No. of Recommendations: 26
The margins on cars aren't very good. Maybe BMW's are better, but it is unlikely they have an extra $5K on a $40K vehicle they are willing to eat. That's true for most consumer products. A computer from Vietnam will have a 46% tariff. There's no way they can split the difference. They might eat a couple percent here and there, but rest assured you the consumer will be paying the rest.
Don't forget the other big variable, which is currency movement. If the car's production costs were largely labour and other local inputs, and the USD rises 20% against other currencies, then the sums can still work out. The USD selling price may remain flat to maintain volume, but measured in Euros the selling price of a Beemer goes up enough to cover the tariff. The relative hit to the exporting country is spread diffusely across all holders of that currency, rather than merely bankrupting a few car companies. Large tariffs, if lasting, tend to drive a currency up.
Of course a soaring dollar means US exports, both goods and services, get crushed, which worsens the aggregate US trade deficit. That's the main reason import tariffs don't generally improve a goods trade deficit. Jawboning the dollar down, the current strategy, is unlikely to be a sufficiently viable balance for that, so military threats have been floated as well.
I would not bet the rent on it, but if the high US tariffs last then I would expect the direction of the US dollar to be up, not down as we saw as a first reaction. Along with the more obvious results of a weakening US economy, rising inflation, and falling equity prices.
In Berkshire related news, I see that the price of Apple shares is back down to Berkshire's average selling price. Pretax, anyway. The articles about what an idiotic move it was to sell should get thinner on the ground.
Jim
