5 ms·

“One feature of tariffs is that it's a tax on consumption, so it's ultimately paid by consumers, and it's a regressive tax; the wealthiest will pay the smallest

by cudgy 2y ago

“One feature of tariffs is that it's a tax on consumption, so it's ultimately paid by consumers, and it's a regressive tax; the wealthiest will pay the smallest ratio of their income and/or wealth, while the working Joe will just see stuff getting more expensive - especially in the short term.” I don’t think it’s this simple. The wealthy fat cats that are making money producing their stuff overseas or simply operating as middlemen for overseas manufacturers are going to have a reduction of income and profits. Furthermore, it depends on how the revenue from tariffs were used. If revenue from tariffs is used to lower taxes for lower income citizens, it would be effectively a progressive tax.

GlassOwAter 2y ago
They won’t be using tariffs to lower taxes for lower income citizens. Tax cuts for the rich have already been proposed.
- cudgy 2y ago
  Sure, but how is this any different than the income tax system where companies receive tax credits, reduced tax rates, accelerated depreciation, schedules, subsidies to build factories, and direct cushy (high margin and sometimes fraudulent) contracts from government divisions.
svnt 2y ago
Middlemen for overseas manufacturers are not typically what comes to mind when I hear “wealthy fat cats.” If all the middlemen see the same increase in costs, they are not going to be the one to try to keep prices the same. They know everyone is taking the same hit so they can just pass it along together. The consumer decides to buy or not at that level. The innovation comes in avoiding the tariff. Often companies with sufficient scale of operations can pay additional lawyers and accountants to restructure and avoid tariffs. Tariffs can dramatically affect specific companies, but squishy middlemen (and multinationals) can often work around them.
scottbez1 2y ago
I run a tiny (<$30k annual revenue and much much smaller profit, or negative if I paid myself an hourly wage) side business that relies on custom manufacturing of open source hardware products I've designed. So very much not a "wealthy fat cat" - here's my experience with manufacturing: For die-cut plastic cards (think custom-shaped gift cards or hotel door hangers), I reached out to several US manufacturers for quotes and most never even responded. The one that did respond basically laughed at me and said my design was impossible to cut. So I went on Alibaba and had tons of quotes instantly and found a manufacturer. Not one of the responses were concerned about the design's manufacturability. And the manufacturer I picked does an incredible job with what is admittedly a challenging die cut design. As a tiny business, most of my orders end up being under de minimis (which is actually great for helping small businesses avoid the overhead of dealing with tariffs and level the playing field against large players that can be much more efficient at handling regulatory overhead through high volume). But with the change to eliminate de minimis and increase tariffs another 10% essentially overnight, my COGS is going to increase ~30%, which means either I shut down my business due to losing nearly all of my margin, or I increase prices substantially. It just hurts consumers AND small businesses like mine in the US. There isn't a US manufacturer I can switch to (again, price wasn't the issue). And the US manufacturers in the space that WERE still selling products despite the international competition will just increase their prices now that competition is more expensive.
- programmertote 2y ago
  That is what people like trump don't understand (not surprising). Instead of gradually rebuilding the manufacturing capabilities of the US while supporting essential industries (like steel production) to create competition, they think slapping tariff will magically make the domestic manufacturing come back. Like you said, the US manufacturers will just ride along the coattails of tariffs instead of trying to be competitive and/or expand their production (they have no incentive to do so). Again, knowing how short-sighted the US politicians and the society as a whole (e.g., look at how a majority of corps only care about short-term/quarterly profit) have become, it is not surprising but saddening to observe (because I have been living in the US for a bit over two decades and cannot move back to my home country, which is, at the moment, riddle with civil war).
macNchz 2y ago
> The wealthy fat cats that are making money producing their stuff overseas or simply operating as middlemen for overseas manufacturers are going to have a reduction of income and profits. The companies who moved manufacturing abroad and pocketed the savings for their investors and CEOs aren’t likely to just say “oh well” and take a big hit to their margins—they’ll just mark up their products to make up the difference. Maybe, eventually, domestic competition will emerge but it’s not a given and likely takes time. In the meantime, consumers are paying the increased costs.
