r/wine • u/hereImIs • 1d ago
How tariffs actually work is practice, from importer
I'm seeing a lot of misunderstanding of what tariffs are and how they work so thought it was important to set the record straight. Source: I have been importing wine for ten years and working in international trade for longer than that.
1) When you ship goods to the US they arrive at the port. They arrive in a big shipping container. They leave the port via truck or rail usually. The guy driving that truck has to present documentation to the gate guard in order to leave (the actual ways they do this aren't important here).
2) That documentation includes an ok (known as "clearance") from Customs and Border Patrol (CBP), the government agency that monitors imports.
3) Different goods have different requirements and documentation that must be met and entered into CBPs computer system (called ACE if you're interested). If you don't have all that documentation, CBP will not issue clearance and your goods go on hold at the port. They will not be released.
4) The system CBP uses to enter the data is complicated and specialized. So importers pay a customs broker to do that data entry.
5) The importer knows what documents are required for clearance so gives them to the customs broker ahead of time in order to avoid delays.
6) Requirements for clearance include paying all duties, excise taxes, fees and TARIFFS. Sometimes the customs broker fronts the money then the importer reimburses, sometimes CBP takes it directly. You have choices here. But the takeaway is the goods are only getting cleared for release after THE IMPORTER PAYS THE TARIFFS.
7) If you can't clear CBP by the time the goods arrive they give you a certain number of free days on the port to resolve. Then they start charging you exorbitant amounts of money per day before eventually sending your goods back to origin and charging you for the privilege.
8) To the importer, then, the tariffs are just another cost of goods sold line item. It's up to the importer to determine what the market will bear in relation to that new additional cost. Some are going to eat it. Most are going to pass it on. Which leads to...
9) Knock- on effects. We saw this during the pandemic. Businesses saw the word "inflation" so raised their prices whether their costs were inflated or not. This is what's going to happen now with "tariffs."
10) Granted, these are pretty widespread and will touch every part of the economy. But don't be fooled by companies over seas telling you they're being forced to raise their prices because of tariffs. They don't pay those costs. Importers do in order to have their goods released from the port.
11) Foreign countries may impose additional costs on foreign companies looking to export to the United States. They probably won't though because other countries know that charging your own people additional taxes to hurt another country is stupid.
12) Tariffs are really stupid.
*Edited most of my spelling
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u/FocusIsFragile 1d ago
Are we winning yet?
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u/CrazyLoucrazy 1d ago
Duh!!! We’ve got alllllll of the winning.
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u/AThousandBloodhounds 1d ago edited 23h ago
I took an international economics class in college as part of my finance degree and one of the things that became apparent after researching the historical effects of tariffs is that in terms of "value", tariffs are not a zero-sum game. One side does not gain an equal amount to the loss experienced by the other side. "Value" is actually lost in tariffed transactions, i.e. disappears from the economy, never to return. We're seeing this now, on a massive scale.
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u/Perenially_behind 1d ago
If only Trump were capable of understanding that transactions don't have to be zero-sum with a clear winner and loser.
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u/EBITDADDY007 15h ago
It’s a sales tax but most people won’t get that so this is the fastest/most politically expedient way to raise taxes on people
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u/brunello1997 1d ago
If tariffs are “really stupid” - then totally on brand. For a guy who could bankrupt a casino, seems like a brilliant play. Don’t worry, it’s the weekend so we are paying for him to play golf as he overcharges the government to stay on his property.
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u/sercialinho Oenoarcheologist 1d ago
Under 10. you’re ignoring other effects of economic unpredictability on an exporter. If their volumes might go down (even if they don’t, but the risk of it alone) margins elsewhere might need increasing. If more work needs to be put into finding alternative markets for part of the formerly-US-bound production, margins elsewhere might need to increase - especially those bound to the country where the retail price will substantially increase due to tariffs, as it’s less obvious to the end consumer where all in the chain the increase went. If their production needs to be changed to better fit new markets, the cost of that needs to be recouped somewhere.
