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Old 05-10-2019, 09:35 PM
Anny Middon is online now
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How do tariffs work monetarily?


(Posting this in IMHO because I suspect answers will involve some speculation.)

I will readily admit that Iím pretty ignorant when it comes to tariffs, so please educamate me. I know that tariffs are partly political actions, but Iím curious about the monetary side of them.

Suppose Country A produces doohickeys and is globally the only source for doohickeys. It exports $1 billion worth of doohickeys to Country B. What is this $1 billion? My initial guess is that itís what the Country B importers pay for the doohickeys, but Iím aware that when it comes to tariffs, sometimes it might be politically more advantageous to state this as what the doohickeys are estimated to actually sell for to consumers. Or maybe even state it as something akin to the MSRP, which Ė letís face it Ė is usually somewhat higher than the actual sales price.

As an example, say that the importer pays $40 for each doohickey. The importer sells them to wholesalers for $45 each. The wholesalers repackage them and sell to retailers for $60. The retailer puts up a sign that says ďDoohickeys! Valued at $120. On sale to our customers for only $100!Ē (If these values which I totally made up are wildly off, please correct.)

Now say that Country B imposes a 25% tariff on the doohickeys. I would assume that regardless of what value is stated for the doohickeys imported from Country A by Country B, the tariff is actually set at 25% of the amount the importers pay for the doohickeys. So the importer now pays $50 for each doohickey. Does the importer typically sell them to the wholesaler for $55, keeping his profit margin at $5, or does he sell them $56.25, keeping his profit margin at 12.5%?

What would you expect the consumer to actually pay for a doohickey -- $110, so that the $10 tariff is covered, or $125, maintaining the 25% level of the tariff? In either case, doesnít the tariff essentially come down to a special federal sales tax on doohickeys?

I would assume that at either retail price the demand for doohickeys would taper off a bit with the increased price. Just to throw a number out there, letís say that pre-tariff, Country B imported 25 million doohickeys, and post-tariff imports only 20 million. If the tariff works out to $10 per unit, Country B gets $200 million in tariffs.

What happens to this money? I assume it goes into the general revenue pot for Country B. Can Country B now crow about how its deficit isnít growing nearly as quickly as some had claimed it would, conveniently ignoring the fact that it has essentially raised taxes?

I said at the beginning that Country A is the only source for doohickeys. If it isnít (and itís pretty likely not to be), wonít Country B just import more doohickeys from Country C and Country D? (I realize that Country B is probably hoping that doohickeys can now be produced domestically at a competitive price, but that isn't always possible.) Assuming Country C and Country D have the same production cost per doohickey as Country A, wonít Country C and Country D raise their prices enough that they will be more profitable but still be cheaper than Country Aís price including the tariff? In that case, wonít the consumers in Country B be essentially underwriting profits for Country C and Country D?
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Old 05-10-2019, 11:10 PM
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How do tariffs work monetarily?


You seem to me to have a handle on it. The basic question is: what does the importer do? That depends on what the market can bear.

If there's a strong demand for doohickeys, the importer may be able to add the entire price of the tariff to the doohickeys, so ultimately the price to the consumer goes up proportionately, as each step in the supply chain the import duty affects the mark-up.

But if there's a weak demand, the importer may not be able to pass along the entire import duty. Probably would pass some along, but may not be able to pass the whole increase.

Or, the importer may try to find doohickeys to import from some other country at a cheaper price. That may be an option, even if the cheaper doohickeys aren't such good quality.

Money from tariffs normally go into general government revenues, unless they've been specially allocated by statute to a specific purpose.

Your example of the collateral effect on Countries C and D are one possibility. But C and D may choose to keep their prices low, even though A's doohickeys are having duty levied, because in the short to medium run, that might drive the doohickeys from country A out of the markets in country B entirely, or even drive the A doohickey makers out of business.

All of these options are why economists generally don't like nation-specific tariffs. They have a considerable distorting effect on market prices and market behaviour.

And that's all I'll say to keep out of GD territory.
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Last edited by Northern Piper; 05-10-2019 at 11:15 PM.
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Old 05-11-2019, 09:14 AM
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Thanks, Northern Piper. I kept asking myself what I was missing in my understanding of tariffs since I couldn't understand the rationale for tariffs against one country.

You cut your answer down so it didn't drift into GD territory. I had to be circumspect in my question to keep it out of the Pit. Maybe I'll post something there about tariffs now that I'm assured my understanding of how they work isn't too off the mark.
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Old 05-11-2019, 01:40 PM
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A few quick answers, based on my observations and past reading of how things work:

"What is this $1 billion?" That's the pre-tariff cost paid by the importer. So 25,000,000 doohickeys at $40 contract price is $1 billion. The $250 million tariff is a separate cost. Finished goods may have a higher final retail price, and that retail price may be what's used in calculating the cost to consumers, but the listed amount of imports should be the amount paid to the exporters.

"Does the importer typically sell them to the wholesaler for $55, keeping his profit margin at $5, or does he sell them $56.25, keeping his profit margin at 12.5%?" Initially, the price will probably be somewhere between the original $45 and just above $50 while the importer tries to figure out where his price point should be. The importer is going to try to avoid losing money, but also try to maintain as much sales volume as possible. It's better to take a short-term profit hit than to lose customers. On the other hand, maintaining volume while selling at a loss is not a good long-term idea, so the onward sales price will eventually go up.

