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How does a 100% tariff only increase the real price of a pair of prescription $600 eyeglass by only $15?

What does President Donald Trump’s tariffs on $50 billion worth of imports from China actually mean, and how will this affect you?

The ministers of mainstream media have received their talking points from the same lobbyists who control Congress, and they are using scare tactics on the public.

“A 25% tariff on a product will raise the cost of needed goods by a third, hurting the American consumer,” one son of a billionairess announced.

“We will have shortages of needed goods,” a genius two years out of college lamented.

“There will be a trade war, like the one that caused the Great Depression,’ a fellow with a bad wig grumbled.

The last point first. The Great Depression and crash of the stock market was in 1929. The Hawley–Smoot Tariff act was passed in 1930. The Depression was the result of the greatest economic inequality in our history – until today. The Crash was not caused by tariffs enacted after the fact by the unfettered administration of GOP president (Herbert Hoover).

Cars solld to chinaArguments that tariffs cause extreme price hikes and shortages sound like common sense, but global trade today and consumer pricing defy logic.

First example, a cell phone costing $1,000 is imported into the United States with a production cost in China of $100. A 25% tariff adds a $25 tax on a $1,000 item. I realize that pencil-heads never stop trying to increase profits, but couldn’t the cell phone company settle for $875 profit – versus $900 – and just absorb the $25? And if the true tariff cost had to be added on the selling price, pushing it to $1,025, as a famous spouse once said: “What difference does it make?”

I recently bought prescription eyeglasses from a national chain, one of many owned by the same international corporation. Some investigation uncovered an internal marketing document, which explained, among other things, that price has nothing to do with the cost of goods. It’s just the consumer ‘s perception of value that matters, so if you make people think something should cost a lot, you can charge a lot.

For example, eyeglasses, that sell for between $150 and $600, actually cost between $7 and $15 to produce at the factory. All the rest is profit to spend on sales reps, ads, conferences and execs, or paying off Wall Street interest for the money originally borrowed to buy out the competition.

A theoretical tariff on eyeglass at even 100% means a cost to the company of $15 x 2, or a $15 tariff on a $600 pair of specs. Can the company absorb the trauma of only making $577.50, rather than $585 on one sale?

My favorite example of so-called free market pricing is a tiny device that costs less than $3 to produce in Mexico. An American firm buys it for $30 and provides a name – stent. The tariff at 50% would be $15, bringing the total cost up to $45 for the $2 production cost item.

Now comes the interesting price jump. The American firm sells the stent to a hospital for $3,500. With the tariff, maybe the price should be $3,515, but how greedy can you get.

Finally, someone almost about to die gets the stent inserted. Without the cost of the operation, the price of the stent alone is $10,500. To cover the tariff, will the hospital make that $10,515? Probably not, for a .0014% increase.

Most media pundits didn’t major in math, but Michael Stumo, CEO of Coalition for a Prosperous America (CPA) explains here what these tariffs mean for the US economy and what to expect in the future.

The United States has been lowering or eliminating tariffs during the past 40 years and encouraging international finance, while other nations have continued to protect local industry.

For example, Japan has long imposed a system that prevents a product’s export until at least 80% of that product’s in-country consumption is produced by national firms. For the Japanese public this stops international corporations from neglecting the goal of Made in Japan in favor of quick profits outside the country.

Finally, virtually every other industrialized nation has a Value Added Tax (VAT) that affects imported products, but not exported ones. This rewards local production, increases employment and wages, but Congress is afraid of this federal revenue builder – only because it will very slightly impair profits of big importers and retailers.

Categories: Capitalism, China, Donald Trump, fair trade, Inequality, Trade

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