That’s before ignoring all vertically integrated exporters who own their own importer-subsidiary.
Much of this better applies to goods other than wine, some also applies to wine. There are other price-increasing effects of tariffs beyond tariffs themselves.
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u/christerwhitwo 1d ago
I just read that Italian wine exporters were canceling their immediate shipments because of the uncertainty. This meant the big shoes and industry tastings were also cancelled. This meant in turn that the US imports cancelled their marketing here at home, and their retailers were going to be looking at empty shelves, at least in the short term.
Unbelievable that one crazy dude is behind this. Sure, he has a team of yes men pulling these plans together, but without him....
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u/hanndle_this 8h ago
I think the underlying mentality/mindset of trump is that this will boost local production of any type of but as for the US as os it in Australia that just means local production will jump and hike the prices. In theory localisation of production. But for the Americans this will be difficult as the super cheap labour from surrounding regions is also drying up. Australian beef producers said they can wear the 10% tariff sending beef over but the import customers may not so, if Americans want burgers they’ll just have to pay more.
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u/JohnnyCadillac247 21h ago
Hi another wine importer here… production cost is also increasing on most wineries. The supply chain is complex and I fully expect price increases from my wineries as the materials to produce (glass, paper, cork, etc.) goes up in price as well.
The most complex part of the tariff situation is that each state has its own compliance laws and we are bound to a three tier system. A great example is in NYS where I am required to post my pricing with the state 2 months ahead of time. So any additional tariff to my product means that I won’t be able to recoup that cost for two months. So I am forced to either eat the cost or sit on product until the price can be adjusted.
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u/sercialinho Oenoarcheologist 21h ago
Hi another wine importer here… production cost is also increasing on most wineries. The supply chain is complex
Absolutely. An economic upheaval of this degree will lead to myriad inefficiencies around the world and lead to price increases of all manner of things in all manner of places as well.
This fits well into what I really wanted to explain above -- that exporters will see higher costs because of tariffs, even in the case they're the most trivial of exporters and will not be paying them. So even if somehow costs of their inputs don't increase (though we agree many will) their operating costs will, as every current exporter to the US will at the very least be exposed to a measure of risk and risk is money (much like time is money). A simple consequence of introducing friction.
A great example is in NYS where I am required to post my pricing with the state 2 months ahead of time.
That is a fascinating bit of information I would never have guessed sitting on this side of the Atlantic. Thanks for sharing!
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u/hereImIs 1d ago
Fair point. These are of course just general rules. My point remains valid though that they are not actually paying the tariffs
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u/gypsybeer 1d ago
Here’s a little quick math for anyone that still doesn’t understand what tariffs mean.
I have 1200 cases of wine in Spain waiting to leave. One full 40’ container
Before today - the cost of taxes and duties for those 1200 cases to enter the US was going to be $2,601.03. That is due to the Craft Beverage Modernization Act (CBMA) - that gives me an import tax rebate based on specific criteria.
After today - those costs stay the same - but including the 20% tariff on the value of the wine - the total will now be $17,297.59. Not to mention that it all needs to be paid up front to get the wine released.
Basically the cost of every bottle went up $1.
A $5 import bottle would wholesale for $11 and retail for +/- $15
At $6 it now wholesales at $13ish and retails at $19
On these low priced wines there’s not enough actual $$ in the margin to take less and be able to afford 3rd party warehouse and delivery costs.
I’m doing the only sensible thing I can think of right now and drinking.
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u/Apple_egg_potato 5h ago
So as an importer your margin goes from $5 to $7 per bottle? I guess that’s good for you unless volume craters. Also, getting $5-7 per bottle or a >100% markup to your cost seems like a really good business, no?
