If you read or listen to the news, and do the same with professional sports as I do, there is a disturbing connection between what is happening in the worldwide trade business and the National Basketball Association.
Bear with me, I will make the connection.
Each day it seems, when our Commander in Chief plays with his smartphone, he threatens adding to tariffs that have already been enacted, under the premise of evening up the trade deficit. China is a common target for President Trump’s Twitter feed.
In a study completed in May, the Federal Reserve Bank of New York, with Princeton and Columbia universities, estimated that tariffs from Trump’s trade dispute with China were costing $831 per U.S. household on an annual basis. And that was based on the situation in 2018, before tariffs escalated. Analysts also found that the burden of Trump’s tariffs falls entirely on U.S. consumers and businesses that buy imported products.
Contrary to @realdonaldtrump, China is not sending billions of dollars to the U.S. treasury.
Follow this. Trump enacts a tariff; let’s say it’s 20 percent. So, Wang Chung, who makes the tough to find Do-Hickey, adds 20 percent (or maybe a bit more?) to the cost of said Do-Hickeys to ABC International, an import/export company, meaning that now Do-Hickeys cost 48 cents, rather than the 40 cents that ABC has been paying. ABC International, which can’t absorb that cost, passes it along to XYZ Corp, who is the certified Do-Hickey distributor for North America. Said Do-Hickeys, which had cost XYZ 44 cents (ABC’s original 40 cent cost, plus a 10 percent markup) now costs XYZ 52.8 cents (new post tariff ABC cost of 48 cents, plus 10 percent markup).
XYZ, which also expects to earn a profit for its stockholders, takes its new 52.8 cent cost and adds 15 percent when it delivers Do-Hickeys to Friendly Hometown Hardware, the local store that sells them to the public. Except now, Friendly is charged 60.72 cents per Do Hickey, as opposed to the pre-tariff cost of 50.6 cents.
After Friendly takes it’s normal markup, the Do Hickey that you and I regularly purchase for $1.01, now costs us $1.24.
So, exactly where in this scenario did China write that check again?
A 20 percent increase on an imported good in this instance ends up costing the end user - again, that’s you or I - 23 cents more when we purchase it.
Us, not Chinese Premier Li Keqiang.
Trump refuses to recognize a reality that his own chief economic adviser, Larry Kudlow, has acknowledged. Tariffs are mainly if not entirely paid by companies and consumers in the country that imposes them. Over decades, if the U.S. can find alternate sources of Do Hickeys, the extra cost may do damage to China’s bottom line, but that’s a big if.
The damage of reciprocal tariffs imposed by China is much more immediate. If China imposes a tariff on soybeans for instance, instead of paying the upcharge, the person importing soybeans for the People’s Republic instead just opts to purchase them someplace else. So American farmers - a large part of the President’s base - get hindered nearly immediately.
The same thing happens when NBA stars sign their big free agent contracts. As I write this, Kevin Durant, who is in an ‘option year’ with the Golden State Warriors, has declined his ‘player option’ for the upcoming season, or a guaranteed $31.5 million contract for next year. Let that sink in for a second.
Instead, Durant will become a free agent. He can sign a new contract with the Warriors, for up to $221 million over five years, or $44.2 million per season. If he goes elsewhere, he can make a maximum of $164 million over four years, or $41 million per season. Kevin Durant has first-world problems.
The end of the story is this. If Durant signs with Golden State, his $44 million salary will be paid - just as those pesky tariffs are - by you and I. The Warriors receive money from TV contracts, from ticket sales and from memorabilia sales, to name a few revenue streams. The television contracts depend upon selling advertising to different vendors, who hope to sell things to….wait for it…you and I.
It’s the same pyramid scheme, except instead of the point being on the top, it’s on the bottom and it’s you and I who support the whole shebang.
What’s saddest is that many people continue to believe the President when he says that China is paying the tariffs - or Mexico is paying for the wall - just as fans in the Bay Area of California will believe that the Warriors are the ones paying Kevin Durant.