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Last night Trump proposed a 10% tariff, and said it would raise money. Does the Tijuana two-step cost 10%?

by lupire 2y ago

alephnerd 2y ago
Garments Manufacturing and Export (the most common good sold on Shein and Temu) has a profit margin of around 2-3%. Garments have had a 25% import tariff in Mexico since 2023 [0][1], and Trans-Pacific shipping costs have risen 70% [2]. This means, a shirt that costs $1 to manufacture in China and is sold at $1.03 (profit margin) will now cost an additional $0.25, making the overall cost $1.28. Meanwhile, the US has FTAs with Vietnam [3], which means Vietnamese manufacturers can still charge $1.03 (in fact, the margin is higher in VN because input costs are lower). The only way the Chinese manufacturer can compete is to spend $0.25 of their own money, but the Vietnamese manufacturer can undercut the Chinese manufacturer by selling at $1.01 and still end up ahead. The math gets way worse with steel, automotive, machinery, and other high value goods that get hit with the 50% tariff. It doesn't matter if a Chinese manufacturer exports directly to the US or via Mexico - they will always be burning money, while competitors in Vietnam, Mexico (they give a tax holiday if you manufacture in MX under IMMEX), India, and Bangladesh can reinvest or discount and undercut Chinese manufacturers. The only reason to eat this loss as an exporter is if you are trying to build funds abroad because you cannot transfer them outside anymore (eg. the parents of a couple of my Chinese friends back in college began doing this because of the money transfer limit Xi instated in 2017-18). PDD (owner of Temu) and Shein can eat these costs because they are marketplaces (they aren't doing the manufacturing), but the sellers and manufacturers are the ones that are generating a loss. [0] - https://research.hktdc.com/en/article/MTQ2Mjg4MjA2MA https://research.hktdc.com/en/article/MTQ2Mjg4MjA2MA [1] - https://research.hktdc.com/en/article/MTY4MDcyNjEzOQ https://research.hktdc.com/en/article/MTY4MDcyNjEzOQ [2] - https://www.logisticsinsider.in/global-maritime-trade-faces-challenges-amid-rising-sea-freight-costs/ https://www.logisticsinsider.in/global-maritime-trade-faces-... [3] - https://www.trade.gov/country-commercial-guides/vietnam-trade-agreements https://www.trade.gov/country-commercial-guides/vietnam-trad...

Last night Trump proposed a 10% tariff, and said it would raise money. Does the Tijuana two-step cost 10%?

by lupire 2y ago

Last night Trump proposed a 10% tariff, and said it would raise money. Does the Tijuana two-step cost 10%?

Garments Manufacturing and Export (the most common good sold on Shein and Temu) has a profit margin of around 2-3%. Garments have had a 25% import tariff in Mexico since 2023 [0][1], and Trans-Pacific shipping costs have risen 70% [2]. This means, a shirt that costs $1 to manufacture in China and is sold at $1.03 (profit margin) will now cost an additional $0.25, making the overall cost $1.28. Meanwhile, the US has FTAs with Vietnam [3], which means Vietnamese manufacturers can still charge $1.03 (in fact, the margin is higher in VN because input costs are lower). The only way the Chinese manufacturer can compete is to spend $0.25 of their own money, but the Vietnamese manufacturer can undercut the Chinese manufacturer by selling at $1.01 and still end up ahead. The math gets way worse with steel, automotive, machinery, and other high value goods that get hit with the 50% tariff. It doesn't matter if a Chinese manufacturer exports directly to the US or via Mexico - they will always be burning money, while competitors in Vietnam, Mexico (they give a tax holiday if you manufacture in MX under IMMEX), India, and Bangladesh can reinvest or discount and undercut Chinese manufacturers. The only reason to eat this loss as an exporter is if you are trying to build funds abroad because you cannot transfer them outside anymore (eg. the parents of a couple of my Chinese friends back in college began doing this because of the money transfer limit Xi instated in 2017-18). PDD (owner of Temu) and Shein can eat these costs because they are marketplaces (they aren't doing the manufacturing), but the sellers and manufacturers are the ones that are generating a loss. [0] - https://research.hktdc.com/en/article/MTQ2Mjg4MjA2MA https://research.hktdc.com/en/article/MTQ2Mjg4MjA2MA [1] - https://research.hktdc.com/en/article/MTY4MDcyNjEzOQ https://research.hktdc.com/en/article/MTY4MDcyNjEzOQ [2] - https://www.logisticsinsider.in/global-maritime-trade-faces-challenges-amid-rising-sea-freight-costs/ https://www.logisticsinsider.in/global-maritime-trade-faces-... [3] - https://www.trade.gov/country-commercial-guides/vietnam-trade-agreements https://www.trade.gov/country-commercial-guides/vietnam-trad...