This reminded me of an earlier headline I had read about "16 Nobel-Prize winning economists signing a letter saying that the economic policies put forth by the Republic party would ignite inflation again".
In a sane political system, we would’ve raised taxes (across the board). That would’ve slowed down consumption and allowed the Fed to lower interest rates, which would’ve raised investment. It also would’ve reduced the deficit, which would also be good for long term economic health.
Instead, we blew up the deficit and lowered taxes (but only for the really rich).
So many problems and social angst is downstream of expensive housing. Higher interest rates, fewer laborers, and more expensive building supplies (due to tariffs) is just making the housing crisis worse.
Oh and just wait until the Fed’s independence is completely gone. Our economy is galloping towards Peronism. Favored groups get economic benefits. Inflation is out of control. Competitiveness is gone. Capital flight. Rapid erosion of quality of life. It won’t be fun.
So I lived in Canada (Ontario) for 18 years, and I've been back in the US for 4. In Canada (and here) I don't see how you "raise taxes across the board" when most tech salaries (90-180k) by the time you add in sales tax and fuel taxes you're already paying 45-50% tax rate. For example, hypothetically one year I was buying a house, so no RRSP contributions that year. On my hypothetical 160k salary I paid $58k in income tax and withholding, plus 13% HST on just about every single purchase, plus something like 24% for fuel/road taxes. That means an effective tax rate of something like 45%. But we don't get pensions or anything like that, so you also need to save. A lot. If my hypothetical example doesn't sound so bad, imagine if you were making $45k. Sure, lower tax rate, but still.
I'm sorry, as bad as it sounds to everyone, it's time for the capital class to pay up, the middle class can no longer subsidize society because it's simply too small now.
edit I want to be clear that I am not against taxes, I am for social services, I'm just tired of paying 10% of my net worth every year while folks worth tens to hundreds of millions of dollars pay very little tax because they have limited "income", but then I pay for the roads they drive on and the public services they use.
Lol wait wait... RRSP is equivalent to US 401K, right? You can't contribute to your 401K the entire year when you buy a house?
Agree w/ everything you said and have similar feelings. My SO is from Toronto and we've always considered moving but mix of job market/housing prices have continually convinced us otherwise.
It's not that I couldn't contribute to a 401k/RRSP that year, it's that I needed the cash for downpayment/repairs.
You can take a loan from your RRSP for a downpayment, but only on your first home purchase.
(I was an immigrant and had owned a house in the US, and I am apparently the only person who had ever answered that question honestly, so I could not borrow from my retirement, and I had to pay provincial sales tax because of this as well).
The economic theory where using taxes to deal with demand shocks works is predicated on lowering taxes while cutting spending when things are going well in the private sector, driving down investment with high interest rates, like in the last 15 years. Especially lowering social spending, trying to get as many people into the private sector as possible so that more people work when the inevitable next crisis comes, at which point a movement in the other direction (at which point the government would have lots of saved up money and resources to both drive up demand and take care of people the private sector can't take care of anymore)
The idea is that government-generated demand is adjusted to keep total demand for the economy to service roughly constant, while keeping everyone either employed or receiving benefits. This means when the private sector does well, the government deliberately slows down, almost hinders activity and builds up a bank (you can tell: when the government does this it drives down house prices). When the private sector does badly, the government generates economic activity with their piggy bank.
Of course, the government never lowered its expenditures. I could say "after the last crisis" but with only very few exceptions the government has never lowered expenditures. In fact all governments worldwide have lowered expenditures so few times in all of history that a lot of economists can recite the entire list of exceptions by hard.
So there will be a demand shock, which will really hurt the private sector, and this gives the government a steep drop in income while the private sector is dropping employees by the thousands and everyone is screaming for government benefits, because they're really needed. Oh and meanwhile interest rates are going up, so the government is also rapidly losing the ability to borrow, which they'll try to prevent by ... driving up house prices.
What can be said? This is exactly what Canadians (and UK, and US, and EU, and ...) citizens have voted for. Governments will be forced into drastic social services cutbacks while doing everything they can to raise house prices (in fact all prices, since that's where they loan the money, which then results in the people that manage to keep jobs/keep in business produce more goods for the government)
This sounds more disastrous than it is though. All that's really lost is the ability to buy foreign goods. So if the government is able to quickly get the private sector to build/grow the goods that are currently imported there won't be much of a crisis. However ...
All there is to say is: either move to a tax haven, or enjoy.
What a wonderful success the Federal Reserve redefinition of "inflation" has been. We will never get anywhere if everything that causes price increases is called inflation. Inflation is an increase in the money supply which also happens to increases prices.
Everything has trade offs. Diluting the dollar increases prices for nothing in return. Pretty much all downside for everybody but the top. Tariffs increase prices to the benefit of domestic producers and benefits everybody.
