How do tariffs work monetarily?

In My Humble Opinion
21

Here’s an article that discusses the price effects of the 25% China tariff.

It notes that “American retailers and manufacturers were largely able to absorb the [previous] 10% tariff – narrowing their profit margins – 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.” It also notes that the 25% tariff will almost certainly be passed on to customers, but depending on the situation “could take weeks to months”.

22

I’m not sure the customs authority will take such a benevolent view.

The importer isn’t 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 doesn’t stump up the dosh the goods will be confiscated and then sold to the highest bidder.

23

In the current trade war, it looks that about 80 percent of the tariff burden is going to be borne by Chinese companies.

24

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.

25

I didn’t see any of the possibilities I suggested as being benevolent.

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

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

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 don’t 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.

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?

28

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?

29

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?

30

$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

Is this a serious question?

You really can’t 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 ain’t 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 table’s food is mistakenly added to your bill. etc., etc.

However, you are an idiot if you’ve grown up in the US and you order food, only to stiff the waiter because you forgot to leave enough money for a tip. It’s an additional charge, you should know about it and you should be able to calculate it. My daughter can help.

32

OK, I went back and looked again at my original comment. I posted that on my phone and it looks like I wasn’t 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 “you” to be the generic you:

It doesn’t 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 don’t 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 isn’t enough money to pay for the tariff then you a fucking idiot.

33

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.

34

Sure. I think the point is that this specific thing is an action by our own government that hurt these US businesses & consumers.

35

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

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 I’m not going to waste my time retyping the exact same thing.

However, since you are continuing this, then let’s look again. This was your post I was reply to when I said anyone placing that order is an absolute idiot.

The problem is that you don’t know how business is done, so you recreated an unrealistic hypothetical.

The person in your hypothetical is an idiot because they don’t understand business.

The manufacturing itself does not take one year. The whole process shouldn’t 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 it’s 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 it’s completed, you pay the remainder and the product is shipped.

So the products shouldn’t 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 doesn’t get it right? What if the product they produce is never acceptable? He’s 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. It’s 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 he’s Taiwanese, the products are made in China.

Guess what he doesn’t 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 can’t pay the tariff doesn’t make you just an idiot. It’s completely reckless and irresponsible. As well as unethical.

Or probably just another typical kickstarter. Buyer beware.