"Doesn’t the tariff essentially come down to a special federal sales tax on doohickeys?" Yes.

"What happens to this money? [from the tariffs]" This is very much my opinion. It depends on how well planned the tariffs are, what the government is trying to accomplish with the tariffs, and how the revenue from the tariffs is redirected. If the aim of a tariff is simply political, the money is going to go into the general fund, and the government has imposed a tax on consumers of doohickeys. It's an overall economic cost traded off for a political gain. If the tariff is meant to be rebalancing a sector of the economy, then the money should go towards repurposing that sector of the economy. So the money gained on a tax on steel imports should either be spent on research and development to make the steel industry globally competitive, or on redirecting workers to new industries besides steel. Simple price support through tariffs without intervention is just delaying decline at an overall cost to the economy. If the aim of tariffs is to raise funds, then that tax should be counter-balanced by the removal of less efficient taxes, infrastructure investment, or deficit reduction. It should be viewed as a trade-off between an economic cost and offsetting economic gains. Ideally a package of tariffs will try to balance all of these objectives and generate a net gain. However, the use of any economic lever, including tariffs, will have uncertain outcomes and should be considered with caution.

"Won’t Country C and Country D raise their prices enough that they will be more profitable but still be cheaper than Country A’s price including the tariff?" Probably, yes. In supply and demand terms, the number of suppliers willing to supply doohickeys at a given price has been reduced. The supply curve has moved left, and therefore prices should increase.
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Old 05-13-2019, 01:28 PM
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Originally Posted by Anny Middon View Post
Does the importer typically sell them to the wholesaler for $55, keeping his profit margin at $5, or does he sell them $56.25, keeping his profit margin at 12.5%?
In the long run, the answer is likely that every party in the transaction takes some of the hit from the tariff due to supply and demand curves.

So, the importer will lower his profit margin some, the wholesaler and the retailer will too, and some customers will not buy as many widgets because they don't think they're worth the cost. Additionally, the manufacturer will likely lower their margins. Everyone loses a little bit.

There are some cases where certain participants have more market power and can force others to accept more (or all) of the tax burden. There are also some weird cases where the supply and demand curves do odd things, which can have some odd and unintuitive results, but they are pretty rare.
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Old 05-13-2019, 07:26 PM
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Suppose Country A produces doohickeys and is globally the only source for doohickeys. It exports $1 billion worth of doohickeys to Country B. What is this $1 billion?
Tariffs are levied on the FOB value of the goods, even if the commercial bills/invoice quotes INCO terms like CIF or FIS or ex works etc.
(there's a whole lexicon of charges associated with international trade and at what point the transaction risk transfers from seller to the buyer.)

Also for tariff purposes the FOB value is quoted in domestic currency, even if the goods are purchased in the selling countries currency, or a third currency.

If Country A exports $1 billion doohickeys then in it's national accounts as the value as FOB.

Apples v apples then when Country B reports that it imports $1 billion doohickeys then that should be the FOB expressed in domestic currency. No margins or on-costs.

The landed cost of dookickeys includes the FOB, freight, insurance, domestic customs and import handling costs and typically financing.
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Old 05-13-2019, 08:31 PM
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There are domestic doohickey manufacturers who tended to sell to wholesalers at 48-55 bucks, but not that many units, because cheaper ones were available to wholesalers (and in the end, consumers) at cheaper pricing from imports. These domestic produces now will sell more units, and the delta between original (and now no longer available) imported doohickey cost and this domestic cost is borne by wholesalers. Retailers,and especially consumers.
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Old 05-13-2019, 11:43 PM
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How do tariffs work monetarily?


That's assuming there are domestic manufacturers of doohickeys. That's not actually the case, as a lot of US manufacturing has moved off-shore or just ceased production.

Here's an article that discusses the implications of high tariffs on goods from Country-C. It is somewhat critical of a certain Individual-1, but seems sound on its discussion of the underlying facts and economics.

https://www-cnn.com/2019/05/13/polit...w.google.ca%2F
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Last edited by Northern Piper; 05-13-2019 at 11:44 PM.
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Old 05-14-2019, 09:22 AM
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Having worked for 20 years in importing in small and medium sized businesses, most of the answers were correct.

Generally, the importer is also the distributor. There really isnít a need for a separate company simply to bring a product into a country. The distributor can also sell through other wholesalers. The numbers are completely wrong, because the distributor needs a greater price margin.

But rather than try to make the numbers more realistic, weíll just stay with the model since itís already there.

In the industries I was involved with, the prices are raised and the companies just try to do the best they can. It doesnít matter if the additional prices come from tariffs, increased fuel costs, increased prices from the manufacturer, increase costs of this or that, whatever. When the cost to the importer is increased, the sales price needs to be increased as well. We had products which sold well until the manufacture raised prices and we were no longer competitive in Japan. Sometime the pricing just was too much even if there wasnít a competing product.

While some adjustments are made in individual pricing to reflect competition, in general the same profit margins are kept. So, in my former industry, the product would sell at $125 and if the market wouldnít accept that, then you would find another source or even just abandon that product line.

