alt Hacker NewsI don’t buy the blanket statement that the consumer always pays the tariff. It depends on what alternative companies have. If a company can purchase the same clothing from Chinese, Vietnamese, or Mexican vendors, a tax on China only could make the Chinese vendors lower the price or risk losing the business.
However, a blanket tax on every country, regardless of available alternatives, would leave businesses with fewer options and make it more likely that the cost is passed on to consumers.
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> If a company can purchase the same clothing from Chinese, Vietnamese, or Mexican vendors, a tax on China only could make the Chinese vendors lower the price or risk losing the business.
This example implies producers are already in competition with one another, so it's unlikely that any of them can lower the price much. On the other hand, if some producers leave the market due to the tariffs, then there's less competition overall and the other producers can charge more.
The objective reality of the situation is that there is a transaction between a buyer and a seller. That transaction is what pays the tariff, VAT, property transfer tax or whatever vampirical suckage by whatevername.
Both transacting counterparties are robbed.
How that is distributed between them is a matter of which has more alternatives. E.g. if the seller has lots of prospective buyers, most of whom are not subject to the tax, then the market price they demand is not sensitive to the rare buyer who does pay the tax.
If a big fraction of the seller's prospective buyers face a tax, then it makes their product or service look more expensive to a good chunk of the market, which exerts downward pressure on the price. The downward pressure on the price means that the seller effectively pays some of the tax, through lost revenue.
So, the transaction pays the tax as such, but how much of it is distributed between buyer and seller depends on the degree of influence of the tax on the price point.
The concept you are describing here is "tax incidence" [1].
Tariffs are taxes.
I'm sure lots of hours will be spent researching the incidences of these across many industries.
As you note, one major factor is the presence of substitutes, but there are several others.
This is true, but the amount of production in China dwarfs everyone else, and definitely what America can bring up anytime soon, so two consequences:
A. Tariff for Chinese goods will be reflected in consumer prices pretty much directly.
B. Domestic suppliers if the same goods have very limited capacity, giving them the pricing power to raise their prices by the tariff amount, and take it as extra profit.
Take for example cars. We will see American cars go up by the same amount as imports as long as they are oversubscribed on capacity.
Of course! That definitive statement is rhetoric.
The payer of a tariff is decided by the relative elasticity of supply and elasticity of demand.
Sometimes the seller will eat it. Sometimes they buyer will eat it. Sometimes the product wont get made or sold.
For taxes to work in raising money, they have to be paid. So, if the goal is to make revenue from the taxes, then raising costs is expected?
If the goal is to incentivize alternatives, then the tax has to be such that it raises the price above the gap there now. So, even if you do drive people to an alternative source, the new price will be higher than the old. (Unless the thought is that people were choosing to not buy the cheaper source to begin with?)
I suppose you can argue that some suppliers have such a margin that the tax could be an effort to get them to cut into that? I have not seen evidence that that is the case?