What will the impact of prospective -- and possibly impending -- U.S. tariffs be on audio gear?

[a4eaudio]

Indeed, but some people in the US really don't know how this stuff works, and assume we can just tax Chinese factories as much as we want with impunity.

Just a wild guess that about 50.5% of people in the US don't know how this stuff works.

 

[Chrispy]

It depends on how brands want to manage their pricing vs. demand... the basic impulse is to try to keep your margins the same, but at the same time you may need to give up some margin to keep revenues steady, then again your competition is also raising prices, so it becomes more complex and the exact impact on any single product is ambiguous.

But the basic outcome I'd expect is that for every dollar producers pay in tariffs consumers probably pay at least that much.


Indeed, but some people in the US really don't know how this stuff works, and assume we can just tax Chinese factories as much as we want with impunity.

That's somewhat my point, the margin doesn't change by "x". Lots of other costs involved in a final landed US price. Yes, generally the price will only go up enough to cover extra expense like a punitive duty. Our newly elected president doesn't apparently understand how this works let alone most people who have no international experience at all....but I figure when he buys his crap Chinese clothing he buys DDP and has no idea what the duty was.

 

[wwenze]

How price-inelastic can you really get in the presence of

a) High rent and low wages
b) Local alternatives

In the case of fully price-inelastic, the total cash outflow to China remains the same. Consumers pay more tax yes, but if you're really fully price inelastic that means you do not care nor buy less nor buy alternatives, so wouldn't it be self-contradictory to say you care? Today even basic food is price-elastic, just ask millennials.

And c'mon, don't get politically smart here, something happened 3 days ago precisely because of that. Let's not bring the ratio war here, this forum is successful because of high signal-to-noise ratio, and we don't want to include screaming and calling names as a debating method.

 

[DVDdoug]

The greedy government has to get money somewhere!

It looks like China will be targeted but China isn't the only cheap-labor country.

It's odd that everybody recognizes that terrifs are added to the cost of products but a lot of people don't see it with other taxes. One way or the other, we are going to pay and pay pay!

For the first 100 years of the U.S., the government was funded by terrifs and the economy did pretty well but they didn't spend as much. And we were on the gold-silver standard so they couldn't print money from thin air. Now they can print as much as they want, and whatever isn't paid for with taxes is paid for with inflation. And no, our kids are never going to "pay off the debt".

 

[Todd k]

tariffs are a horrible idea. the country of maunufacture never pays the tariff . the importer pays the tariff who just passes the cost increase to us. someone earlier nailed it . there is no good history that shows that tariffs work

 

[Chrispy]

The greedy government has to get money somewhere!

It looks like China will be targeted but China isn't the only cheap-labor country.

It's odd that everybody recognizes that terrifs are added to the cost of products but a lot of people don't see it with other taxes. One way or the other, we are going to pay and pay pay!

For the first 100 years of the U.S., the government was funded by terrifs and the economy did pretty well but they didn't spend as much. And we were on the gold-silver standard so they couldn't print money from thin air. Now they can print as much as they want, and whatever isn't paid for with taxes is paid for with inflation. And no, our kids are never going to "pay off the debt".

We are the government, tho, and yes, we have gotten greedier than productive to an extent.

Yes, the government largely survived on duties (and some fairly high ones in some cases), but the itch to spend/expand/militarize overcame that

 

[Chrispy]

tariffs are a horrible idea. the country of maunufacture never pays the tariff the importer pays the tariff who just passes the cost increase to us someone earlier nailed it there is no good history that shows that tariffs work

It can somewhat equalize prices compared to domestic goods....ideally. Hasn't really worked out, tho.

 

[wwenze]

there is no good history that shows that tariffs work

Depends on the end-goal.

If the end-goal is the make heaps of tax revenue, check out Singapore's car ownership ARF and COE system. The international free-market fighters are curiously silent.

 

[Somafunk]

It depends on how brands want to manage their pricing vs. demand... the basic impulse is to try to keep your margins the same, but at the same time you may need to give up some margin to keep revenues steady, then again your competition is also raising prices, so it becomes more complex and the exact impact on any single product is ambiguous.

But the basic outcome I'd expect is that for every dollar producers pay in tariffs consumers probably pay at least that much.


Indeed, but some people in the US really don't know how this stuff works, and assume we can just tax Chinese factories as much as we want with impunity.

Could be quite a hit to uk exports to the U.S. as well, a possible £22b hit to our economy, I hope saner minds will prevail

Trump tariffs could cost UK £22bn of exports

The UK could face a £22bn hit to its exports if Donald Trump carries out his tariff threats, researchers say.

www.bbc.co.uk

 

[Chrispy]

Depends on the end-goal.

If the end-goal is the make heaps of tax revenue, check out Singapore's car ownership ARF and COE system. The free-market fighters are curiously silent.

That's really got little to do with international trade, tho.

 

[jhaider]

I heard from a very trustworthy source that:
- China will pay the tariffs
- Prices won't go up
- Tariff revenue will significantly reduce the federal deficit and we will get tax breaks

With the increase in disposable income from the tax cuts and no increase in prices, we should have a golden age of audio enjoyment.

When you’re famous they let you do it.

 

[JustJones]

I hope saner minds will prevail

Now that's hilarious.

Bets on how long this thread is up?

 

[a4eaudio]

In the case of fully price-inelastic, the total cash outflow to China remains the same. Consumers pay more tax yes, but if you're really fully price inelastic that means you do not care nor buy less nor buy alternatives, so wouldn't it be self-contradictory to say you care? Today even basic food is price-elastic, just ask millennials.