- Jgrubb 2y ago
  How will domestic competition be able to emerge? Trying to start a business in this country is already absurdly risky and expensive, there’s a point coming where it’ll be completely impossible unless you’re already rich. Strikes me as the most likely motive for all of this.
- cudgy 2y ago
  Of course it takes time for domestic competition to arrive. Decision decisions cannot only be made because the benefits are not immediately realized. It’s taken decades to get to the point that we are with the outsourcing and oversees manufacturing that has emptied the ability of the US to manufacture basic products. The bottom line is that the products these CEOs are selling need to have a higher price. They’re being subsidized by slave labor and foreign subsidies. The prices will increase. The margins will increase and new domestic competitors will emerge to take advantage of the increased margins, but it takes time. And dismissing it because it takes time is a self-defeating policy.
sigmar 2y ago
>The wealthy fat cats that are making money producing their stuff overseas or simply operating as middlemen for overseas manufacturers are going to have a reduction of income and profits. I'd love this to be true, but where is there recent evidence this will happen? When Trump put tariffs on washers in 2018, LG and Samsung (importers of machines) didn't lose profits, their prices went up: https://youtu.be/_-eHOSq3oqI?t=130 https://youtu.be/_-eHOSq3oqI?t=130
- cudgy 2y ago
  “Imports did decline. Washing machine imports fell by about 33% the first year the tariffs were in effect and stayed below pre-tariff levels through 2022. During that time, Samsung began producing washing machines at a US factory in South Carolina, and LG opened a plant in Tennessee. Whirlpool also increased domestic production and hired more workers. All told, new domestic production may have accounted for between 1,700 and 2,000 new jobs.“ https://finance.yahoo.com/news/higher-prices-extra-jobs-lessons-from-trumps-washing-machine-tariffs-185047360.html https://finance.yahoo.com/news/higher-prices-extra-jobs-less... Prices went up in short term, but imports went down and jobs increased due to manufacturers bringing jobs to the United States. Seems like it worked.
thayne 2y ago
The wealthy fat cats are often heading companies in oligopolies. They just increase prices to absorb the tariffs, blame inflation and public policy, and continue to make the same profits.
petre 2y ago
> The wealthy fat cats that are making money producing their stuff overseas I think that kind of logic only applies to iPhones.
cco 2y ago
Fat cats don't get fat by letting the cost of producing goods eat into their profit (completely tortured sentence I know). Companies simply add the cost of the tariff into the price of the final good to the consumer. It does not eat into the margin. To wit, every tax a business pays today is included in the cost of the final good sold, there is no reason to believe these tariffs won't be as well.
- cudgy 2y ago
  But your view is too shortsighted as I’ve said, in other comments. There will be a reaction to these increases in prices and increases in margins. Small startups and even large companies will enter the space to take advantage of the increased margins. It’s not a static system. However, it does not happen immediately and it takes some time.
  - cco 2y ago
    Two points: First, there are not necessarily increased margins, the margins may stay the same or even decrease. Some companies may choose to keep their margins the same, in which case profit would increase. But importantly your _profit_ will not decrease, you'll defend that as the seller even if that means your margins decrease. Second, small companies are _more_ sensitive to taxes (costs), not less sensitive. Existing, large players are better able to absorb costs _and_ command stronger pricing power relative to new entrants to the market. But overall, your view of the "market" just doesn't play out in reality. You can go look at any industry that encountered tariffs in Trump's first term, you may also look at any consolidated market in the last twenty years. Market power has been heavily concentrated, regulatory capture has gone up, and the result is that markets aren't working as you may expect.
    - cudgy 2y ago
      Sorry, but your statements are inaccurate. I posted this link separately and it fully demonstrates what I would expect: more jobs in the US to compensate for the increased cost to import. In this case, the jobs were provided by existing manufacturers like LG and Samsung; however, these jobs could also be produced by new competitors entering the space. https://finance.yahoo.com/news/higher-prices-extra-jobs-lessons-from-trumps-washing-machine-tariffs-185047360.html https://finance.yahoo.com/news/higher-prices-extra-jobs-less...