In very simple terms, profit is calculated in percentages. It needs to because the cost of doing business increases with greater volume. In this example, there will be more warehouse space and increased labor costs.

Companies often have minimum gross profit targets related to their IRR and will drop products, product lines or business which fall below this. Mega corporations will often spin off divisions which are profitable but the IRR is below the corporate goals.

Northern Piper's link is broken. Here is the correct one.

https://edition.cnn.com/2019/05/13/p...ica-fact-check
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Old 05-14-2019, 08:40 PM
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What would you expect the consumer to actually pay for a doohickey -- $110, so that the $10 tariff is covered, or $125, maintaining the 25% level of the tariff?
The term in economics for that question, that others have basically described, is tax incidence. The question is really about the individual market. With tariffs the question is harder since the tax varies based on where the manufacturer is based. The edge cases where either the seller or buyer pay all of the tax aren't the norm.

It's a useful term to remember because it's widely misunderstood. Frequently people seem to pay attention to who's being taxed and ignore how much of that can or will be borne by the other parties in the market. Who cuts the check to the government isn't really part of answering the question of who really pays.
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Old 05-15-2019, 03:01 PM
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Thanks for fixing the link, Tokyo Bayer.
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Old 05-16-2019, 06:12 AM
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Originally Posted by penultima thule View Post
Tariffs are levied on the FOB value of the goods, even if the commercial bills/invoice quotes INCO terms like CIF or FIS or ex works etc.
(there's a whole lexicon of charges associated with international trade and at what point the transaction risk transfers from seller to the buyer.)

Also for tariff purposes the FOB value is quoted in domestic currency, even if the goods are purchased in the selling countries currency, or a third currency.

If Country A exports $1 billion doohickeys then in it's national accounts as the value as FOB.

Apples v apples then when Country B reports that it imports $1 billion doohickeys then that should be the FOB expressed in domestic currency. No margins or on-costs.

The landed cost of dookickeys includes the FOB, freight, insurance, domestic customs and import handling costs and typically financing.
Basically correct, but there are a lot of complex questions. Ad Valorem are placed on FOB values but for alcohol it can be placed on the alcoholic content. That applies to Excise tariffs as will as import tariffs. There may also be agreements between certain countries where tariffs may be applied to say Japan, but not the UK.

In Australia, there was also something we had called Primage duty- essentially an extension of tariffs- which has thankfully long gone. There are also tariff concessions where if certain goods are not manufactured there maybe a concession where the non manufacured widget is not taxed (There was a certain area where a tariff concession could be applied if the area was murky and there were certain "gifts").

However bottom line is if it is a level field- seldom- and all countries are treated the same (ha)- it is an ad valorem tax on Free On Board price of the goods. So if I could get a car from Japan and also from Germany I would (or the importer) be paying the same amount of import tariff. You decide which one you want more or is the better quality.

Of course there can also be sales tax which increases on a more expensive car- or even tariff quotas.
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Old 05-16-2019, 08:25 AM
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Originally Posted by Wrenching Spanners View Post
"Does the importer typically sell them to the wholesaler for $55, keeping his profit margin at $5, or does he sell them $56.25, keeping his profit margin at 12.5%?" Initially, the price will probably be somewhere between the original $45 and just above $50 while the importer tries to figure out where his price point should be. The importer is going to try to avoid losing money, but also try to maintain as much sales volume as possible. It's better to take a short-term profit hit than to lose customers. On the other hand, maintaining volume while selling at a loss is not a good long-term idea, so the onward sales price will eventually go up.
Things turn out to be much more complicated than what is taught in basic business or economic classes. There are too many variables, including the relationship between the distributor and manufacturer, if the importer/distributor has an exclusive relationship or not, what other product lines there are, etc.

In general, importers/distributors have less incentive to take even short-term hits to profits. Manufacturers only have that product line, so they are stuck with it but importers/distributors have to protect their money.
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Old 05-16-2019, 11:04 AM
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What happens when the goods have already been sold before the tariff was imposed?

This has been a topic in board game groups. There are a lot of games that are funded on Kickstarter. The game designers collect the money at the beginning of the project, spend a year or so developing and producing the game, and then deliver them to the buyers when they're ready.

But a lot of these games are being manufactured in China. What happens when you collect money for a product in August 2018 in order to deliver it in August 2019 but then a tariff is imposed in April 2019? You can't raise the price to cover the tariff costs; the buyer has already bought the product. Are companies expected to just suck up the tariff costs as a loss?

What happens if they can't? A lot of board game companies are pretty small and marginal businesses. If you hand them a tariff bill for $20,000, they might legitimately say they don't have $20,000. What happens then?

I'm using board games as an example but I'm sure there are many other products traveling down similar pipelines. Do the products get sent back to China or dumped in a government warehouse somewhere or are they tossed in a landfill?
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Old 05-16-2019, 12:13 PM
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Things turn out to be much more complicated than what is taught in basic business or economic classes. There are too many variables, including the relationship between the distributor and manufacturer, if the importer/distributor has an exclusive relationship or not, what other product lines there are, etc.

