President Trump continues with extensive rates for the best trading partners in America. From Tuesday, companies that bring products to the United States will pay a rate of 25 percent from Canada and Mexico; Importers who bring in products from China pay another 10 percent on top of existing taxes.
The president has insisted that these rates will not increase the prices for American consumers and that if someone pays the costs, this will be abroad.
But a simple assessment of how rates work suggests that this is not the case. This is what you need to know about who pays.
Who pays rates in advance?
A rate is an extra surcharge that is placed well when it comes to the United States. It is the so-called record importer-de companies that are responsible for importing that product-this physical rates pay to the federal government.
Many importers of record are registered in the electronic payment program of the government and have tariff costs that are automatically deducted from their bank accounts if they bring products to the country. Tarief income is collected by American customs and border protection, although Mr Trump has driven the idea to set up a completely new agency to treat money that has been earned from his rates.
Importers of record can be of any nationality. They can be American companies or foreign companies with or without an American presence. It can also be customs agents who work on behalf of other companies to handle their import and export.
But Richard Mojica, a customs address at Miller & Chevalier, said that recorders of records are usually owners or buyers of goods and 'mostly American companies'.
Many American companies have expressed frustration about the frequent claims of Mr Trump that pay abroad for rates and say that they pay those taxes themselves.
Arnold Kamler, the chairman of Kent International, a company that produces bicycles in China and in South Carolina, said he has paid rates on both bicycles and parts he has imported since Mr. Trump's first round of Chinese rates imposed in 2018.
“The Trump government was very proud to say that China pays the rates,” he said. “I was always very quick to say, well, if someone in China wants to pay for it, I would be happy, but we pay it.”
Who ultimately bears the costs?
The next question is who will ultimately bear the costs of the rates. The importer can choose to absorb the costs, but that would eat in his profit. Some importers say that paying a rate of 25 percent would completely erase their profit margins and put them bankrupt.
If importers do not want to absorb the costs of the rate themselves, they have two other options. They can try to force the supplier who sold them the goods to lower their prices to make up for the rate. Or they can pass on the costs to their customers, in the form of higher prices.
Every case is different. The results are theoretically dependent on the market power of a company, or how much influence it exerts on other companies. If an importer is a large, powerful buyer of a product, he may force his suppliers to eat the costs of the rate. But if it is a small company that orders low amounts of goods, it is probably not possible.
The rates that Mr Trump hit on foreign products in his first term offer some illustrative examples. For those he put on hundreds of billions of dollars of goods from China, various economic studies have shown that most, if not all, of those costs were passed on to American consumers.
The rates that Mr. Trump has put on foreign steel, may have worked a little differently. One 2020 paper suggested that, a year after those rates came into force, only about half of the costs were passed on to the consumer.
Mr Kamler of Kent International said that the rates that Mr. Trump had put on products from China had forced him to increase his prices. “And they say this is not inflationary,” he said. “It's just not true.”
Having the costs of a rate that is passed on by the consumer may seem like a bad thing. But Wendy Edelberg, a senior fellow at the Brookings Institution, said it is actually central to the whole idea of a rate.
“The point of rates is to increase domestic prices,” said Mrs. Edelberg. The typical argument for imposing rates is that American manufacturers cannot compete with the cheaper import price and can only be healthy and profitable if the price of a good is higher, she said.
The idea of increasing prices is “ingrained why you are imposing a rate,” she said.
How much can this cost American households?
Economists say that companies will probably pass on at least some of the costs of new rates to American consumers to try to retain their profit margins.
Estimations of the Tax Foundation, a think tank that prefers 2034, estimates the group.
These estimates do not include the extra costs of another change in the Trump administration -removing what the mini -exemption is called, so that shipments below $ 800 can be in the rate of the United States. That change will in particular be impactful for products that enter the United States from China, because it means that shipments younger than $ 800 are for the first time subject to the rates that Mr Trump has set to China in his first term.
One thing that people often understand incorrectly is that the rate is usually not charged on the full sticker price of a good that you would see in the store. Instead, the reimbursement of 10 percent or 25 percent will be charged on a lower 'import price' that the company pays to bring the product to the country before the price is marked at the retailer.
Still those prices are correct. Michael Jeppesen, a manager in the shoe industry who previously worked for Adidas, Payless and other companies, gave an example. A few sneakers can cost $ 20 to produce in China and $ 1 to send across the border, he said. The shoe importer would pay the rate – let's say 20 percent – for that price, add about $ 4 and bring what the industry calls a “landed cost” up to $ 25.
The importer roughly doubles that price to sell it for $ 50 wholesaler at the shoe store, and retailers in turn double their prices to ask American consumers on average about $ 100 for the shoes.
If the rate is increased from 20 percent to 30 percent, importers now pay $ 6 in rights instead of $ 4. The landed cost price becomes $ 27, which translates into a wholesale price of $ 55 and a sticker price of $ 110 in stores . So an increase in rates by 10 percentage points has added around $ 10 per pair of shoes for the American customer, he said.
If shoe companies do not pass on extra costs to consumers, their profit margins will fall. And Mr Jeppenes said that brands that need profit margins to pay for their sales forces, distribution channels, product innovation and other costs.
What are the costs for the US economy?
Mike Short, the president of Global Forwarding at CH Robinson, a transport company that sends products throughout the country, said that the effect of rates on industry would not be if turning a switch from the economy.
Even with the new rates, he said: “Freight still has to move, production lines still have to run and consumers still expect full shelves.”
In the longer term, however, economists expect rates to drag the economy because both consumers and companies are forced to reduce their purchases of foreign articles with higher prices. Analysts at Goldman Sachs have estimated that rates on Canada and Mexico would result in an increase in core prices of 0.7 percent and a reduction in the gross domestic product of 0.4 percent.
Researchers at the Peterson Institute for International Economics in Washington estimate that a rate of 25 percent Canada and Mexico would become the most difficult, but would slow economic growth and accelerate inflation in North America. If you add the rates from China, the gross domestic product of the US would fall around a third of one percentage point by 2027, they estimate.
Mr. Trump has remained steadfast instead that if there is pain, it will be worth it.
“Will there be some pain?” He wrote on social media on Sunday. “Yes, maybe (and maybe not!). But we will make America great again, and it will all be worth the price to be paid. “
