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Let’s explain tariffs so that even a baby like trump could understand.
If an item is sold for $1 and you put 100% tariff on it, it now costs $2 for a consumer in the US to buy. The government doesn’t get to take the $1 that the company is selling it for, they still make their $1 regardless of the tariff. All this does is force the US buyer to pay more.
I guess he could understand it if this is designed to funnel more money to the government but it’s gonna start impacting his tech bro handlers.
It makes a lot of sense if the government money is now his own money
I just want to add one thing, the people in the country that issue the tariff also have no incentive to ignore the new price floor that the tariff represents. Instead, they will set their price to just below the new tariff floor and pocket what ever difference there is
What ends up happening in reality is that the tariff cost is effectively shared between the company selling and the customer (but not evenly). The company realizes that sales will plummet if the new price is $2, so they shave margin on their end to bring the price down to e.g. $1.75. But there's obviously a lot of complexity behind exactly how much of the tariff cost is borne by the customer and the seller and it will vary by industry.
Correct, but the Rabbit Hole goes deeper.
The company will only reduce margin if they expect to lose volume and if they expect that they can regain sufficient volume by reducing margin to make up for the loss in margin.
And the reduction in volume will only happen if there are alternatives for consumers, including the alternative to not buy.
When consumers need the tariffed good regardless of price, the company will not reduce margin.
(Yeah, it's complex math).
Long story short, someone else said it better, a tariff works well, with little impact on consumers, when there is a comparable non-tariffed alternative.
At the other end of that spectrum, i.e. an essential good with no non-tariffed alternative, the tariff cost is fully borne by consumers.
Finally, in the case of TSMC, their main product right now are the most advanced AI chips for which there is no US alternative. And US Big Tech needs volume that the US cannot produce.
Trump is basically taxing big tech.
Yes, but the goal of a tarrif is to create incentives for onshore investment and development to come it at a $1.50 price point. We, in general, have moved past that by using subsidies to not create issues for the economy in the short term.
They can say the goal is whatever the fuck they want it to say. The important thing is the outcome, and we know how this turns out.
I think "the purpose of a system is what it does" is going to get a lot of use this administration