by cudgy 2y ago

GlassOwAter 2y ago

They won’t be using tariffs to lower taxes for lower income citizens. Tax cuts for the rich have already been proposed.

cudgy 2y ago
Sure, but how is this any different than the income tax system where companies receive tax credits, reduced tax rates, accelerated depreciation, schedules, subsidies to build factories, and direct cushy (high margin and sometimes fraudulent) contracts from government divisions.

svnt 2y ago

Middlemen for overseas manufacturers are not typically what comes to mind when I hear “wealthy fat cats.” If all the middlemen see the same increase in costs, they are not going to be the one to try to keep prices the same. They know everyone is taking the same hit so they can just pass it along together. The consumer decides to buy or not at that level. The innovation comes in avoiding the tariff. Often companies with sufficient scale of operations can pay additional lawyers and accountants to restructure and avoid tariffs. Tariffs can dramatically affect specific companies, but squishy middlemen (and multinationals) can often work around them.

scottbez1 2y ago

I run a tiny (<$30k annual revenue and much much smaller profit, or negative if I paid myself an hourly wage) side business that relies on custom manufacturing of open source hardware products I've designed. So very much not a "wealthy fat cat" - here's my experience with manufacturing: For die-cut plastic cards (think custom-shaped gift cards or hotel door hangers), I reached out to several US manufacturers for quotes and most never even responded. The one that did respond basically laughed at me and said my design was impossible to cut. So I went on Alibaba and had tons of quotes instantly and found a manufacturer. Not one of the responses were concerned about the design's manufacturability. And the manufacturer I picked does an incredible job with what is admittedly a challenging die cut design. As a tiny business, most of my orders end up being under de minimis (which is actually great for helping small businesses avoid the overhead of dealing with tariffs and level the playing field against large players that can be much more efficient at handling regulatory overhead through high volume). But with the change to eliminate de minimis and increase tariffs another 10% essentially overnight, my COGS is going to increase ~30%, which means either I shut down my business due to losing nearly all of my margin, or I increase prices substantially. It just hurts consumers AND small businesses like mine in the US. There isn't a US manufacturer I can switch to (again, price wasn't the issue). And the US manufacturers in the space that WERE still selling products despite the international competition will just increase their prices now that competition is more expensive.

programmertote 2y ago
That is what people like trump don't understand (not surprising). Instead of gradually rebuilding the manufacturing capabilities of the US while supporting essential industries (like steel production) to create competition, they think slapping tariff will magically make the domestic manufacturing come back. Like you said, the US manufacturers will just ride along the coattails of tariffs instead of trying to be competitive and/or expand their production (they have no incentive to do so). Again, knowing how short-sighted the US politicians and the society as a whole (e.g., look at how a majority of corps only care about short-term/quarterly profit) have become, it is not surprising but saddening to observe (because I have been living in the US for a bit over two decades and cannot move back to my home country, which is, at the moment, riddle with civil war).

macNchz 2y ago

> The wealthy fat cats that are making money producing their stuff overseas or simply operating as middlemen for overseas manufacturers are going to have a reduction of income and profits. The companies who moved manufacturing abroad and pocketed the savings for their investors and CEOs aren’t likely to just say “oh well” and take a big hit to their margins—they’ll just mark up their products to make up the difference. Maybe, eventually, domestic competition will emerge but it’s not a given and likely takes time. In the meantime, consumers are paying the increased costs.

