Originally Posted by Everett Adams
Tariffs is a tax on citizens by a different name. In some cases they are necessary, but in most cases they are stupid and counter productive. I'll tell a simple story to show how stupid they are. Bill Smith, and his small family of three, ran a vegetable farm in Canada. A friend of his, Tom Jones and his family of twelve had an orange grove in a Southern State. They decided to sell to each other at farm gate prices because it would be cheaper than paying wholesale and retail prices. Tom needed $100.00 worth of mixed vegetables per month for his large family, Bill only needed about $20.00 worth of oranges per month for his small family. It worked well until government put a 25% tariff on Tom's purchase, so now he had to pay $125.00 for the same vegetables. Canadian government decided to slap a 25% tariff on Bill's purchase, which now cost $25.00. So the governments just added the tariff money to their coffers, and Bill and Tom's cost went up, the only ones to gain were the respective governments.

Now here is a case when tariffs make sense. John Nobel had a business making hunting knives. He paid $20.00 and hour to his employees who made about ten knives and hour each, meaning his labour cost was about $2.00 per knife. He decided to move his operation to China where he only paid $2.00 labour per hour, which cost .20 cents per knife. Giving him a $1.80 per knife advantage over other knife manufacturers back in the States. If the US government slapped a tariff on John to take away that advantage, it would make sense. Other than that, it was a great way for governments to make money without the stigma of directly taxing their citizens.

Hey Everett,
thanks for the fantastic explanation on how tariffs work … or don’t work. I really like the way you described things.

Many Americans think that only certain car models will be affected by the upcoming car tariffs. Every car built in the U.S. includes many parts from other countries. Current plans call for a May 3 start for 25% tariffs on car parts. So basically, all cars will be affected. Some more, some less. I worked half my life in Product Marketing. Manufacturers create lines of products and within each line they have different models or variants: entry level, mid-class and expensive top-level models. Due to these new tariffs, it could happen that an entry-level model gets a much harder tax hit than a top-level model. What surely won’t happen is that top-level cars will sell at a lower price than the entry-level cars because of the tariffs. After the new taxes are in place the Product Marketing teams of every car company will sit together and re-evaluate their model strategy, which includes pricing. We won’t see one specific model becoming more expensive because of the tariffs. It will be more like a blanket price increase over all models. Experts project ALL cars that today cost 40,000$ or more will become at least 8,000$ more expensive no matter where a specific model is built. And even carmakers that hardly get hit by the tariffs will increase their prices. If the competition has to raise prices by 8k, they would be dumb if they wouldn’t improve their margins by raising prices as well. I couldn’t say it any better than you did: tariffs are a great way for governments to make money without the stigma of directly taxing their citizens. This all might lead to a recession in the auto industry. We'll see.