Starting Price / (1-Tariff %) = Final Price Needed to Break Even
$5 / (1-.25) =
5/.75 = $6.67
If an item was $5 and there was a 30% tariff
5 / (1-.30) = $7.14
If there was a 30% tariff and the syrup company wanted to keep same profit they would have to sell each bottle for $7.14.
$7.14 × .30 = $2.14
$7.14 - $2.14 = $5
No, because (1 + tariff) isn’t enough to keep up with the tariff because as the price goes up, the tariff also goes up.
Like in the example going from $5 to $6.25 (5 × (1+.25)). Would result in 31 cents less per bottle.
It needs to be ~33% more or $6.67 for the syrup company to keep the same profit with a 25% tariff.
Final Price × Tariff % = Tariff Amount
Final Price - Tariff Amount = Cost of Good Sold
Cost of Good Sold - Expenses = Profit
So if you need $2 profit
$2 = (Final Price - (Final Price × Tariff %)) - Expenses
$2 = (X - (X×.25)) - $3
$5 = X - .25X
$5 = .75X
X = $6.67
Formula would be
Profit = (Final Price - (Final Price × Tariff %)) - Expenses
So if a company still wants to make $2 profit per bottle.
Company raises price to $6.25 to try to cover the tariff (25% increase)
The tariff becomes $1.56 ($6.25 × 25%)
Instead of selling for $5 price, they would sell it for $4.69 effectively ($6.25-$1.56)
Instead of making $2 profit, they would make $1.69 profit ($4.69-$3(production cost))
If they still sold the bottle for $5, paid $1.25 tariff
They would make 75 cents of profit ($5-$3(production cost)-$1.25(tariff))
Let’s say a bottle of Canadian Maple Syrup is $5 before.
25% Tariff is $1.25
Let’s say the company makes $2 on each bottle before tariff. They really need to make $2 per bottle to cover expenses
So if a company still wants to make $2 a bottle still.
If they sell for $6.25 to try to cover the tariff (25% increase)
The tariff becomes $1.56
Instead of making $5, they would make $4.69.
Instead of $2, they would make $1.69
If they sold the bottle for $5, paid $1.25 tariff
They would make 75 cents
The number for $5 is $6.67
If the company sold the syrup bottle for $6.67. Payed $1.67 in tariff (25%). They would make $2.
Now, of course, they want to sell it for $6.67. Will people pay the increased price?
They can’t just keep selling them for $5 and make basically a 1/3 of their previous profit.
Prices have to go up. How much is up to the consumer.
If the consumer is willing to buy Official Canadian Maple Syrup 🍁 for $6.67. The consumer is paying the whole $1.67 tariff.
An interesting thing happens when people pay $8. The syrup company makes an extra $1, Government gets $2 tariff. It’s a win for everyone, but the consumer that lost $3. (Kind of scary if Trump gets a Maple Syrup company in Canada, goes around, ignores, or pays himself the tariff and sells a bottle for $5. Both are true Canadian Maple Syrup, it just has his name on it. Are you going to buy the $5 or the $8? Even if you buy the $8, he gets $2)
The consumer can’t win. Free economy is better.
~33% increase covers a 25% tariff
If the price settles at $6.
Company pays 50 cents
Consumer pays $1
Trump gets $1.50
Who even is in charge of the “tariff funds”?
Like people are happy with having to pay $1 to get the company to pay 50 cents? Like that’s a win?
Sad reality is Americans should not buy anything with a tariff. Paying a premium to help support Canada seems like a good thing but if everyone does it and everyone pays 33% more. The tariff funds makes out like a bandit all thanks to the consumers.
TL;DR: Company facing a 25% tariff will look to raise prices 33%. If they can they are fine or better. Consumers lose. I really like Vermont Maple Syrup
No problem!