Tariffs Explanation

[MidlifeBeginner]

There is a lot of talk about tariffs, so I thought it would be worth providing some explanation. I have taken a few economics classes, but not my primary major.

Subsidies keep prices down, but tax a lot of citizens who don't purchase the product. Overall sales go up.
Tariffs raise prices and put the burden of the tax on those purchasing the product. Overall sales go down. Intent is to raise sales of local product and decrease sales of imported product.

What is unusual is how quickly and how much tariffs are being adjusted in the US. I would recommend against panic buying bass gear. If you were already set on buying a particular instrument within the next couple months, it might save you some buying it now. Tariff is on the wholesale value. The retailer markup and shipping shouldn't adjust. I don't think instrument makers are a loud enough lobbying voice to get an exclusion anytime soon. Expect the Chinese imports and to a lesser extent Indonesian will have price increases. Component prices will go up, which could cause a small bump on US built price. US and Mexico will probably have tariffs settled within a few months. Businesses commonly adjust prices when new stock arrives.

Further Explanation:
Tariffs are nothing new, and go back hundreds of years. A big reason for the US declaring independence from the UK was imposed tariffs, with the money going back to England. That is where the "no taxation without representation" slogan comes from. The American colonies had no representative in parliament to vote against the taxes.

There are two primary ways a government may encourage domestic production over imports. They are subsidies and tariffs. Both are used by every developed country.

Subsidies pay money out from the government to local industry to make it profitable. The most common subsidy is a "tax break". That is the government decreasing taxes on a marginally profitable product. Tax breaks are used to encourage solar power construction heavily. A subsidy puts the burden on a large number of tax payers. Even if you don't buy the product produced, you are paying taxes for it. Subsidies are best used for basic necessities you want to keep the price down on. The US pays out subsidies for a number of farm crops to keep food prices down for poor people. Unprofitable products may have a direct payout subsidy, which pays even if the producer owed no taxes. International trade laws limit the usage of subsidies. In the US, new subsidies requires Congress to pass a law.

Tariffs put a tax on imported product. This raises average selling price to increase the gross margin for local producers. The tax burden is on the citizens that purchase the product. Tariffs are good for luxury goods, where only a select percentage of the population purchases it. I don't want my tax dollars to help someone buy a designer Italian handbag. So, there should be a tariff on the product rather than a subsidy to local garment companies. Tariffs are easier for governments to implement, and are an easy revenue stream for government. They just have to charge taxes at the ports where product comes in. In the US, the president has authority to adjust tariffs to react quickly to economic conditions.

 

[hbarcat]

A slight correction to your final sentence.

In the US, the president has authority to adjust tariffs to react quickly to economic conditions.

In the U.S. congress has the power to impose, adjust, or abolish tariffs, under normal conditions. However, the president can invoke emergency powers to borrow that power, citing "Executive Authority". Such is the case with the current tariff situation where the president has cited "fentanyl smuggling" as justification for new tariffs with Canada. *

Since actions taken via executive powers tend to be more fickle and less durable than congressional acts, it's more likely that whatever tariff policies are put in place by the current administration could be rescinded by the next administration.

That being the case, future prices and availability will necessarily be uncertain. In four years, the next administration might keep the tariffs as they are, adjust them, or eliminate them entirely.

I would say that it might be beneficial for us musicians, especially those who deal with U.S./Canada commerce, to plan ahead for major purchases (or sales) with tariff policy in mind, with the knowledge that whatever happens in the next year or so, may be only temporary . . . or not.



*These are merely the facts of the situation. I'm staying far away from any kind of political commentary, as per TB rules.

 

[MidlifeBeginner]

Thanks for the clarification on the executive power.

If already planning on buying the bass this year, now is a good time.

If thinking someday you would want one, tariff is not an excuse for GAS. Tariff or not, price would be most likely be higher in 4 years. It is better to spend the money on what you need in the near term.

We get used to imbalanced tariffs in the US that favor lots of consumer spending. You go to other countries and many of them have tariffs on the US made instruments much higher than 25%. They also have higher sales tax. In Brazil it adds up to almost doubling the price on a US made product.

 

[TaylorJ]

So what does today's news mean for those living in Canada/USA ?

 

[TOOL460002]

So what does today's news mean for those living in Canada/USA ?

As of today? Literally nothing. Maybe on the 5th something goes into effect? Or it gets delayed as some of these exectutive orders do. And maybe on the 9th even more tariffs, as has been announced or hinted, or whatever you want to call the flow of information from the executive branch these days. Or, and, I'm just going with the pattern, the nebulous April 9th tariffs also get delayed or just don't exist and never will. Or they will. I wouldn't speculate any time soon. Now, buying used? That I would go for. I am definitely seeing deals.

 

[TOOL460002]

Lol Heard Island and McDonald Island are on the possible tariff list. Population: Zero. However, if you know any penguins that can flipper slap the heck out of the bass, give them a heads-up.