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u/gypsybeer 5h ago
I’m not the wholesaler - just the importer. We sell the wine to a wholesaler. In this example the wine costs me $6. I sell to wholesaler for $8.50 - so GP is $2.50/bottle or $30 case. I have to pay for monthly storage. The cost for the wine to enter and to leave the 3rd party warehouse. Samples. A sales incentive to drive business. And sales get harder since the price has gone up. So monthly storage lasts longer and I’ll probably have to offer some type of DA - distributor assistance - meaning $$ - so they can offer a better price to certain customers who want to pour BTG at a specific price point.
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u/Apple_egg_potato 5h ago
Ahh ok. Thanks for the explanation
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u/brandillhole 46m ago
All great points by gypsybeer - an additional one is many companies also have debt financing collateralized by inventory (I.e. asset based lending) or rely on credit lines for inventory purchases/costs up front until you collect on sales down the line.
Increase in cost of the imported wine = increase in how much I have to borrow = increase in interest I pay to the bank for me to carry inventory (8-9% at todays rates).
If I average 100k 12-bottle cases in my inventory during the year, and each bottle is $1.00 more expensive from the tariff impact alone, I’m also going to be paying ~$100k per year more in interest to the bank (100k cases x 12 bottles x $1.00 x annual interest) all else held equal.
You factor in gypsybeer’s points above where distributors want to carry less inventory to bring their own costs down - I have to offer up more DA to move product, or demand slows from higher prices passed on to end consumers, and my costs to carry inventory all increase at the same time. Fun stuff
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u/Celtic_Oak 1d ago
I think a key point that got buried in your list is the statement “…companies OVERSEAS…”
So the impact of tariffs on those companies is that the importer’s cost goes up, not the producers.
I’m not sure that’s a distinction with much of a difference in the downstream impact, but it’s an interesting point.
AND I appreciate you calling out the whole “imma raise my prices and blame inflation/tarifs…but please nobody notice that my price is by more than the inflation/tariff impact”
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u/Son_of_a_Bacchus Wine Pro 1d ago
Also, levying tariffs is, according to the Constitution, a power of the legislative branch. Congress has granted certain emergency powers to the president and this is the mechanism that he's using to completely derail US trade policy. YOUR SENATORS AND CONGRESS(WO)MAN CAN STOP THIS! Call, write, email, do something to express your frustration. They are way more sensitive to pressure than we realize.
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u/hereImIs 1d ago
This is true. And really the only way I see this ending is with Congressional action.
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u/IAmPandaRock 22h ago
I can see it ending judicially, but we'll see.
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u/hereImIs 22h ago
I have a lot of thoughts on the politics but I'm gonna avoid on this thread because I want it to be informative.
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u/ObviousEconomist 19h ago
Aren't most of the judges republican now?
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u/IAmPandaRock 18h ago
1) they are supoosed to apply existing law, which shouldn't involve political affiliation
2) They also have money tied up in the economy
3) I wouldn't be surprised if they're looking for an opportunity to remind the executive branch how checks and balances work and that the court cannot be ignored. Ruling against an incredibly unpopular policy would be a great opportunity to do this.
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u/ObviousEconomist 14h ago
Well let's hope that's the case though that's not really how American politics works. Their ruling on Roe v Wade was an example of not caring about popularity.
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u/ignoblegrape 1d ago
Just want to say that as a WSET Diploma, living thru a real-life swot analysis is poopy. Thank you for the post. That is all.
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u/PMax480 1d ago
Just so you know, you misspelt tariff and excise.
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u/hereImIs 1d ago
Yeah, spelelng on mobile tends to get smoshed
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u/Perenially_behind 1d ago
Please fix "tariff" (vs "tariff"). This is a great post but some people will seize on the misspelling to discredit the excellent content.
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u/laner912 23h ago
Will there be a situation where the exporter may entice you to order more by "absorbing" part of the tariff or essentially lower their cost to you? Sort of, let's share the tariff but do import more.
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u/hereImIs 23h ago
Yes. Though there are rules about manipulating the declared value to CBP. I can't speak to those in detail but you aren't allowed to do fraud.
