Mechanics of a Tariff ????

[frayne]

Probably a dumb question but here goes. What are the actual mechanics of a tariff and how does the government collect the money. Example, a Chinese company ships $1000 worth of widgets to ACME company in the U.S. Widgets are under a ten percent tariff. Does ACME company cut a check for $1000 to the Chinese company and then a $100 check to Uncle Sam ? And what are the checks and balances to make sure no one cheats or games the system ? Just curious and appreciate any and all replies advance.

 

[cathy63]

Probably a dumb question but here goes. What are the actual mechanics of a tariff and how does the government collect the money. Example, a Chinese company ships $1000 worth of widgets to ACME company in the U.S. Widgets are under a ten percent tariff. Does ACME company cut a check for $1000 to the Chinese company and then a $100 check to Uncle Sam ? And what are the checks and balances to make sure no one cheats or games the system ? Just curious and appreciate any and all replies advance.

Tariffs are a form of customs duties. I believe it's the job of ICE and its inspectors to make sure the appropriate duties are paid whether it's an individual carrying an extra bottle of Caribbean rum off a cruise ship, or by General Motors importing a few tons of steel for the production line.

 

[indiajust]

Payments are made by distribution agent before it can leave quarantine. So if Kmart imports $1000 widgets, customs officials and Kmart distribution agents haggle over which of the thousands of possible tariffs apply to those particular widgets. Kmart pays, then they are allowed to distribute widgets to their stores. Ultimately Kmart customers pay for the tariff with higher prices. If the tariff is high enough, customers refuse to pay at all, and trade ceases entirely.

 

[Popeye]

Acme company will likely have an import broker. They help with customs clearance, paperwork, and such. They will clear the goods, pay the Feds, and invoice Acme. That’s how we did it at Megacorp.

Customs and Border Protection folks look it over. If you get cute with the customs value and get caught, you are in a world of hurt. They can cut off all your import / export business. Jail time is also possible for the really bad offenders.

 

[Popeye]

Payments are made by distribution agent before it can leave quarantine. So if Kmart imports $1000 widgets, customs officials and Kmart distribution agents haggle over which of the thousands of possible tariffs apply to those particular widgets. Kmart pays, then they are allowed to distribute widgets to their stores. Ultimately Kmart customers pay for the tariff with higher prices. If the tariff is high enough, customers refuse to pay at all, and trade ceases entirely.

OMG you are giving flashbacks! Nothing like needing an emergency repair part from European factory and having it tied up in customs because of a problem with the tariff codes!

 

[Aerides]

I import materials for my side hustle-mini-business. Every now and then Customs assigns an import tarriff depending on the total amount. The carrier/importer (in my case UPS or Fedex) pays it, and then charges me. So my raw materials cost is now 10% more than I paid the supplier.

The carriers (in the cases of large consumer goods and materials, picture freight containers at ports) - they all declare what they are carrying, where it's from, or risk impounding and loss of licensing. Containers are inspected as well, though some of it is sampling vs. every single one. Small goods like mine are xrayed.

 

[courtjustshan]

My issue with all of the tariff talk is what supposedly happens to this new "windfall" of tariff dollars. Will it be used to pay down the debt? Doubt it. Will it be used to fund much needed infrastructure replacements? Unlikely. Will it go to payback the cookie jar stealing from SS? Highly unlikely.

My guess is that any additional revenue will get sucked up by the official "Money Sucking Beltway Roomba" that circles the DC swamp looking for more money to waste. I can just see the postings already on usajobs.gov looking for the 100 additional "tariff agents".

If there was a clear plan for the strategy and the resulting money, then perhaps I could see purpose.

 

[Popeye]

My issue with all of the tariff talk is what supposedly happens to this new "windfall" of tariff dollars. Will it be used to pay down the debt? Doubt it. Will it be used to fund much needed infrastructure replacements? Unlikely. Will it go to payback the cookie jar stealing from SS? Highly unlikely.

My guess is that any additional revenue will get sucked up by the official "Money Sucking Beltway Roomba" that circles the DC swamp looking for more money to waste. I can just see the postings already on usajobs.gov looking for the 100 additional "tariff agents".

If there was a clear plan for the strategy and the resulting money, then perhaps I could see purpose.

Tariff collection is already fairly sophisticated. If the tariff just increases from 2% to 25% it doesn’t require any additional labor to collect. And even if the current tariff is zero, you still need to do all the paperwork. Everything gets classified with a tariff code and there are thousands and thousands of codes.

Sometimes it seems like the news folks pretend there are no tariffs and that this is something new. Most of the products being discussed already have tariffs of some level, I’d guess.

Maybe they could fund a couple of studies like SS: Collect at 62 vs 70? ��

 

[USGrant1962]

My issue with all of the tariff talk is what supposedly happens to this new "windfall" of tariff dollars. Will it be used to pay down the debt? Doubt it. Will it be used to fund much needed infrastructure replacements? Unlikely. Will it go to payback the cookie jar stealing from SS? Highly unlikely.

My guess is that any additional revenue will get sucked up by the official "Money Sucking Beltway Roomba" that circles the DC swamp looking for more money to waste. I can just see the postings already on usajobs.gov looking for the 100 additional "tariff agents".

If there was a clear plan for the strategy and the resulting money, then perhaps I could see purpose.

That is not how our system works. For better or worse (mostly worse), taxation/revenues and appropriations/spending are separate laws and are totally unrelated (except for SS and a few minor taxes/fees). A dollar coming in does not get directed anywhere based on its source, tariff revenue will go into the general fund.

The strategy has nothing to do with raising revenues, it is an attempt to force balanced trade incentives. As I posted in another thread:

For the fundamental reasoning behind the current activity see the WTO tariff map here https://data.worldbank.org/indicator...AR.ZS?view=map

The U.S. has one of the lowest average weighted tariffs of the major economies. Some pertinent examples:

Australia 1.18% - good job Ozzies!
Canada 1.56%
U.S. 1.67%
EU 1.96% - i.e., tariffs are 17% higher than the U.S.
Japan 2.55%
China 3.54% - 112% higher
Russia 3.62%
Mexico 4.35% - 160% higher
India 6.35%
S Korea 8.67% - 419% higher

 

[courtjustshan]

A dollar coming in does not get directed anywhere based on its source, tariff revenue will go into the general fund.

Anytime I hear that revenue goes into the "general fund", all I see is swamp.

I understand wanting to manage trade imbalance, my small point was that the lack of a strategy around the additional revenue from the tariff changes sending more money into a black hole.

 

[nphx]

Here is the "Harmonized Tariff Schedule" https://hts.usitc.gov/current . Let's say you bought a container full of building materials. Extruded aluminum would be subject to "anti dumping" but when it is an assembly, window glass with the aluminum frame it is not. All the declarations must be filed by 15 days out of arrival to port, or you may be fined. If all paperwork passes a sniff test you need to pay the customs fees before the container is released at the port.