What we will see is if prices are more important than building skills and wealth of our fellow citizens.
> Inflation is an increase in the money supply which also happens to increases prices.
This is not a definition I have seen used by academic or working economists. If the purchasing power of $1 decreases, we can say there has been inflation. Even if the money supply is constant, if shirts used to cost $10 but now cost they cost $100 due to increased demand, a supply shock, a union strike, a tax, or a speculative shirt buying bubble, it would be considered inflation in all of those cases, regardless of the cause.
It sounds like you mean monetary inflation, but the fed’s mandate is not to control monetary inflation (which would be a lot simpler) but to ensure stable prices. The mandate has no exception for non-monetary causes of price instability.
Of course measuring how much a dollar can purchases is an enormously complex and subtle task that can be approached in many different ways. But the whole argument for tariffs is that foreign producers of goods are selling them so cheaply that American producers cannot compete. So if we increase the price of those foreign goods by adding a tax on it and shift some good consumption to more expensive American producers, that’s obviously going to reduce what a dollar can purchase.
If the money supply increase slower than production, you get deflation (temporary, as deflation stop investments, which slow production), so hopefully no one important use your definition of inflation.
> Tariffs increase prices to the benefit of domestic producers and benefits everybody.
I think tariffs are a regressive tax brought on by the most economically illiterate administration in living memory.
> What we will see is if prices are more important than building skills and wealth of our fellow citizens.
So instead of it being on the shoulders of the “wealthy job creators” who definitely earned it all fair and square and should keep every penny, it’s now on the poor and the average citizen?
These are just regressive policies that lead to outright social unrest , and a horrific distribution of wealth.
>I think tariffs are a regressive tax brought on by the most economically illiterate administration
That's the kind interpretation. The maligned one is they are brought on by those who lust for power and control and realize those come from more wealth and tariffs increase wealth disparity, increasing their percentage of the whole higher even if the pie shrinks.
> Tariffs increase prices to the benefit of domestic producers and benefits everybody.
Not necessarily, and there are plenty of examples around the world of tariffs that do not do that, but instead cripple the economy. Tariffs are just one aspect. If the domestic supply is not there for one reason or another, you have the worst of both worlds, with high prices and still no re-industrialisation.
You need companies to be reasonable confident that they’ll be making money next year, and you need the situation to be stable enough to let people invest to make it happen. You need those people to be confident enough that they won’t just be crushed by a president’s friend who has more access to power than they have. You need rule of law and due process. Not a kleptocratic oligarchy.
Otherwise you’re just sawing off your leg to repair a broken ankle.
If only he could seek the financial wisdom of the former owner of his home and his long time neighbor, adviser to the rich and powerful, high school drop out Jeffrey Epstein.
Obviously we trusted the economic prowess of the author of “The Art of the Deal”, the convicted felon who bankrupted a casino and should have been barred from running for his actions on J6.
I’m glad we’re all in such tiny, bruised, felonious hands.
Shame we didn't get the actual author of the Art of the Deal, Tony Schwartz. Trump had it ghost written. I read it years ago and thought this guy is pretty cool, not realising it wasn't Trump.
In 1987 the real Trump was off in Moscow being groomed by the Russians.
Approximately all of those kinds of books are ghost-written. People with money who aren't otherwise authors only very rarely write their own books. It takes a lot of time, and business "leader" sorts especially are extremely comfortable delegating that and then putting (only) their name on it.
Trump's is unusual in that it's widely known not just that it was ghost written, but who did it. Often the real writer's name isn't known, and we can only guess at whether it was ghost written (again, the answer is almost always "yes").
It has been legal for quite some time, why do you think companies and high worth individuals provide so much money to the political elites, and quite often to both sides. It's just that Trump is quite vulgar and has thrown out any pretense, but they were all quite guilty.
Are they really that sneaky? Literally every economist who's not trying to give Trump a handy says this is the obvious outcome of tariffs (heck, the entire way that tariffs protect native jobs is by making foreign goods more expensive so native goods, which are more expensive to produce due to higher labor costs/lower productivity, are competitive).
Saying stuff like "China will pay the tariffs" was always bloviating fantasy to anyone who can stitch 2 brain cells together to make a coherent thought.
The Obama folks were correct about demographics being destiny: https://www.politico.com/blogs/politico44/2012/07/demographi.... Mass immigration killed the Mccain/Romney GOP. What they overlooked is that, the vacuum would be filled by a right wing party that looks more like the right wing parties you see in the rest of the world.
Trump, with his lying and outright vote buying (No Taxes on Tips) is the kind of right wing candidate that can win enough immigrants to be nationally viable. Blue Rose research estimates Trump tied with naturalized citizens. Little Bangladesh in Queens swung 50 points to the right from 2020. Populist rhetoric unrooted in facts is really popular among third world voters.