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u/Wine-and-Anxiety 6h ago
^ And this applies to EVERYTHING imported, not just wine. I work in freight forwarding, though domestically, so I'm not super involved in any of this side since the only "international" shipping I do is ground shipments to/from Canada, but I know our International team has been having a shit show of a week.
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u/mattmoy_2000 Wino 1d ago
10) Granted, these are pretty widespread and will touch every part of the economy. But don't be fooled by companies over seas telling you they're being forced to raise their prices because of tariffs. They don't pay those costs. Importers do in order to have their goods released from the port.
If the price is being artificially raised by tariffs, this changes the dynamics with consumers. The demand/supply/price relationship isn't always a simple curve and raising prices won't necessarily reduce demand enough to reduce overall income.
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u/BlueGooNC 1d ago
But when my 401k is dropping I likely think twice before spending … double whammy here, price due to tariffs going up and consumer confidence declining… this will impact many sectors
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u/mattmoy_2000 Wino 1d ago
Yes. By raising the prices they're hoping that people in the socioeconomic class above you will continue to buy. If you are buying cru bourgeois and classé Bordeaux the if the cost of a Mars bar doubled, you probably wouldn't think too much about it when you are considering whether to buy one, but there are many people for whom this would be an issue that could put them off buying. The real question is whether more than 50% of people currently buying mars bars will be put off, because if it is less than that, then it makes economic sense to double the price. Likewise there are people for whom a double in the price of a case claret is equally trivial.
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u/liteagilid Wine Pro 1d ago
That's only a scholastic or abstract argument as valid as it may or may not be.
In total raising wine costs will lower sales. Period. Certainly some brands might sell better when seen as more premium. Most wont
Someone's idiosyncratic need to raise prices bc of lower demand is a hard choice every producer must make but that creates a death loop.
In the past four days we have talked to many of our supply partners and several have volunteered to adjust pricing down to help somewhat offset the tariffs bc they don't want their wine to be//appear to be more expensive.
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u/mattmoy_2000 Wino 1d ago edited 1d ago
In total raising wine costs will lower sales. Period. Certainly some brands might sell better when seen as more premium. Most wont
I am not talking about veblen goods where increase in price counterintuitively increases demand (e.g. Cristal) I'm talking about numerical sales reducing by less than the increase in price. If you double what you charge, but the volume of sales drops by less than half, you are better off in terms of cash.
Indeed you more or less need to double only the profit margin, not the overall cost, to make halved sales neutral.
Imagine a bottle of wine costs €10 to make (and distribute etc), and you sell it for €15. If you sell 1000 units at this price, you make €5000. If you charge €20 instead, doubling your profit, you only need to sell 500 bottles to make the same amount of money.
Edit: To take this further look at the numbers for a 20% tariff. Your bottle of wine that was €15 cost your US importer ~$16.50 add 20% to that becomes $19.80 and now there's a different (smaller) pool of people who are willing to pay that - or more realistically that plus a middleman fee of, say, 50%. So the bottle of wine that was $24.75 before tariffs became $30 with tariffs. The people who are willing to buy a $30 bottle are less price sensitive than those only willing to pay $25, so boosting the price further won't have as much of an effect of reducing your customer base because the market at the new level is less price sensitive.
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u/liteagilid Wine Pro 1d ago
This totally makes sense except that increasing or decreasing production of an organic product w a six-nine month season isn't as simple as running the factory a second or third shift.
Glass, labeling and cork costs may can be adjusted vintage to vintage based on need but land costs and farming costs do not. At least not in a straight line. Wine production is simple (although very hard) in comparison to the business and timelines of it.
I heard several financial commentators say domestic sparkling wine is pretty good. Why do you need champagne. Sure But the production of it from conception to sale is 8 years minimum. 1 year at least to permit a new vineyard and plant it. 5 years till you get viable grapes. 2 years to age the sparkling wine.
