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After The Ride / Re: Any thoughts on probability of 20% USA tariffs on purchases next year?
« on: November 12, 2024, 04:49:16 PM »
We need to separate two separate issues—de minimis exemption and tariffs—as both will be impacted.
De minimis refers to the <$800 exemption on any tariffs for anything shipped directly to you. This exemption is part of how you get cheap stuff overall, but especially from Alixpress. So, this exemption applies to both a frame you buy from CN for $700 as well as an iPhone 15 (which ships directly from China), which currently costs $700. If de minimis goes away, then duties (tariffs) will be owed on both of those items. Further, part of the benefit of de minimis is that there are no additional fees, like a port fee or all the other random stuff, due. Stuff just gets sent directly to you with no inspections, fees, paperwork, or anything else. So the impact of removing this exemption is actually greater than the potential tariff. Aliexpress, temu, etc are fundamentally dependent on this exemption.
If de minimis goes, then your AliExpress purchase is suddenly subject to whatever tariff is in place, and whatever other processing fees would be charged for normal imports.
Tariffs are the second part. Tariffs apply to categories of goods. For instance, if you are a major bike brand, bicycles as a category (HTS Code 8712.00.15) could see a higher rate. The current rate is 11%, so let's assume that increases to 30%. The bike importer would owe that much more on each bike, which would be passed along in the form of higher prices. If you, Chinertown person, want to buy a bike frame, the HTS code is 8714.91.30. The current rate is 3.9%, but that could jump as well.
The rule of thumb for retail prices is that whatever the final sale price is, the manufacturer price is 1/4 of that. So, for a $2000 bicycle I buy at REI, I should assume that the manufacturer's cost is $500. If the tariff goes from 11% to 30%, the effective manufacturer price would increase 19%, or $95. If I apply the 4x rule, then that $2000 bike would suddenly cost $380 more. While this particular example is unlikely to occur exactly as discussed, this exact dynamic is what cranks up prices.
Why do most goods cost 4x the manufacturer's price? Because that includes the price paid for the goods, the shipping-warehousing-handling costs, overhead to run the company (customer service, offices, etc), and profit for whomever is selling the goods.
When you buy direct from CN, you are stripping almost all of those costs out except for shipping. The manufacturer gets a better deal because you paid a higher price and you skip on everything else. Most Chinese factories operate on very little margin, so the prices that you are paying are actually pretty close to what a big brand would get.
For everyone from the USA, the takeaway is that you should care most about the end of de minimis exemptions. The tariffs are important, but the real issue is that de minimis lets you skip the tariff and all the other costs.
Buy stuff now.
De minimis refers to the <$800 exemption on any tariffs for anything shipped directly to you. This exemption is part of how you get cheap stuff overall, but especially from Alixpress. So, this exemption applies to both a frame you buy from CN for $700 as well as an iPhone 15 (which ships directly from China), which currently costs $700. If de minimis goes away, then duties (tariffs) will be owed on both of those items. Further, part of the benefit of de minimis is that there are no additional fees, like a port fee or all the other random stuff, due. Stuff just gets sent directly to you with no inspections, fees, paperwork, or anything else. So the impact of removing this exemption is actually greater than the potential tariff. Aliexpress, temu, etc are fundamentally dependent on this exemption.
If de minimis goes, then your AliExpress purchase is suddenly subject to whatever tariff is in place, and whatever other processing fees would be charged for normal imports.
Tariffs are the second part. Tariffs apply to categories of goods. For instance, if you are a major bike brand, bicycles as a category (HTS Code 8712.00.15) could see a higher rate. The current rate is 11%, so let's assume that increases to 30%. The bike importer would owe that much more on each bike, which would be passed along in the form of higher prices. If you, Chinertown person, want to buy a bike frame, the HTS code is 8714.91.30. The current rate is 3.9%, but that could jump as well.
The rule of thumb for retail prices is that whatever the final sale price is, the manufacturer price is 1/4 of that. So, for a $2000 bicycle I buy at REI, I should assume that the manufacturer's cost is $500. If the tariff goes from 11% to 30%, the effective manufacturer price would increase 19%, or $95. If I apply the 4x rule, then that $2000 bike would suddenly cost $380 more. While this particular example is unlikely to occur exactly as discussed, this exact dynamic is what cranks up prices.
Why do most goods cost 4x the manufacturer's price? Because that includes the price paid for the goods, the shipping-warehousing-handling costs, overhead to run the company (customer service, offices, etc), and profit for whomever is selling the goods.
When you buy direct from CN, you are stripping almost all of those costs out except for shipping. The manufacturer gets a better deal because you paid a higher price and you skip on everything else. Most Chinese factories operate on very little margin, so the prices that you are paying are actually pretty close to what a big brand would get.
For everyone from the USA, the takeaway is that you should care most about the end of de minimis exemptions. The tariffs are important, but the real issue is that de minimis lets you skip the tariff and all the other costs.
Buy stuff now.