In general, importers/distributors have less incentive to take even short-term hits to profits. Manufacturers only have that product line, so they are stuck with it but importers/distributors have to protect their money.
I agree that things are much more complicated, and will defer to your personal business experience working for an importer/distributor. I will note though, that for retail brands, market share is a huge driver in pricing decisions. A US company may have a contract with a China manufacturer to make the product they're going to import and sell on to a retail store. Cost will be a consideration in setting a price, and an increase in import duty represents an increased cost. However, many other factors affect pricing decisions. Here's a few:
ē Competition Ė will all suppliers of a given product raise their prices? If youíre importing from China, while your competition is importing from Vietnam, youíve got a hard decision on your hands.
ē Existing contracts Ė can you even raise your prices in the near-term?
ē Demand elasticity Ė if prices rise significantly, will consumers stop buying that product?
ē Cost profile Ė many companies spend far more on marketing than what they pay the manufacturer. Does Nike import from China? If theyíve found a sweet spot in the market, and spent billions in advertising to get to that sweet spot, they might decide to absorb $2.50 for a pair of shoes theyíre wholesaling for much more, rather than disturb that sweet spot.
ē Product strategy Ė raising prices is a normal business activity. Often itís disguised as a product change. So kitchen appliance 2018 is due to be replaced by the new and improved kitchen appliance 2019 in just a few months. Bump up the prices later when itís not apparent to the consumer, rather than immediately.

Again, if costs rise, prices will generally also rise, especially in the long term. But for many businesses, especially suppliers of name brand retail products, price is not some automatic multiple of cost. Many other factors go into setting a price, and businesses will often take time to consider those factors before adjusting their prices.
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Old 05-16-2019, 05:35 PM
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What happens when the goods have already been sold before the tariff was imposed?
I am far more experienced in traded goods and commodities but think it's the same situation as if you travelled to China yourself, bought your own doohickey at the factory shop and then shipped it back stateside via parcel post.

You'd need to make an import declaration and if a tariff was applicable you would be billed.

The question is of risk, if you have taken ownership of the goods, the risk is yours.

Quote:
Do the products get sent back to China or dumped in a government warehouse somewhere or are they tossed in a landfill?
All of those options would probably be way more costly than the tariff.
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Old 05-17-2019, 12:29 AM
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What happens when the goods have already been sold before the tariff was imposed?

(. . .)

But a lot of these games are being manufactured in China. What happens when you collect money for a product in August 2018 in order to deliver it in August 2019 but then a tariff is imposed in April 2019? You can't raise the price to cover the tariff costs; the buyer has already bought the product. Are companies expected to just suck up the tariff costs as a loss?
About 20 years ago, there was a financial crisis in Southeast Asia. Local currencies experienced some serious declines against the dollar. At the time, I was working for a Japan importer/distributor and worked with many US and European manufactures.

The Indonesian currency lost 25% in one day. One day. You simply canít do business in that circumstance because you are buying in dollars and selling in the local currency. Many companies went out of business.

For the question about Kickstarter board games, in a general case what happens to companies who are unable to deliver? Do they return the money? Are the customers screwed? That has to be keeping a lot of people up late at night.
Quote:
I'm using board games as an example but I'm sure there are many other products traveling down similar pipelines. Do the products get sent back to China or dumped in a government warehouse somewhere or are they tossed in a landfill?
Unless the companies are being run by absolute idiots, the order shouldnít be placed in the first place.

I donít know what the actual procedure if is tariffs canít be paid. It could be that the freight forwarder or carrier takes possession of it. We were always billed by company which handled the products.
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Originally Posted by Wrenching Spanners View Post
I agree that things are much more complicated, and will defer to your personal business experience working for an importer/distributor. I will note though, that for retail brands, market share is a huge driver in pricing decisions.
Well, yes. I happen to be aware of that.

This was your post.
Quote:
"Does the importer typically sell them to the wholesaler for $55, keeping his profit margin at $5, or does he sell them $56.25, keeping his profit margin at 12.5%?" Initially, the price will probably be somewhere between the original $45 and just above $50 while the importer tries to figure out where his price point should be. The importer is going to try to avoid losing money, but also try to maintain as much sales volume as possible. It's better to take a short-term profit hit than to lose customers. On the other hand, maintaining volume while selling at a loss is not a good long-term idea, so the onward sales price will eventually go up.
I canít see the justification for making such a general statement considering all of the different conditions. Yes, there will be some companies which will eat the entire cost. However, there will be others which will pass it along to the entire cost to the customers. Others will be in between.

No one right now can possibly made anything but a wild-ass guess and how much of the several hundred billions of dollars of new tariffs will fall into which category.
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Old 05-17-2019, 02:32 AM
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All of those options would probably be way more costly than the tariff.
That's not really the issue. If you don't have enough money to pay the tariff, then the tariff isn't going to be paid. My question was what does the government do with the good when the tariff on them isn't paid.
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Old 05-17-2019, 02:40 AM
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For the question about Kickstarter board games, in a general case what happens to companies who are unable to deliver? Do they return the money? Are the customers screwed? That has to be keeping a lot of people up late at night.
With Kickstarter, the customers are pretty much screwed. The company can't return the money because they no longer have it.

