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Good morning. One thing to point out (it doesn’t negate the analysis, but it is something most get wrong, including the media talking heads and a large percentage of ‘economists’) is that as a general matter, 100% (or any percent) tariff is not applied to the retail sales price.

Tariffs are typically applied at the ‘first sale price’. In other words, the toaster purchased via Amazon costs $60. But Black and Decker built the toaster in China and then sold it to the first level of distribution in Hong Kong for $14.00. Hence, a 10% tariff on the first sale price would add $1.40 to the cost of the toaster.

Once the toaster makes its way through the supply chain and is presented to the consumer at $60, if the full 10% tariff is added on top toaster now costs $61.40. And that assumes the retailer passes on the cost

That’s an increase of .0066, a far cry from 10%. Obviously the impact is far greater at 100% than 10%. But with one exception, I’ve never heard or read anyone or anything that gets this issue correct.

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That is true, but there is another thing to add to that. Whatever price it comes in at with the tariff added then gets marked up, so the tariff gets marked up, too. Since the markup often doubles the price, the tariff gets doubled if the retailer buys directly from China. So, the tariff may be charged on a price that is half retail, making it so you get half as much tariff, but then the tariff gets doubled when it is marked up, and you're right back where you started. Sometimes there are a few markups along the way as you describe, of course, in which case it's going to depend whether Walmart and Costco buy direct from the factory in China or they buy through a middleman or two outside of China and the US. If the middleman is in the US and buys directly from the Chinese manufacturer, his purchase price gets the tariff. He, then, marks that up to the retailer, and the retailer marks it up again to the consumer.

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