Ding Shuang, chief China economist with Standard Chartered Bank in Hong Kong, said that – together with previous US tariffs on US$50 billion of Chinese goods – a 10 per cent US tariff on US$200 billion of Chinese imports would drag down China’s growth by 0.4 percentage points, increasing to a 0.6 drop if the tariffs are increased to 25 per cent. Trade war: how will Donald Trump’s tariffs on US$200 billion of goods affect China’s GDP? | South China Morning Post
How likely is it that these tariffs will discourage purchase of Chinese goods? Many times, there is no substitute and stuff from China is dirt cheap anyway. Plus, the tariff is presumably paid on the wholesale price, so that a 10% tariff at wholesale could end up being 5% on retail if there is a 50% markup. Also, I purchased an LG refrigerator which cost as much as one made by Whirlpool in Indiana or some such place, so the markup must have been quite high. I conclude the wholesaler has plenty of slack to absorb part of the tariff.
Tariffs are levied on the FOB (free on board) cost.
Also your calculations are going the wrong way.
So a 30% tariff on FOB would add (crudely) 35% to the importers cost (sea freight & customs), which will be passed up to the next cog of the distribution chain as they try to get their margin on the increased cost.
30% on FOB would (crudely) add 60% to the retail (sticker) price.
Good point. Every entity which handles the product will attempt to mark up the cost resulting in higher prices for consumers which will tend to depress demand, which will tend to depress prices which will tend to cut profits and create layoffs. Interesting real world experiment.
Yes, tariffs will depress sales at least somewhat.
By my computation, a 10% tariff will increase the importer’s cost by 10% and if every middleman adds a fixed percentage (as opposed to fixed dollar) markup to the price, the final price will increase by … 10%. Now if each middleman is satisfied to add a fixed dollar amount as his markup, then the final price could increase by considerably less than 10%. It is still a race to the bottom.