3 ms·

Who pays the tariff depends on the relative elasticity of supply and demand.

mitthrowaway2 2y ago
Is your reasoning that the supplier has the option of eating the tariff by cutting prices, such that the price paid by the purchaser remains the same? If they had that much margin headroom available to cut prices by 20% and remain profitable, wouldn't that basically prove that they weren't dumping product in the first place?
- throwaway48476 2y ago
  What I stated is the textbook definition. For suppliers with fixed costs there are strong incentives to lower prices to stimulate demand sufficient to maintain utilization where possible. The commodity NAND market is an example of this. The fabs are extremely sensitive to utilization which leads to wild profit and loss swings.
crazygringo 2y ago
It is extremely rare for manufacturers to absorb the tariffs. Profit margins in most industries simply aren't high enough to cover it. A business can't absorb 20-25% tariffs if its profit margin is only 5%. And manufacturing is particularly known for its low profit margins. So no. I mean, in theory you are technically correct. But the way elasticity works in practice is that the buyer is who pays the tariffs in virtually all circumstances.
- throwaway48476 2y ago
  This is the case of low elasticity of the supply curve.
  - crazygringo 2y ago
    Yes, that's what I meant with my last sentence.
insonable 2y ago
sure, and a good baseline assumption for most consumer goods is that price elasticity of demand is pretty low in the short term, so consumers pay most of the tariff. then in the long run perhaps things change and more non-tariffed substitutes become available resulting in maybe a 50/50 split of "who pays" (after all, the substitutes didn't have comparative advantage before, so are probably a bit more costly to produce). in any case, total quantity sold will be less, consumers benefit less, and suppliers benefit less... but the government does get revenue.
baby_souffle 2y ago
Can you give a few examples of this?

Is your reasoning that the supplier has the option of eating the tariff by cutting prices, such that the price paid by the purchaser remains the same? If they had that much margin headroom available to cut prices by 20% and remain profitable, wouldn't that basically prove that they weren't dumping product in the first place?

throwaway48476 2y ago
What I stated is the textbook definition. For suppliers with fixed costs there are strong incentives to lower prices to stimulate demand sufficient to maintain utilization where possible. The commodity NAND market is an example of this. The fabs are extremely sensitive to utilization which leads to wild profit and loss swings.

crazygringo 2y ago

It is extremely rare for manufacturers to absorb the tariffs. Profit margins in most industries simply aren't high enough to cover it. A business can't absorb 20-25% tariffs if its profit margin is only 5%. And manufacturing is particularly known for its low profit margins. So no. I mean, in theory you are technically correct. But the way elasticity works in practice is that the buyer is who pays the tariffs in virtually all circumstances.

throwaway48476 2y ago
This is the case of low elasticity of the supply curve.
- crazygringo 2y ago
  Yes, that's what I meant with my last sentence.

insonable 2y ago

sure, and a good baseline assumption for most consumer goods is that price elasticity of demand is pretty low in the short term, so consumers pay most of the tariff. then in the long run perhaps things change and more non-tariffed substitutes become available resulting in maybe a 50/50 split of "who pays" (after all, the substitutes didn't have comparative advantage before, so are probably a bit more costly to produce). in any case, total quantity sold will be less, consumers benefit less, and suppliers benefit less... but the government does get revenue.

baby_souffle 2y ago

Can you give a few examples of this?