>> Trump, with his lying and outright vote buying (No Taxes on Tips) is the kind of right wing candidate that can win enough immigrants to be nationally viable.
But the media wasn't interested in reporting on what Harris's positions were, only on whatever Trump said that week. The same as the media wasn't interested in reporting on all the many accomplishments of the Biden administration, despite the headwinds they had to push against.
So most people thought that "no taxes on tips" was a Trump position that differentiated him from Harris.
I don’t think that it was the coverage (or lack of it) that had people associate that policy more with Trump than Harris. I think it is far more likely that Trump announcing it in June and talking about it for two months before Harris announced she also supported the policy in August was what made it seem more a Trump policy than a shared policy. The Democrats were slow to react and so - even if they decided to get on board a couple of months before the election - they were always going to be depicted as playing catchup.
The democratic party has been operating on that principle for a lot longer, because low information immigrants are also a key part of their coalition (and have been since the irish and italian immigration of the 20th century).
A lot of Muslims voted for Trump as a protest against Biden’s support for Israel. They just didn’t realize that Trump’s solution to the Gaza conflict would be to turn Gaza into a resort without Gazans.
Some Muslims, mostly Arabs, voted based on that. But heavily hindu indian cities in NJ also swung heavily towards Trump: https://www.patrickruffini.com/p/do-republicans-have-a-shot-... (“Indian New Jersey, 3% of the statewide vote, swung 14 points to Trump—a striking shift against the first South Asian presidential nominee.”). Don’t forget that, while Indian Americans are one of the most Democrat-leaning groups, a plurality also support Modi: https://www.indiatoday.in/world/us-news/story/indian-america...
Blue Rose’s (the leading dem pollster) comprehensive retrospective of the 2024 election was telling: https://data.blueroseresearch.org/hubfs/2024%20Blue%20Rose%2... (“Our best estimate is that immigrant voters swung from a Biden+27 voting bloc in 2020 to a Trump+1 group in 2024.”).
I don’t think Trump would have won Michigan without the Muslim vote. His perceived betrayal will also heavily affect the next couple of elections in that state.
As for the rest, I can’t imagine Indian Americans being happy with Trump’s treatment of India, but you probably know more about that than me.
My point is that Trump made across-the-board gains among immigrants, which is hard to explain by pointing to discrete issues like Gaza. Trump not only won heavily Muslim Dearborn but 69-percent asian Flushing. This is a consistent trend: Trump gained among immigrant groups from 2016 to 2020 as well, while losing ground with non-hispanic whites.
By contrast, Trump made zero gain among non-Hispanic whites from 2020 to 2024: https://www.pewresearch.org/politics/2025/06/26/voting-patte.... His entire vote swing came from non-whites, mainly hispanics and asians, most of whom are either immigrants or children of immigrants. How do you explain a 27 point swing among naturalized citizens while non-hispanic whites didn’t move at all? That’s inconsistent with the popular theory that this election was about inflation, or group-specific issues like Gaza.
I think the explanation instead lies in the cultural differences between established Americans and immigrants and their children. If you look around at the world, small-government Anglo-American conservatism basically doesn’t exist anywhere else. It’s unusual. But conservatism exists everywhere. And if you look at conservative leaders in Asia or Africa or Latin America, they look much more like Trump than they do Mitt Romney or George H.W. Bush. Conservatives elsewhere value order, aggressiveness against the opposition, patriarchal energy, loyalty to the clan, etc. And they don’t have the taboos that prevented gentile WASPs like Bush or Romney from aggressively attacking opponents, lying to reframe policy issues, etc. As more of the American electorate is comprised of people from these foreign cultures, the more any conservative candidate will target what these cultures value in a conservative leader.
The Trump GOP this is one manifestation of America’s long shift away from being a culturally Anglo country to being a multicultural country: https://www.nytimes.com/2018/12/05/opinion/george-bush-wasps.... This is a process that started with the mass immigration of the early 20th century: the last real WASP Republican was Coolidge. Reagan talked the talk, but his substantive policies reflected shifts away from small-government conservatism necessary to get Irish and Italian Catholics to vote Republican (who had voted 80% Democrat before). And now with Trump Anglos make such a small portion of the GOP the tip of the hat to Anglo conservatism is vestigial. He’s free to be a fully third world conservative.
The economic incidence of tariffs (like any tax) depends on elasticity. But yes, in general, some portion of the tax will be passed onto consumers. So what? Economists agree that taxing consumption is better than taxing income or capital gains: https://www.npr.org/sections/money/2012/07/19/157047211/six-... (points 3 and 4).
A tariff is a consumption tax that’s less than 100% passed onto consumers, which has the effect of discouraging imports. All good things.
It's a giant pet peeve of mine when people post a link that very superficially backs their argument, but then when you go and read it, it directly contradicts their point. Critical sentence from point 4: "Instead, impose a consumption tax, designed to be progressive to protect lower-income households."
