No, a 50-percent tariff doesn’t mean a 50-percent price hike

[mystery-ak]

April 11, 2025
No, a 50-percent tariff doesn’t mean a 50-percent price hike
By Randy White

The tariff doomsday machine is roaring again.  This time, it’s over talk of a 50% tariff on certain imports.  Predictably, the panic-peddlers are out in force, warning that such a tariff means retail prices will skyrocket 50%.  It’s an easy line to chant, but it’s wrong — flat wrong — and anyone with a basic grasp of economics should know better.

Let’s make one thing clear: a tariff applies to the transaction value, not the final retail price.  The transaction value is what the importer pays the exporter, plus freight and insurance.  That cost is just the first step in a long supply chain.  By the time a product reaches the consumer, it’s been marked up to cover domestic shipping, warehousing, employee wages, utilities, sales tax, and profit margins for every hand it passes through.  The tariff is just one input among many.

Take a simple example.  A retailer imports a widget with a $100 transaction value.  Add a 50% tariff, and the cost to the importer becomes $150.  That importer then sells it wholesale — perhaps at $200 — to a retailer, who marks it up again to $300 for sale.  That $50 tariff is now 16.7% of the retail price.  Even if every penny of the tariff is passed along, you’re not looking at a 50% increase in retail price — you’re looking at something closer to 17%.

But here’s the kicker: tariffs are not always fully passed on to the consumer.  Importers and retailers know they can’t raise prices beyond what the market will bear.  Sometimes they absorb part of the cost, cut expenses, renegotiate contracts, or shift to different suppliers.  The market reacts; it doesn’t just lie down and take it.

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[IsailedawayfromFR]

There are idiots in Congress that do not understand the difference.

Hakeem Jeffries

This Trump tax, these reckless tariffs will cost the American people thousands of dollars a year. It’s the largest tax increase on the American people since 1968. This is what Donald Trump’s presidency and Republicans in control of the House and the Senate are delivering to America, not lower costs. Not a more prosperous economy. Not the golden age in America. Economic disaster.

Unfortunately, even all Republicans do not understand the difference either

Former Vice President Mike Pence warned about the economic and political risks of the Trump administration’s sweeping reciprocal tariffs on other nations, calling them the “largest peacetime tax hike in U.S. history.”

[The_Reader_David]

Even leaving aside mark-ups after import, the tariff only raises the cost of the item (or raw material) at the point of importation and does not raise transport costs or (for raw materials or components subject to tariffs) the cost of processing into finished goods.

Nonetheless, the tariff is being paid, not by foreign countries as Trump asserts, but by Americans, either the consumer to the extent it is passed on, or by American businesses to the extent they do not pass it on.  Nor does it garner for the government the amount charged in tariff (unless it is fully passed on by the importer and the product has highly inelastic demand) since it becomes a cost deductible from the income of the business before taxable profits are computed (which profit will thus be less unless the cost is fully passed on without the resulting price increase decreasing demand).

[Bigun]

Even leaving aside mark-ups after import, the tariff only raises the cost of the item (or raw material) at the point of importation and does not raise transport costs or (for raw materials or components subject to tariffs) the cost of processing into finished goods.

Nonetheless, the tariff is being paid, not by foreign countries as Trump asserts, but by Americans, either the consumer to the extent it is passed on, or by American businesses to the extent they do not pass it on.  Nor does it garner for the government the amount charged in tariff (unless it is fully passed on by the importer and the product has highly inelastic demand) since it becomes a cost deductible from the income of the business before taxable profits are computed (which profit will thus be less unless the cost is fully passed on without the resulting price increase decreasing demand).

Everything you say is true and the end result will be less importing of foreign made goods.

[IsailedawayfromFR]

Everything you say is true and the end result will be less importing of foreign made goods.

And that is a good thing as America will relish clawing back all those jobs, and the tax revenue the wages generate.