The great tariff kerfuffle

US domestic imports are $3.4 trillion. So let’s suppose tariffs end at 15% on average. They should go lower as exporting countries negotiate their own deals, so 15% seems like a reasonable estimate.

But imported goods are only 20% of domestic consumption. So the effect on the US pocket book is a 3% increase in costs. About equal to one year of inflation…..one time.

But of course this is a maximum effect. Chat estimates somewhere between 70% to 100% will be passed to consumers. The way the auto companies have been holding their prices suggests it might even be below the range. The advent of tariffs is a motivator to make some ‘difficult’ cost savings and preserve pricing. I don’t think 60% is unreasonable as retailers put pressure on manufacturers who put pressure on suppliers.

That scales the effect back to 1.8% one time. But there’s more, there is often the alternative of a cheaper but still very satisfactory domestic alternative, which might even be below the cost of the import without the tariff. Again putting further pressure on exporters to maintain prices.

Quite likely the tariff effect will be somewhere between 1% to 2% as a one time effect on the economy. It will also create some shift towards domestic alternatives and considerable investment in the US to serve the attractive US market without tariffs. And in addition there is the tariff revenue of 15% of $3.4 trillion or $510 billion into the government coffers, which could reduce the budget deficit by 25%.

How bad a deal is this really! That hinges more on relationships. Will this drive the US and its traditional allies apart. Or will it foster closer engagement through investing to serve the US market and opening of foreign markets to US goods?

That question will take some time to answer. But the the prospect of losing the US market may very well cause it to be valued more not less. And while some of these discussions have turned sour, Canada for example, others suggest new relationships are being forged.

Almost 50% of America's international sales revenue comes from these sectors.

They are not included in America's GDP because they are billed outside the United States. (Often in Ireland).

What Trump wants is to be self-sufficient, but still allow US companies, such as Facebook, to sell to international markets.

Companies like Microsoft are needed more than a company like Facebook, which is just a website that entered the market early on.

Another funny take. The EU has accepted a zero tariff on US goods because there is no demands for them. On the other hand, there is a demand for EU goods on the US markets. It seems that the US goods best prospects to sell is to eliminate all competition. And CEOs answer to their shareholders, they must ensure a profit margin. Firms can only suck it up to a point. As stated already, most of them will look to recoup the cost of the US tariffs on other markets by hiking the price there.

As to bringing allies closer, it is not the path that has been taken. Liberalism is marked by the slavery they were born out of. Life as a slave owner is sweet, it is not as a slave. People did not volunteer to be slaves, a permanent segment of population had to take it for the rest in order to ensure stability.

The deal forced on the EU has pushed EU citizens toward the slave side, EU citizens are going to work in order to fund the US debt and their trade deficits (as if the EU debt was not enough) In addition, EU citizens will probably have to accept to recoup the costs of the US tariffs when prices are hiked on the EU market. EU citizens are in shackles right now; And if it was not enough, the EU will probably lose jobs as EU firms outsource the production of goods for the EU market to the US. It is going to be fun.

But profits of US tech companies channeled through Ireland are included in US GNP. Gross National Product vs Gross Domestic Product. International tax strategy for multinationals is another interesting area. It’s one thing that a totally independent entity like Switzerland can act to siphon off profits with reduced tax consequences. But having Ireland doing that on profits made in France for example, is an odd EU anomaly.

It surprised me that Trump did not try to move operations from Ireland to America to invoice from the US.

That would be something like 22% more tax money from Big Tech companies- but perhaps it favours shareholders to invoice from Ireland to avoid paying corporate tax altogether (or a meagre 0.3%)

Agree, but these things are so delicate…. get the Mag 7 up in arms his path was much harder. The same thing with ‘carried interest’ another tax quirk pretty much targeted by every politician until the fund raising implications are explained to them.