Tariffs are the exact opposite of that, they're highly regressive.
> How do you design a progressive consumption tax? Tax only private jets and yachts?
There are lots of ways to design a progressive consumption tax, but yes, one way is to tax luxury goods at a higher rate than essentials. This is already done in many states, for example, where groceries (or at least "basic" groceries like bread, milk and produce but not prepared foods) are exempt from sales tax.
Another way is a sales tax rebate, e.g. where everyone can file for a rebate of sales tax of, say, the first $10000 of goods in a year. So poorer people with lower expenditures end up having a much lower effective tax rate.
Another way is to put some sales tax revenue towards funding UBI. This is progressive because people who consume more than average will pay more into it, and people who consume less than average will get more out of it, and busy people don't have to spend their time organizing receipts to claim their sales tax rebate.
It can would just like the sales tax deduction you can already get for income taxes: you can track them individually, or you can take a lump estimate based on your income (with exemptions for large purchases).
> Wondering why raising higher-bracket income tax is such a problem
Economists don’t love income taxes, and they really don’t love investment/capital gains taxes (see the NPR article I linked).[1]
The bigger problem is what you mean by “higher-bracket income tax.” 60% of all income is earned by the top 40% outside the top 1%: https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr.... To have the kind of welfare state the U.S. has, you need to raise taxes on those people a lot. But that’s politically impossible. In 40 years, we never managed to undo the bulk of Reagan’s tax cuts.
If you’re not willing to raise the rates on more than half your potential tax base, then you’ll need to do very steep hikes on the top 1%. Or you need to explore things like wealth taxes and taxing unrealized capital gains, which economists really hate.
The European countries realized that in a globalized economy, you have to be competitive on business and investment taxes. That’s why they heavily tax the middle class, including with consumption taxes.
[1] They don’t love tariffs either. But tariffs implicate concerns about foreign relations that are basically outside the scope of economics. The economic models simply don’t factor in the political risk of outsourcing all your steel production to a potential enemy. That’s why nearly every developed country ignores the economic consensus when it comes to things like agricultural subsidies. The political risk of not being food sufficient simply outweighs the economic downside.
> How do you design a progressive consumption tax? Tax only private jets and yachts?
I mean, at the extreme, yes (some countries do have sin taxes on those sorts of things). But for a more basic example, take EU VAT. EU countries usually have three or four VAT rates; basic essential goods are often VAT-exempt.
(This occasionally leads to fun disputes; for instance see the famous Jaffa Cake court case, or the more recent determination by the Irish Supreme Court that Subway's bread was not bread.)
[2] is only really relevant if you're in the US or Canada (most other places ban it in food, though not yoga mats) but if you are then the bad news is that while Subway may have gotten rid of it, a _lot_ of other companies still use it.
> (This occasionally leads to fun disputes; for instance see the famous Jaffa Cake court case, or the more recent determination by the Irish Supreme Court that Subway's bread was not bread.)
The FT's been having fun investigating whether Tesco's Birthday Cake or M&S's Strawberries and Cream sandwiches are subject to VAT. The answer seems to be no but maybe they should (although nobody cares, probably). Quality journalism at its best.
Even then the argument made in the article is a pretty bad one.
> Taxes discourage whatever you're taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax...
So discouraging consumption is somehow better? I mean maybe it is, but if that's the underlying argument they need to actually make it.
No, the point about the economic efficiency of consumption taxes is the main point. Making them progressive is just a way to address the perceived downside of being regressive. The fact that consumption taxes are better than investment taxes remains whether or not you do that. (Trump has floated the idea of rebates to address this.) There’s a ton of literature on this, and it led to european countries widely adopting VAT in the 20th century.
That’s also why the European countries like France have much higher consumption taxes than the U.S., while having similar corporate taxes. They want to discourage consumption.
It's not about so what, it's about how many are brainwashed not to understand the obvious thinking they'll get tax reductions, while they are getting tax increases in practice. Same ones elected these people in the first place.
ah yes, raising taxes is great when Dear Leader does it. You do realize you've got about three years until you're waxing eloquently about the virtues of eating the bugs, right?
Were you writing these posts in support of Trump during the election? Were there a bulk of supporters who agreed with you, thinking that raising taxes and debt would be actual the thrust of Trump's policy - rather than the opposite, but seemingly more popular, critiques based on fiscal conservatism?
Heck - do you think there is a bulk of supporters that agree with you now, when stated so bluntly and with the context that you consider yourself a democrat?
Can you at least understand that from an outsider watching this arc, it feels like Trump supporters are being led around by the nose - even if the changed policy positions are being championed by completely different individuals than the previously vocal supporters who were concerned with price inflation?
