tariff math: no, a 30% tariff does not mean end consumer prices go up 30% [View all]

all politics aside, just focusing on the math --

a tariff is placed on the imported raw materials or product, not the end item as it sits on the shelf.

if i'm running a profitable business, i might import a $40 item and sell it for $100. the profit margin isn't nearly as big as it might seem, because i have to pay rent on stores, shipping and trucking and storage costs, labor, taxes, fees, insurance, advertising, etc.

tariffs generally only apply to the raw materials/goods, only. even if my sold goods are 100% imported. the effect is less if some of my raw materials are domestic; there's no tariff on trucking the goods across america to my local stores, e.g.

so let's say there's a 30% tariff on the $40 imported product; that's "only" $12. if i pass on 100% of this cost, that "only" increases the cost of the end good from $100 to $112, a 12% increase, not 30%.


as a further subtlety, a few of the "domestic" costs might actually go up with the cost of raw materials, such as insurance and financing costs, but this is a relatively small effect. similarly, some of the extra costs might be absorbed by the importer and/or the foreign seller so that they don't lose as much sales.

so the final result might be a price increase to $110, or a 10% increase.


now, that's still a staggering increase that highly distorts the market, it's highly inflationary and a major headwind on the economy. a recipe for stagflation. what i'm saying isn't meant to mitigate the stupidity and harm of all this.

i just want to get the math right, so people aren't surprised when prices don't actually go up a full 30% and thing anything magical happened, and i certainly don't want republicans taking credit for the price hikes not being the "full" 30%.