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There’s an idea I keep reading that “lower/middle income buy most of their goods overseas and so will be hit harder by tariffs”, but I bet that if you look at actual dollar amount of imported goods, the wealthiest 10% eat up 99% of the dollar amount of imported goods. The Rolexes, foreign cars, lululemons, Canada goose, the multiple consumer electronics, the French fashion, the French wine, the obscure ingredients and cutlery at their restaurants, and so on. I hate all of this. So if Trump really does replace the income tax in the lower/middle class with the tariff proceeds, this may be incredible for redistribution. (Not that I think this will happen; who knows what he is going to do).
Rolex doesn’t sell that many watches, on purpose (and in their specific case deliberately under supplies their most in demand models). The largest retailers in America are all low-margin, high volume.
Low-margin wins because you don’t deposit percentages in the bank, you deposit money. Costco is the largest and most-profitable wine seller in America because of their inexpensive white label offerings. “Yeah, we made a dollar a bottle on our $7 Argentinan Malbec. But we sold two million bottles last year.” Kermit Lynch doesn’t have similar income. The scale of low-margin business is tremendous.
Rolex may not produce many watches but the watches are expensive and this is why it results in ~ 2-3 billion in annual sales in America. Tariff it. I know a family who imports them, they live lavishly. Now consider there are hundreds of other brands that the wealthy obsessed over, and we ought to tariff them all, and give proceeds to middle class. Same with wine. Okay, a 30% increase on $7 wine doesn’t matter, but it begins to matter in the fine wine market and in clubs and so on.
Wine I know a fair amount about and at the highest end it doesn’t matter that much. Mouton Rothschild won’t have any trouble selling their next vintage, they’ll just send more of it to the rest of the EU, Asia (and very, very quietly as always) the gulf oil states. Neither will any luxury brand selling conspicuous consumption from Champagne, Burgundy, Bordeaux, Tuscany or the Piedmont. The American rich here will pivot a bit and pick up some of the slack on the decreased sales that will hit Nappa and the Willamette downstream of the trade war. RIP the middle class prices for Eola-Amity Pinot Noir, as the vineyards are younger and word hasn’t reached foreign markets.
You mentioned cutlery. We’re upper middle class. We already have Wüsthof for our kitchen and Zwilling for our table, and we’re done for life. No tariff on dropping them off for sharpening. The same for our Le Crueset and Staub cookware. Clean any carbon deposits on the enamel with baking soda, keep the cast iron properly seasoned, and we’re set until we die.
Tariffs are a consumption tax, pain is relative, retail consumption accounts for a larger percentage of working and middle class income, and the working class buys cheap crap they need to replace on the regular.
There’s no tariff on first and second mortgages; country club, dining club and town club memberships; summer homes; private school tuition; season tickets to sports and the arts; and vacations.
And all of this is moot since as of yet none of the tariffs are targeted.
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Uh, lower and middle income Americans drive Asian cars, wear clothes from foreignstan, have electronics from foreignstan, etc. A lot of these aren’t really luxuries; they’re cheaper than the US made versions. Nissan is a great value for the money and Kia is the cheapest on the American market, after all.
No problems there:
https://www.kiageorgia.com/about-kia-georgia/the-plant/
https://en.wikipedia.org/wiki/Nissan_Smyrna_Assembly_Plant
Cars have been tariffed for a long time of course -- if anything it's a POC that tariffs can produce the desired effect. (onshoring manufacturing)
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As a member of the top 10%, I want to note that it's extremely feasible to have cross-border shopping trips for expensive items where relevant. Especially if your job involves international travel. If I wanted lululemon, for example, nothing would stop me from getting it, and I still wouldn't pay tariffs. Actually, it would be a better status symbol than ever before as these luxuries would become less affordable for the middle class while remaining the same cost for me.
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I would think the problem here is that luxury goods are substitutable whereas cheap goods are not, not for domestic production anyway. America does produce luxury cars which the rich can buy (though this won't even necessarily increase demand for American products because they will become proportionately less competitive abroad to the foreign rich), but there is no possible way for domestic products to compete on price for cheap consumer goods, so consumers will just have to eat the extra cost.
In any case none of this matters because the base assumption is just false. All deciles spend a very similar proportion of their income on imported goods. This does mean the top deciles will spend more in dollars on imports, but (obviously) the SoL impact will be much greater on the lower deciles which can't afford to take the hit - the distributional impact will be similar to ordinary inflation, except even worse because hourly workers' wages are more responsive to inflation than those of (on average, higher income) salaried workers.
https://www.federalreserve.gov/econres/notes/ifdp-notes/distributional-consequences-of-trade-for-us-consumers-20180403.htm.com
“Proportion” being key here, because 134,000 households are sitting on 44 trillion dollars in wealth.
This depends on where the tariff proceeds go. Your link is broken on my end so I can’t see the figures.
Essentially every decile consumes 10% of their income on imports +/-1% (and I'm not reading the table wrong it's just a funny coincidence the figure is 10%, it used to be all deciles spent 6.5% +/-1%).
Well note it's by income, not by wealth. Post-tax income of the top decile is only about 30% of the total.
Given Trump's track record on distributional policy the chance of anything close to offsetting the disruption via distribution of revenues is near-zero. If reshoring does occur then there will be an increase in price with no concomitant revenue, and in a basically full employment economy it's difficult to see what benefit this reshoring would even have, you're just shifting workers into lower-productivity sectors (since they have been necessarily outcompeted in a freer market by whatever sector they're working in at the moment).
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Most of those things are probably bought by the lower and middle classes on credit.
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