As for the specific policy argument - import taxes aren't the usual framing of consumption tax that applies to consumers, but rather they apply to industry as well. Taxing intermediate steps creates a drag on the economy, similar to if we taxed business revenue. And obviously doubling the price of equipment required to set up a new factory is completely contrary to the purported goal of bringing back domestic manufacturing.
(Never mind how several decades of following economist prescriptions about spherical cows in a vacuum has created an absolute mess)
Trump’s policy didn’t change. What changed is that people became reluctant to defend the actual reason economists oppose tariffs—because they think free trade is good. That’s one of those “spherical cow” arguments with a poor track record.
So critics of Trump shifted to attacking tariffs as a “tax.” But economists don’t oppose tariffs for that reason. Economists think consumption taxes are good! And there is no inconsistency between accepting higher prices for foreign goods to further industrial policy, and also opposing higher prices caused by money printing.
The "changed policy positions" of supporters that I described in the two prior paragraphs, which you seem to have just ignored. I certainly knew Trump was going to impose massive tariffs (aka taxes landing chiefly on consumers), run up the debt, and create hefty price inflation like he did the first time around. But all of the people saying they were supporting Trump because of "inflation" certainly didn't appear to. I will ask again: how was your "I support Trump because he wants to raise taxes. BTW I'm a democrat" argument received in 2024? Did you find a lot of agreement among fellow Trump supporters?
And as I also said, tariffs aren't really a "consumption tax" as economists champion, because they also tax industrial investment - exactly one of the things Trump claims his policies are meant to encourage, not discourage. But you skipped addressing that point, too.
I'm frankly stunned that there is an argument in the US about "who pays for tariffs". It's like dictionaries don't exist or something. The literal definition of the word reveals who the tax is effectively applied to.
I’ve noticed that people are often just lying as well. I’ve encountered people who will argue that someone else is paying them when it’s convenient to hand-wave away a tax increase for the sake of an argument, and later complaining about the same tariffs.
It’s very easy to be this lazy when you’re playing Politics: Tribes. There’s all sorts of dumb-shit slogans and obviously wrong memes about making china or Mexico pay, or cat boxes. They don’t care because it isn’t what’s important, it’s just expedient to parrot some shibboleths.
There is a debate. The issue is you have first order effects, second order effects, third order effects, etc. If we want to be naive, we only look at first order effects, which gives us the people tariffed pay the tariffs. If we want to be intelligent, we include first order and second order (and so on) effects. What certain people are doing is focusing on particular higher order effects while totally ignoring first order effects. For certain goods this might even be a roughly accurate analysis, but in general it is nonsense. But this is the genesis of the "debate".
The first order effect would be raising prices. A second order effect would be people buying different goods. A third order effect would be importers lowering prices to remain competitive (this is where we get the idea that they pay the cost of tariffs). Another third order effect would be local producers raising prices. A fourth order effect would be importers raising the prices again, because local producers raised prices also. The net effect is higher consumer prices, but potentially not by that much, while foreign producers might have to substantially lower prices. I don't know what good this would apply to, one that is neither a commodity, but it has a very competitive local market. Movies maybe? Trump also came up with the idea that local sellers wouldn't raise prices, and instead eat the price difference. This is highly questionable, but maybe for some goods it would work out...
You’re applying a literal definition, but in practice, it can be different.
For (a simplified) example, if there’s a 30% tariff on a $100 item, all else equal, the price is now $130, and the customer that originally would have paid $100 is now paying $130.
But what can — and I’ve experienced firsthand — happen, is that the US retailer will eat some/all of the tariff in order to not lose the customers business (or even just out of goodwill).
Also, the foreign supplier can do the same thing. Rather than lose the business of the US retailer, they may, in turn, eat some/all of the tariff.
I’ve seen both of these happen with products I’ve purchased over the past few months.
I’m not saying this happens a lot, but I don’t know that it doesn’t, either.
I’m just saying that it’s not as clear cut as the definition.
The supplier absorbing the tariff isn't sustainable, they will always ultimately pass the cost on to the consumer one way or another. And your $130 example still demonstrates that the consumer just ends up paying more.
The whole idea is to dissuade the consumer from buying a foreign product, and choosing a domestic one instead. But if there is no domestic alternative, then it is always just going to be a case of "pay more or don't have it".
Anyway I just think everyone in the US are very silly for allowing this to happen. Very silly indeed.
> The supplier absorbing the tariff isn't sustainable, they will always ultimately pass the cost on to the consumer one way or another.
I’m not arguing that it is. But passing the price on to the customer isn’t necessarily sustainable either.
And to be clear, I’m not arguing in favor of tariffs. Just saying that, in practice, it’s not always “suppliers and retailers still get their money, and the customer pays 100% of the tariff”.
> And your $130 example still demonstrates that the consumer just ends up paying more.
