by Theodores | 2025-04-30 17:32:56+00:00
Brexit was similar. What amazed me about Brexit was how nobody that voted for it cheered when it came in.

Next, I was amazed at a lack of coordinated opposition. Nobody joined the barricades, there was no unrest, no opposition party garnered votes.

Biggest take away was that life went on. There was no shortage of goods on the shelves and nobody cared that the pound lost 25 percent or so.

From Brexit, I anticipate much the same in America, for the economy to linger on due to generational wealth, with people just getting on with it.

The pricing due to tariff taxes will also be easier to absorb than what people think.

Imagine a finished good such as a bicycle, imported from China. Retail margins are not great for the retailer because they expect sales from accessories.

If the bicycle costs USD 1000 at retail, what does it cost to the importer?

The retailer buys the bike from a wholesaler for USD 500 and the wholesaler buys the bike from the distributor for USD 250. The distributor buys it from the importer for USD 125.

Margins will be negotiated with volume and delivery schedules, but the bicycle, at import is only valued at 125, not 1000 in this simplified example.

Lets assume the tariff works out so the importer has to pay 300 rather than 125 to get the bike out the port. Let's assume a 175 tariff fee. This can be passed down the chain much like how duty is charged on tobacco that gets imported.

Hence the customer is paying 1175 for the 1000 bike, not 2450.

The customer can buy a lower specification model of they don't like the price hike, or the retailer can shave their margins to gain market share, shift inventory and gain a customer. In time the price can creep up.

If the tariffs were collected at Walmart rather than at the port then this means of handling the tariffs would not be possible.

For a cycle manufacturer that owns the factory in China as well as the distribution chain to the customer, they could set up a shell company that imports the bicycle for a dollar, to then sell that bike to the retailer they own for proper money. The customer then pays the same 1000 with the 1.45 absorbed.

The company could also own a design office in the Chinese factory and sell their design consultancy services back to the US sales operation for millions, millions that won't be taxed as a tariff since it is a service, not goods.

In this way the USD profits are repatriated with the factory. The factory sells it's goods almost for free. Next there is the problem of what to do with those dollars since the factory workers are paid in Yuan. Those dollars need to be sold or used to buy oil, rubber and other raw materials.

This type of Hollywood accounting is standard for multinationals but beyond the reach of small businesses.

Apple do this type of magic accounting, most famously in Ireland. Amazon use Luxembourg. So why the exemption for iPhones? Well, if Apple have to pay USD 2 in tariff taxes on a 1000 iPhone then that is a big deal to them. They were never going to have to charge 2450 for that same iPhone.

Ideally a multinational makes a loss in the country of manufacture and a loss in the country of sale. This means minimum wages and no taxes paid. They then make billions in their chosen base for the shell company in the middle and use a tax haven to get the dollars out, which they then use to buy their own shares, thereby not paying dividends.