Based on statistics alone the American president will be dead in 8 years. Probably 1/3 of the congress will retire for old age. The world could be a wildly different place when that new domestic sparkler goes to market and it's a wildly capital-intensive business
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u/mattmoy_2000 Wino 1d ago
Indeed, these are all valid points, but my simplified model works for stock already in hand/barrel and doesn't rely on any reduction in costs.
My point is not that my model is 100% accurate going forward - I am not an economist or anything like it - but that increases in prices from the producer are not necessarily illogical and uncaused by the introduction of tariffs.
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u/liteagilid Wine Pro 1d ago
Agree
We see this a lot w Jura wines
Several years of bad crops have led to increased cost for no other reason than lower quantity
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u/ObviousEconomist 18h ago
Numbers don't add up to me. When you sell the same bottle for a higher price due to tariffs, (1) less people well buy it (2) non price sensitive people will buy the Cristals they normally drink at a higher price not downgrade to a 30 bucks wine and (3) the increased cost goes to Trump as a tax, not profit. It's clearly a losing situation for the merchant.
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u/mattmoy_2000 Wino 14h ago
People buying Cristal are also buying cheaper stuff too, e.g. for parties or daily drinking. Just because I can't afford a Michelin starred meal every now and then doesn't mean that I never buy fish and chips or a kebab. If the price of the restaurant meal increased 20% I might think twice about it, but if fish and chips goes from £10 to £12, so what?
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u/ObviousEconomist 13h ago
You're totally missing the point. As you've said, they won't change their spending habits. That 20 buck wine becoming 30 bucks won't make them buy it just because it's more expensive. It just makes the existing cost conscious buyers find something cheaper. It's less buyers for no additional profit.
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u/mattmoy_2000 Wino 10h ago
That 20 buck wine becoming 30 bucks won't make them buy it just because it's more expensive
No, you are completely missing the point of my argument. I specifically stated that I'm not talking about Veblen goods.
The tariffs almost certainly mean fewer buyers and less profit, yes.
Winemakers raising the price they charge (under any given circumstances) does not necessarily mean more OR less profit, it depends on how many customers you lose compared to the increase in price. If you double the profit (not the price) but lose half the customers, then you are in an equal position financially to where you were previously, just with half your stock unsold in your cellar that can be sold, either as "library release" wine at some later date or as bulk declassified wine that doesn't devalue your label.
Notice, I am NOT arguing that winemakers raising prices will bring more customers, I acknowledge that it will mean fewer sales, but the relationship between price charged and profit made is not simple. If you look at an extreme argument, raising the price by one cent is unlikely to put off any customers, but if you sell a million bottles for one cent more, you will get back €10,000 more in profit. If that one cent raise puts you pricier than an equivalent competitor, however, it could mean a huge decrease in sales that would wipe out the extra profit.
My point is not to argue that all winemakers will always make more money by raising prices, but that the relationship is complex and for some it will make sense to raise prices because their relative place in the market has changed.
Simplify to two wines in competition, one from Napa one from Bordeaux, sold at a similar price, but the BDX gets a 20% tariff. For many customers the choice is obvious: stick to Napa. For those who are less price sensitive and more brand sensitive, they will continue to buy the BDX. Of these customers, who haven't already been lost, it may be worth increasing the price because they have already proven to be less price sensitive so you're much less likely to lose them as customers if the price goes from $45 to $50 (compared to the original price before the tariffs being $35 for both the Napa and the BDX).
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u/ObviousEconomist 6h ago
That's not how markets work. It's pie in the sky reasoning to think shops can simply keep raising prices to increase profits when there are less buyers. And with decreased demand shops will likely compete on lower prices just to stay afloat. That shop using your tactic will have next to no buyers especially with transparent pricing on wine searcher and other apps.