Jgrubb 2y ago
How will domestic competition be able to emerge? Trying to start a business in this country is already absurdly risky and expensive, there’s a point coming where it’ll be completely impossible unless you’re already rich. Strikes me as the most likely motive for all of this.
cudgy 2y ago
Of course it takes time for domestic competition to arrive. Decision decisions cannot only be made because the benefits are not immediately realized. It’s taken decades to get to the point that we are with the outsourcing and oversees manufacturing that has emptied the ability of the US to manufacture basic products. The bottom line is that the products these CEOs are selling need to have a higher price. They’re being subsidized by slave labor and foreign subsidies. The prices will increase. The margins will increase and new domestic competitors will emerge to take advantage of the increased margins, but it takes time. And dismissing it because it takes time is a self-defeating policy.

sigmar 2y ago

>The wealthy fat cats that are making money producing their stuff overseas or simply operating as middlemen for overseas manufacturers are going to have a reduction of income and profits. I'd love this to be true, but where is there recent evidence this will happen? When Trump put tariffs on washers in 2018, LG and Samsung (importers of machines) didn't lose profits, their prices went up: https://youtu.be/_-eHOSq3oqI?t=130 https://youtu.be/_-eHOSq3oqI?t=130

cudgy 2y ago
“Imports did decline. Washing machine imports fell by about 33% the first year the tariffs were in effect and stayed below pre-tariff levels through 2022. During that time, Samsung began producing washing machines at a US factory in South Carolina, and LG opened a plant in Tennessee. Whirlpool also increased domestic production and hired more workers. All told, new domestic production may have accounted for between 1,700 and 2,000 new jobs.“ https://finance.yahoo.com/news/higher-prices-extra-jobs-lessons-from-trumps-washing-machine-tariffs-185047360.html https://finance.yahoo.com/news/higher-prices-extra-jobs-less... Prices went up in short term, but imports went down and jobs increased due to manufacturers bringing jobs to the United States. Seems like it worked.

thayne 2y ago

The wealthy fat cats are often heading companies in oligopolies. They just increase prices to absorb the tariffs, blame inflation and public policy, and continue to make the same profits.

petre 2y ago

> The wealthy fat cats that are making money producing their stuff overseas I think that kind of logic only applies to iPhones.

cco 2y ago

Fat cats don't get fat by letting the cost of producing goods eat into their profit (completely tortured sentence I know). Companies simply add the cost of the tariff into the price of the final good to the consumer. It does not eat into the margin. To wit, every tax a business pays today is included in the cost of the final good sold, there is no reason to believe these tariffs won't be as well.

cudgy 2y ago
But your view is too shortsighted as I’ve said, in other comments. There will be a reaction to these increases in prices and increases in margins. Small startups and even large companies will enter the space to take advantage of the increased margins. It’s not a static system. However, it does not happen immediately and it takes some time.
- cco 2y ago
  Two points: First, there are not necessarily increased margins, the margins may stay the same or even decrease. Some companies may choose to keep their margins the same, in which case profit would increase. But importantly your _profit_ will not decrease, you'll defend that as the seller even if that means your margins decrease. Second, small companies are _more_ sensitive to taxes (costs), not less sensitive. Existing, large players are better able to absorb costs _and_ command stronger pricing power relative to new entrants to the market. But overall, your view of the "market" just doesn't play out in reality. You can go look at any industry that encountered tariffs in Trump's first term, you may also look at any consolidated market in the last twenty years. Market power has been heavily concentrated, regulatory capture has gone up, and the result is that markets aren't working as you may expect.
  - cudgy 2y ago
    Sorry, but your statements are inaccurate. I posted this link separately and it fully demonstrates what I would expect: more jobs in the US to compensate for the increased cost to import. In this case, the jobs were provided by existing manufacturers like LG and Samsung; however, these jobs could also be produced by new competitors entering the space. https://finance.yahoo.com/news/higher-prices-extra-jobs-lessons-from-trumps-washing-machine-tariffs-185047360.html https://finance.yahoo.com/news/higher-prices-extra-jobs-less...