That example was the case when it does follow the definition. The exceptions that followed that were when it may not.
> The whole idea is to dissuade the consumer from buying a foreign product, and choosing a domestic one instead.
Not just the customer, but the retailer or manufacturer getting goods/parts from foreign suppliers.
> But if there is no domestic alternative, then it is always just going to be a case of "pay more or don't have it".
No argument, there. I’ve already seen some small businesses make the tough choice to close their doors because of tariffs.
>But passing the price on to the customer isn’t necessarily sustainable either.
It very much is in tariff loving countries. What are customers gonna do? Cry?
Even if a local alternative exists, why would they not jack up prices to be just around the tariffed prices of the imports? You don't get domestic products cheaper than the imports even if they exist.
If you pay attention you’ll see a couple of differences between what the EU does and what the US does. Your example is of a targeted tariff, directed at a specific industry, which is already present in the EU and that was deemed strategic. What it is not is indiscriminate, affecting all countries in the world and all industries with arbitrary rates that change every week.
Targeted tariffs have always existed, and the US and the EEC and then the EU were involved in a lot of trade skirmishes that did result in some barrier being put in place. This is not the same.
> But what can — and I’ve experienced firsthand — happen, is that the US retailer will eat some/all of the tariff in order to not lose the customers business (or even just out of goodwill).
Please show me retailers that have 30%+ margins that let them happily absorb all of the tariff. Walmart's margin is 3-4%.
Even if they absorb just some of the tariff, it means the customer still ends up paying more.
> we will work with Splotter to bring these in direct and if it costs us more money than originally intended we will just eat that cost. Hopefully this leads to new relationship for us and one that can be more transparent and beneficial for both parties.
> We’ve said from the beginning that we wouldn’t pass any tariffs on to our backers. And unless something truly catastrophic happens in the next couple days (knock on wood), that promise still holds. You will not be paying extra tariffs on your copy of the game.
These are just two examples that I’ve encountered personally.
Again, not claiming that it’s normal, but just saying that there are definitely exceptions to “customer pays 100% of tariffs”.
Those are for goods already sold to customers at a certain price. Their next product will include the price hike. Retail does not have the same restriction that preorders have.
The cost for sure will be greater than expected but it's not anything we would ask of our preorder customers. We did have to make a minor adjustment in price moving forward.
--- end quote ---
We don't know how much of a loss they are taking on those pre-orders.
> One more:
Another great example if you only understand what's written, emphasis mine:
--- start quote ---
We’ve said from the beginning that we wouldn’t pass any tariffs on to our backers.
But that doesn’t mean we’re not getting hit by them. We are. Hard. And the costs aren’t small.
So instead of a tip jar, we made something for you.
Introducing the Tariff Buster Promo Pack: a small thank-you gift to help us absorb the hit
While that obviously doesn’t cover the full cost of tariffs on each game, it helps us a little
--- end quote ---
Companies absorbing a hit and losing money on a one-off product is somehow "examples of retailers with 30%+ margins".
> just saying that there are definitely exceptions to “customer pays 100% of tariffs”.
These exceptions show that the only way to do that is to lose significant amounts of money to keep a promise on one-off products.
None of these exceptions show that they have 30%+ margins (quite the opposite), or that they absorb them happily (quite the opposite).
And yes, after pre-orders and backing have been fulfilled, if the companies don't fold after losing money, the product that hits the shelves will cost more.
> But what can — and I’ve experienced firsthand — happen, is that the US retailer will eat some/all of the tariff in order to not lose the customers business (or even just out of goodwill).
There are limited cases where this might happen, but when you're talking about the likes of Walmart... Supermarket profit margins are generally below 5%. There is not much scope to absorb additional costs without passing them on.
Walmart is not just a supermarket. They sell a wide variety of goods—and since my wife was in the wholesale costume industry for a while, I happen to know that they tend to have retail margins of roughly 50% (or at least, they did 10 years ago).
Walmart does tend to operate more on volume than margin, but they're definitely not stuck with grocery margins on everything.
Grandparent's 5% or less is "earnings as a fraction of revenue", which is called "net profit margin" or just "net margin", whereas your 50% is gross margin.
According to an LLM I just consulted Walmart's net margin for the last 5 years for which we have data never got above 3%.
To calculate net margin, we include every expense, e.g., management salaries, e.g., the cost (rent of depreciation) of the stores. To calculate gross margin, we include only the expense of obtaining (buying or making) the goods solds.
When considering whether a retailer can eat the cost of tariffs or must pass them on to the consumer, net margin is more relevant than your figure, which is gross margin.
As someone else mentioned, that's gross margin, ie revenue minus cost of goods sold. I think in the tech industry we tend to fixate on gross margins, on the basis that for your average SaaS there's virtually an infinite market, and other costs won't scale linearly as it is addressed, so net margin really is less important (mind you, people sometimes go a bit too far in discounting it) but for, say, a gigantic retail chain, things are different. Walmart can't just scale up its sales 10x, and even if it could it would need lots of new premises etc. For Walmart, what really matters is net profit margin, and that is low.
