There are many unclear discussions about tariffs. I hope this explanation clears the confusion..
Tariffs as Variable Costs
- A tariff is a tax imposed on imported goods.
- For the importer (usually a business), the tariff increases the cost of acquiring the product.
- Because this cost varies with the quantity and value of goods imported, it’s considered a variable cost.
Pricing Impact Example (100% Markup)
Without Tariff
- Total Cost: $100
- Markup (100%): $100
- Price to Consumer: $200
With 30% Tariff
- Tariff (30% of $100): $30
- New Total Cost: $100 + $30 = $130
- Markup (100%): $130
- Price to Consumer: $260
So, a 30% tariff doesn’t just raise the price by 30%—it raises it by $60 or 60% over the original $100 cost. This is because the markup multiplies the tariff impact.
Why This Matters
- With higher markups (e.g., 300–400%), tariffs magnify retail price increases even more.
- A 400% markup on a $100 item = $500 retail.
- Add a 30% tariff → cost = $130 → price = $650.
- Consumer pays $150 more, not just the $30 tariff.
Conclusion
While a tariff is not a direct tax on the consumer, it behaves like one because its cost is passed on through pricing. The more the markup, the more the consumer ends up absorbing the tariff, often many times over.