A perfectly price inelastic demand would imply there is no alternative for THAT product. For example, something close, would be insulin for a diabetic. (There are some alternatives to insulin). An increase in the price of insulin will not decrease the quantity demanded very much. HOWEVER, if a person spends more money on insulin, they have to spend less money on something else.

 

[Somafunk]

Now that's hilarious.

Bets on how long this thread is up?

I think/hope it will be tempered down once the initial “dust” settles, here’s hoping as it’s the consumer who suffers in their pocket.

 

[fcracer]

Will such tariffs manifest as a humongous sales tax on purchases from China-based vendors if/when actually enacted? How about the many North American and European manufacturers that are currently and entirely dependent on Chinese manufacturing and assembly services to keep prices within reach of less-than-prosperous "entry-level" audio enthusiasts? Is it possible we're about to witness the end of (forgive the pejorative) "Chi-Fi" and/or adequate and readily affordable audio gear in general?

At first, costs will be passed through to consumers. Medium term, Chinese manufacturers will setup intermediaries in countries with favourable tariffs treatment with the USA and assemble the final product there to reduce/avoid the tariff. Costs will come down a bit but not to where it is today. When that no longer works, longer term, the same companies will move more of the manufacturing to the country with favourable treatment. In all scenarios, costs will increase for consumers.

 

[Chrispy]

At first, costs will be passed through to consumers. Medium term, Chinese manufacturers will setup intermediaries in countries with favourable tariffs treatment with the USA and assemble the final product there to reduce/avoid the tariff. Costs will come down a bit but not to where it is today. When that no longer works, longer term, the same companies will move more of the manufacturing to the country with favourable treatment. In all scenarios, costs will increase for consumers.

Could be. Maybe they'll just say fuck off.

 

[a4eaudio]

At first, costs will be passed through to consumers. Medium term, Chinese manufacturers will setup intermediaries in countries with favourable tariffs treatment with the USA and assemble the final product there to reduce/avoid the tariff. Costs will come down a bit but not to where it is today.

Note again, the Chinese manufacturer does NOT pay the tariff (or much of the tariff) and doesn't need to do anything to avoid the tariff.

The importer, if large enough and influential enough, could get the Chinese manufacturer to not fully manufacture the product and have substantial transformation take place in another jurisdiction. This is relevant for the automotive industry and Apple, but almost surely not the audio industry.

See Rules of Origin and Substantial Transformation HERE.

When that no longer works, longer term, the same companies will move more of the manufacturing to the country with favourable treatment. In all scenarios, costs will increase for consumers.

Not sure what you mean by "the same companies". Chinese manufacturers will not move manufacturing to other countries. However, if a multinational company (e.g., General Motors) has manufacturing plants in China then they may build plants, or move production, to other countries. Note, however, in the current US situation the tariffs are no longer specific to China but to anyone who has a comparative advantage to the US. GM has production facilities in both China and Mexico and could shift production to Mexico, except that tariffs are also being threatened to be placed on Mexico. Although this is likely bluster given NAFTA 2.0 (USMCA).

As much as we all love audio, I think the likely outcome for audio-related stuff is tariffs paid for by US importers and born by US customers.

 

[a4eaudio]

One other thing that is not obvious.

1) If a company shifts from a Chinese supplier to a Mexican (or wherever) supplier. It is NOT cheaper to manufacture in Mexico or the company already would have been doing that. So they now import a more expensive product and raise prices on US consumers. But no tariff revenue is raised because it was avoided.
2) The real goal of the tariffs is to move production to the US. Why was production in China? Because it was cheaper. We move production to the US and the cost of production is higher. The company passes on these costs to US consumers. But no tariff revenue is raised because it was avoided.

Note the one thing in common in every scenario in the last 39 posts...higher prices for US consumers and lower profits for US companies.

 

[johny_2000]

It can somewhat equalize prices compared to domestic goods....ideally. Hasn't really worked out, tho.

Think about equalizing domestic prices for imported SMSL/Topping etc. products with PS Audio/Benchmark prices? That would be a lot of tariffs.

 

[kemmler3D]

Bets on how long this thread is up?

As long as we can keep the discussion to impacts on prices of audio equipment and the theoretical / factual basis for those thoughts, I think it's OK. If we start discussing the personages behind potential changes in import taxes then I think this thread goes poof.

While I have strong opinions about ...things... as do many, I appreciate this site as a refuge from discussing or even thinking about that stuff, so thanks for everyone's restraint in staying on one side of the political discussion line here.

1) If a company shifts from a Chinese supplier to a Mexican (or wherever) supplier. It is NOT cheaper to manufacture in Mexico or the company already would have been doing that. So they now import a more expensive product and raise prices on US consumers. But no tariff revenue is raised because it was avoided.

Indeed, I guess it doesn't go without saying that shifting production around isn't expected to save the consumer anything.

In econ 201 (I think it was) we were told that the main justification for tariffs or other protectionist trade policies were to protect strategic or nascent industries. I.e. you wouldn't want to put all your eggs in one (foreign) basket when it came to food, medicine, or other necessities, so the immediate economic rationale for taxing something (or not) falls by the wayside.

there is no good history that shows that tariffs work

Tariffs can work for some things, but the primary valid use for them is protecting domestic producers from foreign competition, basically putting a thumb on the scale in terms of price.