Tariffs, the truth and the hype

WELLLLLLLLL China just opened the first crack in that BS crap wall they think is going to keep their free ride going .....

looks like it'll be an easier job than what Trump 1.0 faced with China over their grain buying .....

 

Don't know, nor particularly care, who Kyle Bass is. The picture makes everything in his post suspect. Chinese factories are not going to have signage in English. Therefore - doctored photo at best, totally fake at worst.

 

Tariff who pays (in a nutshell)
Let's say the tariff on a trinket is 100 from country X to import.
The importer pays the entire 100 to Uncle Sam (non-negotiable)
The importer attempts to pass the 100 on to the company they imported it for. Company says, nah we will only pay 65.
The importer has a choice, find someone else to sell the trinket to, or take a hit to their profit margin.
Probably faster to just move the product and take the margin hit, but still have earnings in the quarter but reduced. Stock price will go down if they are public due to reduced income (earnings).
Let's say the company is Target and they brought in 1 million of these trinkets, right now they have paid 65 million more than their last shipment so they need to attempt to pass it on to the customer.
Let's say the previous price was 100 for old stock, and they drop the new stock on the shelf for 165 to maintain their profit margin.
Unfortunately for them, instead of selling 500k of them per quarter as usual, they find that only a small number of customers were willing to pay this huge price increase and only sold 10k of them. Sure they maintained their profit margin on the trinkets but their sales plummeted. Their earnings for the quarter due to attempting to increase the price causes their P/E ratio to crash (if it's similar across all their items for sale). Their stock price gets hammered. Corporate reduces costs via closing stores and laying off employees and a bunch of employees are also customers so sales continue to decline in a spiral.
Anyway, companies know that in most cases they know they can't pass on the full tariff if any to the consumer. So, what do they do? Typically they will attempt to pass on say 5 of the tariff to the consumer and hope they can sell more items elsewhere at a higher margin. Attempt to pass on too high a price to consumers, they will either find an alternative product or do without.
Either way, Target's share price goes down typically.
In today's market, the US consumer is already tapped out. Credit cards are maxed, forbearance for mortgages and student loans has come to an end, they have no extra money to spend. So, good luck passing on any of the tariffs to the typical consumer, they are not going to pay it. So, in relation to inflation (CPI) .. their isn't any consumer inflation. Just an erosion to the share price of companies that are importing the stuff. Which is probably warranted because they have had all time record profit margins since the pandemic started. Kind like time to feel the pain the consumer has over the past 5 years.
And the reduction in share price will be reflected in earnings in those that have 401k, pension funds, invest in the stock market or other financial products.

In a nutshell, only consumers willing to pay higher prices on products that companies try to raise prices on will experience inflation. Those that don't .. won't.
Stock prices will go down due to reduced corporate earnings thus impacting 401k balances and other financial instruments.
So while you may not experience inflation, you may not feel as financially secure as you felt previously.
And if you had your mortgage or student loan in forbearance previously .. well you are in a world of hurt right now. It's not a recession for you, it's your depression era.

Also, the stock market isn't the economy. So as long as people are still working and buying products and services ... there isn't a recession.

I predict that we may see more limited choices coming soon. Instead of having 31 different styles of an item you might see only a few like basic, better and premium.
It could go tits up but that's part of the fun and excitement of this game of battle chess. One wrong move and you are wrecked.

But, only inflation if you have to buy it and a recession if you and the rest of us stop working and spending.