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Unless the companies are being run by absolute idiots, the order shouldnít be placed in the first place.
What makes them absolute idiots? Companies place orders all the time. It's standard business.
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Old 05-17-2019, 05:23 AM
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What happens when the goods have already been sold before the tariff was imposed?

This has been a topic in board game groups. There are a lot of games that are funded on Kickstarter. The game designers collect the money at the beginning of the project, spend a year or so developing and producing the game, and then deliver them to the buyers when they're ready.

But a lot of these games are being manufactured in China. What happens when you collect money for a product in August 2018 in order to deliver it in August 2019 but then a tariff is imposed in April 2019? You can't raise the price to cover the tariff costs; the buyer has already bought the product. Are companies expected to just suck up the tariff costs as a loss?

What happens if they can't? A lot of board game companies are pretty small and marginal businesses. If you hand them a tariff bill for $20,000, they might legitimately say they don't have $20,000. What happens then?

I'm using board games as an example but I'm sure there are many other products traveling down similar pipelines. Do the products get sent back to China or dumped in a government warehouse somewhere or are they tossed in a landfill?
Is this a scenario where, for example, $80,000 was raised for the game, and a Chinese manufacturer was contracted to manufacture and ship 5,000 units of the game with payment up front?

The important company to consider is the freight company actually shipping the goods across the Pacific. This order is relatively small scale, so the freight company will be acting as the customs broker. Theyíre going to be the agency making the direct payment ($20,000) to the customs agency. Out of curiosity, I took a look at DHLís small business offering. It looks like if both the importer and the exporter are DHL customers, DHL will pay the import duties and rebill them to the importer. If the importer is not a DHL customer, then I would assume DHL would require payment for the import duties from the shipper. Which means that the shipper/games manufacturer would then demand the funds from the game designers. If those funds arenít forthcoming, then most likely the order isnít shipped and is eventually discarded.
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Old 05-17-2019, 05:35 AM
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<snip>Yes, there will be some companies which will eat the entire cost. However, there will be others which will pass it along to the entire cost to the customers. Others will be in between.

No one right now can possibly made anything but a wild-ass guess and how much of the several hundred billions of dollars of new tariffs will fall into which category.
Hereís an article that discusses the price effects of the 25% China tariff.
https://eu.usatoday.com/story/money/...rk/1164965001/
It notes that ďAmerican retailers and manufacturers were largely able to absorb the [previous] 10% tariff Ė narrowing their profit margins Ė negotiate offsetting price cuts with Chinese suppliers, import a big stockpile of goods before the tariff took effect, and spread the added cost across many products.Ē It also notes that the 25% tariff will almost certainly be passed on to customers, but depending on the situation ďcould take weeks to monthsĒ.
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Old 05-17-2019, 06:26 AM
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If you don't have enough money to pay the tariff, then the tariff isn't going to be paid. My question was what does the government do with the good when the tariff on them isn't paid.
Iím not sure the customs authority will take such a benevolent view.

The importer isnít going to get the goods until the tariff is paid.
The importer might be able to stitch a debt/equity deal with the customs agent. In the interim the goods will sit in bond.
Firstly customs will try to enforce the regulations and collect the tariff including penalties.
If the importer doesnít stump up the dosh the goods will be confiscated and then sold to the highest bidder.
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Old 05-17-2019, 03:25 PM
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In the current trade war, it looks that about 80 percent of the tariff burden is going to be borne by Chinese companies.

https://trib.al/HtQrXWv?utm_source=f...vBEkiLHCAv9H5I
  #24  
Old 05-17-2019, 03:46 PM
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It's rather difficult to say, actually.

As has been pointed out, businesses will charge what the market can bear. If costs go up prices will go up in a reasonably predictable manner based on some microeconomics graphs too boring to explain here.

The problem is that a targed tariff will create incentives for businesses to behave in ways that duck around the tariff. They may purchase Indonesian doohickeys instead of Chinese, or find alternative products - buying thingamajigs instead of doohickeys.

Or they may simply play with the definitions. For instance, the USA imposed a heavy duty on Canadian steel. However, they did not impose a duty on most manufactured products made out of steel. Consequently, some U.S. businesses, rather than buying sheets or rolls of steel and having it sent to American processors, started hiring Canadian companies to do the first few manufacturing steps on the steel before importing it at no tariff - and so the steel tariffs actually drove more business out of the USA.
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  #25  
Old 05-17-2019, 10:11 PM
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Originally Posted by penultima thule View Post
Iím not sure the customs authority will take such a benevolent view.
I didn't see any of the possibilities I suggested as being benevolent.

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Originally Posted by penultima thule View Post
If the importer doesnít stump up the dosh the goods will be confiscated and then sold to the highest bidder.
Okay, this is the answer to my question. If the tariff isn't paid, the goods are confiscated and eventually put up for auction.
  #26  
Old 05-17-2019, 10:25 PM
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Originally Posted by Wrenching Spanners View Post
Is this a scenario where, for example, $80,000 was raised for the game, and a Chinese manufacturer was contracted to manufacture and ship 5,000 units of the game with payment up front?
Yes, that's how it works. The game company collects the money from the buyers at the beginning of the development process and then uses the money it collected to complete the development, manufacture, and delivery of the products to the people who have already paid for them. (China is often used as the location for the manufacture because of the lower production costs.)