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u/mattmoy_2000 Wino 5h ago
Can you read? I'm not talking about a shop, I'm talking about wine producers outside of the USA raising prices for exports to the USA. If customers look on Wine Searcher, they'll see prices within their country all rise for that particular wine. Now you might argue that wine brands are fairly interchangeable and that someone who wanted a d'Issan might swap for a d'Angludet given that they're both Margaux, but many wouldn't because they prefer one over the other for whatever reason.
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u/ObviousEconomist 5h ago
Wow, the more you reply the more ignorance you show. Wine producers don't set prices for consumers, the shops do. You should know this by now. All your talk about the price sensitive consumer is between that consumer and the shop. And this discussion has nothing to do with whether a wine is interchangeable with another. A consumer who likes Montrose will buy Montrose at the cheapest store he can find. The shop that raises the price the most to make more profit will sell much less of it than others. It's really simple logic.
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u/hereImIs 1d ago
Someone else raised this issue above. I still think my point is valid here which is that those dudes are not paying the tariffs
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u/mattmoy_2000 Wino 1d ago
No, they are not paying the tariffs, but the change in tax might make it economically unviable not to charge more.
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u/Perenially_behind 1d ago
This is excellent. Do you mind if I use it elsewhere? With or without credit to you as you wish.
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u/hereImIs 1d ago
I'd appreciate knowing where you want to use it
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u/Perenially_behind 1d ago
Local Nextdoor. We've still got people who think that tariffs are a transfer from the exporter to the US Treasury. And wondering if tariffs should be used to lower taxes or to pay down the deficit.
Your post is valuable because it goes into detail on the steps in the process: this is what actually happens.
People who have been marinating in alternate facts for years probably aren't reachable but I'm hoping to find reasonable people who just never learned about tariffs.
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u/Kappa113 1d ago
How is the tariff expense calculated? Is it cost to manufacture, expected sale price etc?
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u/hereImIs 1d ago
Percent of declared value. You have to tell CBP how much the goods you're importing are worth. The tariffs are calculated at the rate that's set for the country of origin for those goods.
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u/Kappa113 1d ago
How is that calculated, say you are bringing in a can of soda. What that sells for individually at a grocery store is much higher than the same can that’s inside a case sold at Costco. So what’s the declared value of that?
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u/hereImIs 1d ago
The importer buys the goods from a foreign supplier.
The foreign supplier provides the importer with an invoice ( think of it like a receipt). That invoice says how much the importer is paying the supplier for the goods.
That price is the figure used to calculate all the tariffs etc. How much the importer pays the foreign supplier is the relevant value. Not what the consumer pays at the store.
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u/Apple_egg_potato 5h ago
The importers will negotiate with overseas suppliers for lower prices. If overseas suppliers don’t lower prices then they run the risk of losing volume so the ultimate burden of the tariff will be borne by domestic consumers, overseas suppliers, and potentially middlemen such as distributors/wholesalers/retailers. I’m against Trump’s tariffs but I do think foreign suppliers will also bear some of the tariff burden. Of course, tariffs are negative-sum measures overall long-term and very disruptive in the short-term.
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u/wip30ut 1d ago
i wonder if any larger wineries/co-ops in places like Italy or France will lower their prices so that their products remain competitive in the US market? Many of these go back generations so their actual vineyard costs are negligible.
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u/hereImIs 1d ago
Yeah, a winery could def eat the cost. Someone is going to pay it. The market will dictate who. Winery, importer, distributor, retailer, or consumer.
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u/Peppergnome2 1d ago
Adding to point #8, from the perspective of someone who works in the automotive supply chain, there are other potential outcomes from increased cost of goods sold. In my industry, suppliers are locked into long term contracts with customers, so we cannot increase our price to cover increased tariffs. If CoGS increases above our profit margin, and we are unable to source our raw materials and component parts domestically, production will halt and the company will potentially go out of business. This will lead to supply chain disruptions, product shortages, and increased unemployment. I agree with your point #12.