The article we're commenting on shows that in reality, the retailers are actually increasing their margins in the face of increased costs due to tariffs.
Not defending tariffs. I think, in this particular case, they’re mostly harmful. But I’m actually not educated enough on the subject to really have strong opinions one way or another.
My argument was that there are exceptions to the “customer pays 100% of tariffs” rule, as I’ve experienced firsthand (see examples in a response to a sibling reply).
I always surprised that people defending these tariffs don't see the conflicting defenses.
The default defense comes from Trump who has - since 1980s has pushed for tariffing other countries to raise government revenue. The idea being - America drives lot of market demand. This seems to ignore basic economic facts. Importers pay tariffs and also that corporates are all about profit maximization.
Companies might eat some of the tariffs in short term but they will always reduce costs in long term. That means jacking up prices slowly, finding ways to circumvent tariffs, using low cost - maybe even harmful but unbanned substitutes in products to name a few. Even the domestic company has a reason to hike up prices just below the price of imported goods. And also, because there is less competition domestic company might even reduce R&D because they can continue to rake in profits from local markets.
The second defense is around domestic companies. I don't think anyone will disagree that each country needs to protect its most crucial domestic industries. But in those cases tariffs ae a precision tool, not a hammer. Tariffing everything doesn't make sense except it goes back to original defense - the point is to raise revenue.
If you have two competing providers, technically one could reduce margins to wear some of the tariff to out compete their competitor. Even if that DID happen, chances are wallmart etc would STILL put up prices, blame the tariffs, and just enjoy a higher profit margin.
Essentially even in an unrealistically optimistic position, the consumer will STILL get stuck with higher prices.
it really is striking how pathetic almost all elites in the US have turned out to be, and in particular, almost all business leaders.
why is there ~zero prominent CEOs/managers on tv explaining how turning US trade policy in to a personalised autocracy of one senile old man is Bad, Actually?
The courts should solve this problem. That's their function.
However, SCOTUS has shielded the Executive branch from any consequences. The one branch that should do the thing has abandoned doing their job / the constitution.
Because the destruction of labor power is what they want, and Trump is giving it to them. Increasing unemployment means more competition for jobs. Fewer people switch jobs to increase pay. Fewer people negotiate. Higher costs mean that laborers are more precarious and more dependent on their income. Fewer people get fed up with the bosses and leave. The bosses hate us and Trump lets them control us more effectively.
They are actually getting exactly what they want unfortunately. It’s a fairly well documented phenomenon, and I admit I used the gpts to hunt for the study so apologies for the slop forth coming but the studies are real -
A classic, directly on point study is:
Tajfel, H., Billig, M., Bundy, R., & Flament, C. (1971). “Experiments in Intergroup Discrimination.”
In these “minimal group” experiments, people randomly split into trivial groups repeatedly chose allocations that reduced their own group’s absolute payoff as long as it increased their advantage over the out-group. In other words, participants accepted worse outcomes for themselves to ensure the disliked/other group got it even worse. https://ia902305.us.archive.org/23/items/15341_Readings/1534...
If you want an economics variant showing the same logic at the individual level:
• Zizzo & Oswald (2001), “Are People Willing to Pay to Reduce Others’ Incomes?” Participants literally paid to “burn” others’ money—taking a loss themselves to make others worse off.
I wonder if this applies the other way too, like how people care more that billionaire wealth outpaces their own despite their standard of living steadily marching up?
The religious devotion of many evangelicals is really quite an astonishing feat IMO (though not necessarily surprising). Trump essentially embodies everything that Jesus warned about in the Bible, and yet most evangelicals think he is the closest thing to the second coming.
> The fanaticism and cult of personality seems unusual for a living figure though.
Covid, both the disease and/or the isolation of lockdown, did some weird things to several people I know -- they just didn't come out the other side the same person. Coupled with social media and what seems like a global rise of nationalism fervor, the outlook doesn't seem good.
There's a growing amount of research on cognitive changes/decline following even mild covid infections. I think the realization that governments were so incompetent in handling a crisis and also fully willing to let people die for nothing didn't help either. Especially in those people who tend to be more fearful and less trusting in general. Fear and insecurity don't lead to people making the best choices.
> On Thursday, Walmart CEO Doug McMillon said his company's costs keep climbing: "We've continued to see our costs increase each week, which we expect will continue into the third and fourth quarters," he said on an earnings call.
This is a better source—it’s clear about where the figures come from and the degree to which we know who is raising prices versus who has yet to report. (So is the CNBC article.)