The company benefits from this deal because they don't have to borrow money and they know how many copies of the game they need to produce. But they need to have a really good estimate of what the costs will be; there's no procedure for asking for more money once the initial sales have been made. If it turns out there's an unexpected expense six months later, the company just has to absorb it, which cuts into whatever profits they had hoped to make. Or worse yet, the extra expense makes it impossible to deliver the game.

This latter possibility hurts the customers, who don't get the game they paid for or their money back. (Kickstarter is clear in telling people that this is a risk they assume by participating in the system.) And it also hurts the people in the company. It's hardly ever a case of outright fraud. When companies have run out of money it usually means they spent a lot of their own money as well as everything they collected before running out.
  #27  
Old 05-18-2019, 10:43 PM
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Originally Posted by Little Nemo View Post
Okay, this is the answer to my question. If the tariff isn't paid, the goods are confiscated and eventually put up for auction.
Not necessarily.

Typically, the freight forwarder (for ocean shipments) or carrier (for air) pays the tariffs and then bills the customer, if they have a credit arrangement. New companies may not have credit terms with the shipping company and would have to pay cash.

I donít actually know if the freight forwarder or carrier wait to collect the money before processing the shipment but it could be possible that they pay first and then try to collect from the customer before delivery. If so, then the freight forwarder or carrier has possession of the games.
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Originally Posted by Little Nemo View Post
What makes them absolute idiots? Companies place orders all the time. It's standard business.
No, itís not standard business to place orders for things you cannot afford any more than claiming itís standard practice to waltz into a restaurant and order without looking at the prices. If someone orders a filet mignon dinner knowing that they only have $1.25 in their pocket, but canít be arsed to look at the prices on the menu, well, they are an idiot.

At this very moment, tens of thousands of people worldwide are placing orders in restaurants, knowing the price. They are not idiots. They are following standard practice.

Occasionally people will forget their wallet, but thatís an accident. Not thinking about the consequences of the debts you are occurring makes you a fucking idiot.

With all of the news about the recently, these companies should damn well better know that their products are subject to tariffs. Someone who in involved in international business and doesnít pay attention is an idiot.

The value of product is listed on the invoice. Calculating a 25% tariff is something that my 10-year-old daughter can do. I know because I help her with her fourth-grade arithmetic homework. Adults who canít manage this are idiots.

She doesnít have the foresight to anticipate what she would need to check her bank balance, but someone who has the ability to design a game, find a manufacturer, write a kickstarter campaign, and take the other 3 jillion steps necessary, but authorizes shipment without looking at their bank is a fucking idiot.

For small companies that use overseas manufacturers, some percent needs to be paid prior to manufacturing, typically 50% IIRC, and then the balance before shipping. For more established companies then there are credit terms, but your case would be a small design company so the manufacturer will need to pay upfront.

They will make the final payment after the shipment is ready. They will know how much money they have in the bank and if they can or cannot afford to pay the tariff. If they make that final payment, know that they donít have enough for the tariff, but authorize shipment, then what are they?
  #28  
Old 05-18-2019, 11:35 PM
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Originally Posted by TokyoBayer View Post
No, it’s not standard business to place orders for things you cannot afford any more than claiming it’s standard practice to waltz into a restaurant and order without looking at the prices. If someone orders a filet mignon dinner knowing that they only have $1.25 in their pocket, but can’t be arsed to look at the prices on the menu, well, they are an idiot.

At this very moment, tens of thousands of people worldwide are placing orders in restaurants, knowing the price. They are not idiots. They are following standard practice.

Occasionally people will forget their wallet, but that’s an accident. Not thinking about the consequences of the debts you are occurring makes you a fucking idiot.

With all of the news about the recently, these companies should damn well better know that their products are subject to tariffs. Someone who in involved in international business and doesn’t pay attention is an idiot.

The value of product is listed on the invoice. Calculating a 25% tariff is something that my 10-year-old daughter can do. I know because I help her with her fourth-grade arithmetic homework. Adults who can’t manage this are idiots.

She doesn’t have the foresight to anticipate what she would need to check her bank balance, but someone who has the ability to design a game, find a manufacturer, write a kickstarter campaign, and take the other 3 jillion steps necessary, but authorizes shipment without looking at their bank is a fucking idiot.

For small companies that use overseas manufacturers, some percent needs to be paid prior to manufacturing, typically 50% IIRC, and then the balance before shipping. For more established companies then there are credit terms, but your case would be a small design company so the manufacturer will need to pay upfront.

They will make the final payment after the shipment is ready. They will know how much money they have in the bank and if they can or cannot afford to pay the tariff. If they make that final payment, know that they don’t have enough for the tariff, but authorize shipment, then what are they?
You don't seem to grasp how time is a factor in all of this.

Let's say I design a game. I call up a printing company to make copies of my game. I can't say "Hey, do you have ten thousand copies of this game I just designed on hand in your warehouse?"

Because they would say, "How the hell can we have ten thousand copies of your game already printed when you just finished designing it?"

What I instead say is "Would you be able to print up ten thousand copies of my game if I sent you samples of what I wanted?"

And they'll say "Sure, just send us the samples. We charge fifty thousand dollars for a job that size. You have to pay when you place the order. And it will take us six months to complete the print run."

