left and the President is 79 years old, not a recipe for long term planning.

The one exception that should and would survive is the TSMC factories in the US and the related Apple investment.
The TSMC factories are meant to solve the conundrum of China invading Taiwan and drying up semiconductor supply for the US. China even names the date by when they will take over. Without TSMC there is no high tech here. And this one is done because their customers are begging for that (Apple, Nvidia, Broadcom, Cisco, Arista, Meta, Azure, Google, Oracle, OpenAI, Marvell, Tesla, etc.). Just add the market cap and employee base of that list...

Good point Ariel;
Your point that the building of new factories takes time and capital, and this sort of investment is not going to occur in a firestorm of uncertainty is on point.

There are other inconsistencies in the tariffs related to this.

In addition the changing tariff landscape, with various carveouts based on who-knows-what rationale, will further suppress the stated goal of bringing manufacturing back to the US. Here I am talking about tariffing raw materials and components while exempting assembled products such as laptops and cell phones. That specific carveout means that, despite not having the factories to do assembly here (your point) even if we did, the parts used to assemble these products would be more expensive, meaning that even US based manufacturing would not be free of tariffs.

 

[CSteve]

Solution in hand, pun intended. Joke attributed to Harry Truman: To his chief of staff, "Bring me a one armed economist."
Chief of Staff, "Why in the world a one armed economist?"
Truman, "Because whenever I ask an economist a question they answer, 'But on the other hand'"

For me:

BA degree in English and Journalism from Duquesne University
MA degree in English from Carnegie Mellon University
Partially completed PhD in English from the University of Pennsylvania(One semester, left over the pomposity of the Grad School Chair)

So there.

 

[bavbob]

To this guy ( BS Chem Eng-Columbia, MD-Columbia), economics is 1000 variables, 800 equations, 25 degrees of freedom and 15 degrees of human psyche which makes the equations and final outcome almost impossible to determine.

 

[Redrumm3]

For all its worth, I love the interaction of this group regarding the various e9 topics, but i think this discussion regarding tariffs or anything else of a political nature is not necessary or productive in this forum. We can agree or contradict, provide our differing opinions or agree, but we must all deal with the situation as presented. We will all come out the other side and all I want for us is to continue to find the common ground, knowledge and camaraderie that has brought us here to begin with, the e9.

 

[ScottAndrews]

For all its worth, I love the interaction of this group regarding the various e9 topics, but i think this discussion regarding tariffs or anything else of a political nature is not necessary or productive in this forum. We can agree or contradict, provide our differing opinions or agree, but we must all deal with the situation as presented. We will all come out the other side and all I want for us is to continue to find the common ground, knowledge and camaraderie that has brought us here to begin with, the e9.

A good point. It started out by me noting that I had to pay a 25% tariff on a shipment from W-N.. It has, however, drifted into a somewhat political area, even though it is one that directly affects all of us who are buying parts from Germany. FWIW, I have been rather enjoying the discourse, and think everyone who has commented has been polite and thoughtful, even if there are differing opinions. In today's political climate, I find that refreshing!

BTW... you seem to have omitted your qualifications!!

 

[JMinPDX]

Something that doesn’t get mentioned is that in normal times tariffs and taxes can only be imposed by an act of congress. Republicans control both houses of congress and the executive branch of government. Why didn’t they pass a bill imposing tariffs if our trade deficit is so bad? They knew they would never pass. That is how representative government is supposed to work.
Instead 47 declared national emergencies in order to impose tariffs. While we certainly have trade deficits with certain countries, China in particular, that need to be address. Sweeping tariffs accross the board that change as often as he changes his tie is not a good way to do it.

“Trump invoked unprecedented powers under the National Emergencies Act (NEA) and the International Emergency Economic Powers Act (IEEPA) by declaring multiple "national emergencies" related to border security, energy, and trade deficits. Declaring these emergencies allowed Trump to quickly enact tariffs without following the complex procedures required by TEA or other trade statutes. While the IEEPA had been used for sanctions, it had never before been used for tariffs. As he signed the orders, Trump stated that declaring an emergency "means you can do whatever you have to do to get out of that problem.” The New York Times reported that "many economists and legal experts believe that the idea of an emergency has been concocted to justify Mr. Trump's desire to impose sweeping import duties without regard to congressional approval or international trade rules.”

The Boston Tea Party was a protest on tea taxes (tariffs) imposed by a King. “No taxation without representation” was a major impetus for the American Revolution.

I hate being long winded. But let’s remember why this thread exists.

 

[Redrumm3]

A good point. It started out by me noting that I had to pay a 25% tariff on a shipment from W-N.. It has, however, drifted into a somewhat political area, even though it is one that directly affects all of us who are buying parts from Germany. FWIW, I have been rather enjoying the discourse, and think everyone who has commented has been polite and thoughtful, even if there are differing opinions. In today's political climate, I find that refreshing!

BTW... you seem to have omitted your qualifications!!

Scott. I do respect everyones opinon in this arena. I respect all who have commented herein. I agree in many respects with all who have commented, but I feel we should be focused on what is in the best interest of the E9 community, irrespective of the political consideration. Clearly they are debateable topics and affect us financially.

I debated after long consideration whether to interject into this conversation. I have no qualifications other than being a member of this community and a longtime member of BMW CCA (since 1987) and other BMW affiliations including an e9 owner. My intentions are not to divide what has been created herein but to further the community.