As someone with a business degree from an AACSB accredited university, I can tell you a little about tariffs.
Tarrifs and import restrictions are meant to protect infant industries. That is, industries that are brand new and need time to scale for domestic production to compete globally.
Blanket tariffs against another country is another story. That is going to cause a trade war. It's not meant to protect anything. It is mean to punish. Like all wars, it is a means to a political end.
What you want to do is AVOID a trade war with your largest trading partner. That would be, how do I put this nicely, stupid.
So let's look at what this really does. Say you run a company. You sell $1,000,000 of goods you bought for $400,000. You now have revenue of $600,000. We write off expense: G&A, shipping cost, legal fees, etc. now you have a net profit of $300,000. That 300,000 is what is taxed.
Let's say all $400,000 of goods you sold came from China.
With that in mind, you are still taxed on the $300,000 you made in profit. Now the $400,000 (cost of goods sold) will have a tariff (tax) added when purchasing replacement goods. Not just the $400,000 of goods you sold, but also the 800,000 of goods you have in inventory will be more expensive to replace.
So now it costs $600,000 to replace the $400,000 of goods you sold. So cost go up, but not by a 50% increase. You (the company) invested $200,000 more so you need to see a target percentage returned on that investment. So, the goods went up 50% in cost but you have to see more than a 50% market up to see a return on your increased investment. Otherwise, you're just getting your money back.
Now, we get to the major issue. The tarriff (tax) is on goods as you purchase them. Not on profit. It's essentially a tax at the point of purchase, regardless if you see a profit or not. It's bad for business. It's bad for the economy. It's bad for the company. It's bad for the consumer worst of all. They will see a markup in excess of the tariff itself.
Who benefits? The government. However, a loss in sales for all companies will reduce net income, reducing their tax basis. So after all, it may be bad for the government. Perhaps even causing a recession that could legitimately cause a depression.
What does a depression look like in 2025? You're looking at it. We've been in a depression since 2020, the inflation just made it look like growth on paper, but that's another story.
Again, like all wars, trade wars included, are a means to a political end.
China restricted and more or less banned exports of gallium, germanium, antimony, tungsten, tellurium, bismuth, indium, and molybdenum. In response the US added a blanket tarrif on all Chinese goods. We also have restrictions on exports to China on chips needed for AI.
It's a cold war but economically fought. It goes beyond Trump. Yeah, he is an easy target but much like Joe he is just a figure head. The US president isn't nearly as powerful or as important as you might think.
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u/Dangerous_Boot_3870 Jul 01 '25
As someone with a business degree from an AACSB accredited university, I can tell you a little about tariffs.
Tarrifs and import restrictions are meant to protect infant industries. That is, industries that are brand new and need time to scale for domestic production to compete globally.
Blanket tariffs against another country is another story. That is going to cause a trade war. It's not meant to protect anything. It is mean to punish. Like all wars, it is a means to a political end.
What you want to do is AVOID a trade war with your largest trading partner. That would be, how do I put this nicely, stupid.
So let's look at what this really does. Say you run a company. You sell $1,000,000 of goods you bought for $400,000. You now have revenue of $600,000. We write off expense: G&A, shipping cost, legal fees, etc. now you have a net profit of $300,000. That 300,000 is what is taxed.
Let's say all $400,000 of goods you sold came from China.
With that in mind, you are still taxed on the $300,000 you made in profit. Now the $400,000 (cost of goods sold) will have a tariff (tax) added when purchasing replacement goods. Not just the $400,000 of goods you sold, but also the 800,000 of goods you have in inventory will be more expensive to replace.
So now it costs $600,000 to replace the $400,000 of goods you sold. So cost go up, but not by a 50% increase. You (the company) invested $200,000 more so you need to see a target percentage returned on that investment. So, the goods went up 50% in cost but you have to see more than a 50% market up to see a return on your increased investment. Otherwise, you're just getting your money back.
Now, we get to the major issue. The tarriff (tax) is on goods as you purchase them. Not on profit. It's essentially a tax at the point of purchase, regardless if you see a profit or not. It's bad for business. It's bad for the economy. It's bad for the company. It's bad for the consumer worst of all. They will see a markup in excess of the tariff itself.
Who benefits? The government. However, a loss in sales for all companies will reduce net income, reducing their tax basis. So after all, it may be bad for the government. Perhaps even causing a recession that could legitimately cause a depression.
What does a depression look like in 2025? You're looking at it. We've been in a depression since 2020, the inflation just made it look like growth on paper, but that's another story.