We agree on the terms and the work begins.

Then three months later, the government announces a new tax on board games. And I now find that I will be expected to pay $12,500 in taxes when my games are ready before they can be delivered to me.

Now that might not have been a surprise for people that can see the future. But I'm not one of those people. When I paid $50,000 for the job, I didn't expect that it was going to cost me $62,500 by the time it was done.

I'm not stupid. I did research into the estimated costs of producing a game before I started this whole project. I knew based on past game productions that it was going to cost me around $50,000 and I based my plans around that figure.

I didn't include the $12,500 tax in my estimate because it didn't exist at the time I was making my plans. I couldn't foresee it because nobody, including Donald Trump, knows what the hell the Trump administration might do six months from now.

Do you understand the situation now? Do you grasp how businesses have to make plans in the present that involve events that will occur in the future?

Last edited by Little Nemo; 05-18-2019 at 11:38 PM.
  #29  
Old 05-18-2019, 11:46 PM
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To use your own analogy, if I go to a restaurant and order a meal and at the end of the meal I can't pay for it because I didn't check the price or because I didn't bring my wallet with me, then yes, I am an idiot.

But suppose I go to a restaurant, look at the prices in the menu, check the amount of money in my wallet to ensure I have enough money to pay those prices, and then place my order - and then fifteen minutes later, Pumpkin and Honey Bunny pull out their guns and steal everyone's wallet, including mine. So when the bill arrives for my meal, I can't pay the bill.

Now all of these situations are the same in that I ordered a meal that I was unable to pay for when the bill arrived. But do you feel that I was an idiot to order the meal when I was going to have my wallet stolen? Was I being a "fucking idiot" because I didn't think about the consequences of the debt I was incurring?

Last edited by Little Nemo; 05-18-2019 at 11:48 PM.
  #30  
Old 05-19-2019, 05:20 AM
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What would you expect the consumer to actually pay for a doohickey -- $110, so that the $10 tariff is covered, or $125, maintaining the 25% level of the tariff? In either case, doesn’t the tariff essentially come down to a special federal sales tax on doohickeys?
$100, because the exchange rate would fall to keep the value of the imports and exports in balance. And exports are ultimately the only thing that can pay for imports.

This is an inaccurate simplification, but in my country (aus) exports are mostly minerals. so simple general tariffs have approximately the same effect as simple export duties. The idea that a 10% tax on imports raises the price by 10% depends on the idea that the market for dohickeys is so small as to not effect the terms of trade. This is not true when talking about a general trade war with China.
  #31  
Old 05-19-2019, 08:06 AM
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Originally Posted by Little Nemo View Post
To use your own analogy, if I go to a restaurant and order a meal and at the end of the meal I can't pay for it because I didn't check the price or because I didn't bring my wallet with me, then yes, I am an idiot.

But suppose I go to a restaurant, look at the prices in the menu, check the amount of money in my wallet to ensure I have enough money to pay those prices, and then place my order - and then fifteen minutes later, Pumpkin and Honey Bunny pull out their guns and steal everyone's wallet, including mine. So when the bill arrives for my meal, I can't pay the bill.

Now all of these situations are the same in that I ordered a meal that I was unable to pay for when the bill arrived. But do you feel that I was an idiot to order the meal when I was going to have my wallet stolen? Was I being a "fucking idiot" because I didn't think about the consequences of the debt I was incurring?
Is this a serious question?

You really canít see the difference between ordering a meal not checking the prices and ordering a meal while you have money, only to have your money stolen?

Please answer if you really take them to be the same.

There are foreseeable and unforeseeable events in the world. No. You are not an idiot for ordering a meal only to see a 737 Max fall out of the sky and kill you. That ainít your fault. You are not at fault if you order the food and the restaurant has deceived you. You are not at fault if another tableís food is mistakenly added to your bill. etc., etc.

However, you are an idiot if youíve grown up in the US and you order food, only to stiff the waiter because you forgot to leave enough money for a tip. Itís an additional charge, you should know about it and you should be able to calculate it. My daughter can help.
  #32  
Old 05-19-2019, 08:50 AM
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You don't seem to grasp how time is a factor in all of this.
OK, I went back and looked again at my original comment. I posted that on my phone and it looks like I wasnít careful enough. Sorry for the confusion.

The people are not idiots for placing the initial order, but they would be fucking idiots for authorizing the delivery.

Assuming ďyouĒ to be the generic you:

It doesnít matter if you have paid 100% before or 50% and 50%, The manufacture WILL contact you prior to shipment. They will let you know that your shipment is ready to ship and ask for authorization. If you authorize the shipmentbut with nothing in the bank, then you are a fucking idiot.

Or, if you are having your game being printed now, and you know the bank balance is zero, you are a fucking idiot to let the process continue.

All it takes in one email telling your contact to hold the shipment.

Let me be clearer. You are not an idiot for placing the order. Companies do that all the time.

However, you are a fucking idiot for authorizing the shipment itself. The tariff is incurred when the product arrives in US customs so while the games are sitting there in the warehouse in China, you donít have to pay the tariff.

Let me repeat this again. If you do not authorize the delivery company to pick up the games, everything is cool. It sucks to be your customer, but you have not incurred the additional debt to the US government.