I did a Google search for “retailers raising prices because of tariffs” and the link below was the first result. Seriously, do you really think that retailers are just going to eat the cost of tariffs for the next three years?
Retailer's prices are not set to be "fair", they're set to maximize their return on the supply vs demand curve. In other words, increasing prices will generally cost them money, rather than make them money. In other other words, they expect that if they charge 5% more, they will trend towards selling 6% less.
So in general they end up stuck between a rock and a hard place in a situation like this. The most logical path forward would be to work on supporting domestic supply chains, not subject to tariffs, and helping them to gradually reduce prices through increasing both volume and efficiency.
But the problem that concept runs into is that there's about a coin's flip chance that in 3 years these tariffs will simply be reversed. And any domestic suppliers that were relying on them for a competitive edge will simply be left buried. It thus discourages any sort of meaningful investment in these domestic providers.
Retailers typically have thin margins, e.g. 2%. They're paying $0.98 to sell something for $1 so they can keep $0.02. Not all of the $0.98 is imported products (a lot of it is salaries and rent etc.), so a 10% tariff might only raise their costs by 5%. But then they're paying $1.03 to sell something for $1. Do they care more about maintaining their volume at that point? Of course not, they're going to raise price instead of making a loss. But so are their competitors, because their costs went up too, which prevents them from losing sales to the competition anyway. Then they only lose sales to customers being unable to afford it, e.g. because they have to spend more on food and then have less to spend on new cars.
This is true of most taxes in a competitive market. Competition was keeping margins low so the money has to come from higher prices or lower salaries, and salaries are sticky so it's usually higher prices. So if the tariffs are instead of some other taxes, it's just a revenue-neutral tax change, not inherently raising prices. But if the tariffs are on top of other taxes then it's a tax increase which gets passed on as higher prices.
Food is about 90% domestically produced [1], so tariffs are inconsequential there. The things that are going to be largely affected by tariffs are things like imported electronics, furniture, and so on.
The tariffs are primarily hitting the discretionary sector of products, which means people can simply stop buying them. There's also product replacement as an option. For instance the next time somebody's coffee maker breaks they end up buying a French press only to discover that not only is it way cheaper (no filters!), but it never breaks and makes way better coffee anyhow! (Pro Tip: don't use boiling water)
Coffee and chocolate are not domestically produced, nor are bananas which are like the potatoes of the fruit world in terms of how productive they are.
There are lots of nondiscretionary products that take a while to flow through to the point you notice them. The parts to repair the machines that make things for example. Or at a low level, the inserts used in mills to make things out of metal. There are other inserts available, but they aren't as good so they need replacement more often.
There actually are already domestically produced coffees in America! And if other coffees end up forced to significantly raise costs, that would increase the market share and production of these coffees. It could end up being a major economic boon to places like Puerto Rico. The link I mentioned also covered non-domestic inputs, and not just final products. It's about 4.7%.
The lion's share of imports are going to be alcohol and purchasing produce outside of season.
It seems unlikely that we can grow enough coffee in Puerto Rico and Hawaii to make up for the difference. It might be good for those producers though.
Do you mean the lion's share of food imports or imports in general? Lots of seafood is processed elsewhere and imported the US. Strangely it appears ground beef is imported to the US even though we are a net exporter of beef.
> Food is about 90% domestically produced [1], so tariffs are inconsequential there
Prices are determined at the margin. Domestic producers suddenly have less foreign competition. That lets them raise prices. (Which is what we’re seeing, though not at an accelerated rate to what food prices were doing in ‘24 [1].)
> Retailer's prices are not set to be "fair", they're set to maximize their return on the supply vs demand curve.
I would add to that statement the context of the market and competitors. Even if retailers east some % of cost increase, this is still a pretty large price increase pressure.
Fair point regarding possible tariff reversal effect on industry investment!
Rock <-USA-> Hard place. At least deflation is not going to be an issue...
It’s just a summary of the recent Q2 earnings presentations from the big retailers (the writer cites this 1st sentence). Look at those reports if you want primary sources
What do you mean by lack of citations? You mean self-linking to their own content? All the other alternatives, including the one you said "is a better source", do the exact same thing. I am having a hard time finding the ideological bias you're talking about in the El País article.
The CNBC article is actually the best, since it corroborates its numbers with their own price research.
Perhaps this is just coming from a finance background. But I’m not a fan of folks quoting numbers from “financial reports” without saying what report they’re citing.
> having a hard time finding the ideological bias you're talking about in the El País article
To be clear, I don’t allege this article has a bias. Just that I’m going to be sceptical of a paper calling something out that aligns with their priors.
I see what you mean now. The CNBC article does a better job at discussing the technical impacts, while both the NPR and El País are more oriented toward social impacts.
What is most surprising to me is the price increase for dairy products. I wonder how much of that increase, if any, is caused by tariffs vs other factors.
