His tariffs have short shelf lives, exceptions, and are constantly rolled back.
He loves to threaten triple digit tariffs, then ratchet them back down to double digits. The average rate on international imports right now is around 14%, compared to 1.5% under Biden. Trump is very seriously and deliberately attempting to pivot the US from an income tax based government revenue model to an import tax model that we haven’t seen since Coolidge (a paleocon celebrity since the Reagan years).
You could pick a given item that was continually tariffed for a year and discover unit by unit what actual effect of tariffs was. You would presumably find that broad tariffs on everything as a source of revenue is ultimately 99./9% a tax on the population
Real price increases haven’t kept up with the increased tariff rates. If you ever make it through B-school or drop into a few college economics classes, you’ll understand why. Retailers maximize profits at the “clearing rate” for their sales goods. That’s the retail price which maximizes gross revenues at an optimal marginal unit price.
You can’t pass on 99% of a tariff increase if it results in a drop in sales disproportionate to the rise in price. That is to say, if you sell 1000 units for $1 but only 500 unites for $1.15, you are losing $500 in revenue to avoid paying $150 in taxes. Depending on the profit margin by unit (let’s say you pocket 30% of the $1 in sales - or $300 on that $1000 gross expenditure) there may be no incentive to pass on the tax to the consumer for your business. In this example, you can either pay $150 on $300 in pre-tax profit or… $150 on $300 in pre-tax profit.
Losing a lot of your margin may be worthy to keep the business you when you expect it to be rolled back 90 days later it is not acceptable as the permanent state of affairs.
Rapidly changing prices has its own chilling effect on your client base. If consumers see the market price jump 15%, they won’t perfectly mathematically optimize their behaviors to match. They’ll just blindly cut back on consuming out of sticker shock. Or they’ll go hunting for lower rates elsewhere.
The savvier play is one we’ve already seen across the retail sector - shrinkflation. Reduce the volume of unit sold so the margins stay high but the consumer never suffers sticker shock. A bag of chips doesn’t become 15% more expensive, it just gets <insert math on cost of chips>% lighter.
He loves to threaten triple digit tariffs, then ratchet them back down to double digits. The average rate on international imports right now is around 14%, compared to 1.5% under Biden. Trump is very seriously and deliberately attempting to pivot the US from an income tax based government revenue model to an import tax model that we haven’t seen since Coolidge (a paleocon celebrity since the Reagan years).
Real price increases haven’t kept up with the increased tariff rates. If you ever make it through B-school or drop into a few college economics classes, you’ll understand why. Retailers maximize profits at the “clearing rate” for their sales goods. That’s the retail price which maximizes gross revenues at an optimal marginal unit price.
You can’t pass on 99% of a tariff increase if it results in a drop in sales disproportionate to the rise in price. That is to say, if you sell 1000 units for $1 but only 500 unites for $1.15, you are losing $500 in revenue to avoid paying $150 in taxes. Depending on the profit margin by unit (let’s say you pocket 30% of the $1 in sales - or $300 on that $1000 gross expenditure) there may be no incentive to pass on the tax to the consumer for your business. In this example, you can either pay $150 on $300 in pre-tax profit or… $150 on $300 in pre-tax profit.
Rapidly changing prices has its own chilling effect on your client base. If consumers see the market price jump 15%, they won’t perfectly mathematically optimize their behaviors to match. They’ll just blindly cut back on consuming out of sticker shock. Or they’ll go hunting for lower rates elsewhere.
The savvier play is one we’ve already seen across the retail sector - shrinkflation. Reduce the volume of unit sold so the margins stay high but the consumer never suffers sticker shock. A bag of chips doesn’t become 15% more expensive, it just gets <insert math on cost of chips>% lighter.