By calling the freight forwarder or carrier and asking them to pick up the games (which is your responsibility, you are paying for freight) knowing that there isnít enough money to pay for the tariff then you a fucking idiot.
  #33  
Old 05-19-2019, 09:03 AM
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The whole idea of kickstarter is that there is a lot of risk involved. Some of that risk is foreseeable, some is not. Normal companies usually do not do business this way because anyone who had be involved in business for a couple of decades can tell you horror story after horror story about unexpected problems.

On paper, it all seems very easy. It’s easy to find a manufacturer in China now. It’s easy to transfer money. It’s easy to design things. For many cases, it does work out. However, there are many cases when it doesn’t.

For example, a quote from a Chinese manufacturer will give you an estimate. So you design a game and start a kickstarter campaign. However, the quote was only valid for 30 days and by the time you have raised the money, the manufacturer now gives you a quote that’s 25% higher. Or they are out of business and other manufacturer gives you a quote for 40% higher. There goes all of your money if you have stupidly priced the product to only take a 25% margin on an international order, and you don't have the money.

It sucks to be your customer, but this happens in business all the time. At least they will likely get their money back, I presume.

Last edited by TokyoBayer; 05-19-2019 at 09:05 AM.
  #34  
Old 05-19-2019, 09:13 AM
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Originally Posted by TokyoBayer View Post

It sucks to be your customer, but this happens in business all the time. At least they will likely get their money back, I presume.
Sure. I think the point is that this specific thing is an action by our own government that hurt these US businesses & consumers.
  #35  
Old 05-19-2019, 09:58 AM
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Originally Posted by TokyoBayer View Post
Is this a serious question?

You really canít see the difference between ordering a meal not checking the prices and ordering a meal while you have money, only to have your money stolen?

Please answer if you really take them to be the same.
I can see the difference and I don't take them to be the same. The reason I asked is to see if you can tell the difference between them.

You said only fucking idiots would order products they won't be able to pay for and that no normal business would ever do that.

I have pointed out that normal businesses do this all the time. You order a product and you have the money you expect you will need and everything looks doable. There is a delay involved because products don't exist at the time you order them; they have to be manufactured after you order them.

And then an outside factor occurs during the period between when you placed the order and when it was delivered. You are told that there will now be a substantial charge for the delivery that didn't exist when you placed the order. You're now being told that your product is going to cost you twenty-five percent more than the price you were given when you ordered the product.

Explain to me how businesses are supposed to know about unexpected charges like this before they happen?
  #36  
Old 05-19-2019, 01:28 PM
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Explain to me how businesses are supposed to know about unexpected charges like this before they happen?
Sigh. You are ignoring the posts I made after the one you quoted. Feel free to read them, as they explain how someone is supposed to deal with expected changes in orders. It actually goes into that in depth so Iím not going to waste my time retyping the exact same thing.

However, since you are continuing this, then letís look again. This was your post I was reply to when I said anyone placing that order is an absolute idiot.
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Originally Posted by Little Nemo View Post
But a lot of these games are being manufactured in China. What happens when you collect money for a product in August 2018 in order to deliver it in August 2019 but then a tariff is imposed in April 2019? You can't raise the price to cover the tariff costs; the buyer has already bought the product. Are companies expected to just suck up the tariff costs as a loss?
The problem is that you donít know how business is done, so you recreated an unrealistic hypothetical.

The person in your hypothetical is an idiot because they donít understand business.

The manufacturing itself does not take one year. The whole process shouldnít take a year.

For the process, you send over a design, they make a prototype, you revise it, then make another, you revise, repeat, until itís right. The actually manufacturing is going to take a couple of weeks, so the actual manufacturing is going to be in July for an August delivery. Or May, if there is enough volume for ocean freight.

You pay an upfront deposit for design work. Once the design work has been signed off on, then you pay an additional amount for the manufacturing process to begin. Once itís completed, you pay the remainder and the product is shipped.

So the products shouldnít be manufactured yet. There is enough time to stop the manufacturing. You pay a fee, and lose some money, but not 100%.

In your case, the guy is an idiot for paying 100% upfront, a year before shipment, and before the prototype if created. What if the factory doesnít get it right? What if the product they produce is never acceptable? Heís already paid 100%, right?

What leverage does he have? Maybe he could hold his breath until his face turns blue. This is a China manufacturer. Itís not like you can run down to your small claims court and get justice.

The other reason that the guy is an idiot is that this 2019, not 2016. The trade conflict with Trump and China is so well known that all the professionals make contingency plans for it. Lots of factories have been sitting on their hands not knowing what to do. My friend has contracts with manufacturing plants in China and although heís Taiwanese, the products are made in China.

Guess what he doesnít do? If you guessed sell long-term contracts to customers in the United States at a set price then you are absolutely right, because anyone with a brain has known from 2017 that a trade war may happen and tariffs may be raised.

Not taking into consideration a possible trade war with China, actually collecting money from people, and then blowing the cash on manufacturing after the tariff has been set but before delivery, when you canít pay the tariff doesnít make you just an idiot. Itís completely reckless and irresponsible. As well as unethical.

Or probably just another typical kickstarter. Buyer beware.
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