"The Money is Rolling in" - No. It isn't

And why that $100 Alibaba purchase will now cost you $224.40

It’s tariff day worldwide, and countries are subjected to a trade war started by a single person: Donald Trump.

In the UK, any products imported into the US from today will be subject to a 10% tariff. Cars are at a higher level of 25%. Products from China have hit 104% as the two presidents slug it out in public.

British Prime Minister Sir Kier Starmer seems to be taking a slow and measured view of the tariffs and hasn’t joined the tit-for-tat, explosive exchanges similar to China and the US.

Japan has declared a national crisis as billions of dollars and yen are wiped off the value of businesses.

Russia has accused the US of violating trade rules.

The Money is Rolling In
Donald Trump is obsessed with money. This time, the money isn’t his, but belongs to the government, through the Federal Reserve.

Trump maintains that tariffs on the world will make the country “very rich,” and so far, $2 bn a day is “coming into the country.” Although it isn’t coming into America, it is already here.

Tariffs are not paid by the countries that export to the US, even if Trumps says he is making countries pay.

They are paid by the businesses that import the produce into the US. Trump’s tariffs are a tax on US businesses and will make goods more expensive for consumers.

The money isn’t “rolling in” from other countries; it is being taken from US businesses’ pockets.

Damaging US Business is the Order of the Day
Take the example of a US-based business, Feastables, which makes chocolate bars in the US and sells them to consumers across the country.

Featsbales is a business owned and run by YouTube star Mr. Beast, whose real name is Jimmy Donaldson. Jimmy is a likable character with whom I shared a coffee a few years ago in Los Angeles.

Featsables imports cocoa to make its chocolate bars. The US isn’t best known as a producer of cocoa, hence the imports. Donaldson’s company imports cocoa as an essential ingredient of its chocolate bars, and that has just become much more expensive.

As the importer, Feasables now has to pay a tariff on anything it brings into the country. While we don’t know which countries Feasables buys its cocoa from, Nigeria is one of the world's leaders in cocoa production. Trump imposed a 14% tariff on any goods imported from Nigeria, which increases the cost to companies like Feasables by 14%.

The intention of tariffs, in addition to lining the pockets of the government, is to persuade foreign producers to move to the US to make their products there. Feasables is a US company making its products domestically, yet it has been hit by a 14% tariff if it purchases cocoa from Nigeria.

Mr. Beast’s Feasables business is just one of hundreds of thousands of US companies that must import raw materials into the US to manufacture their end product, as those products are not available domestically.

These domestic producers, who have no alternative but to import some raw materials that can never be available in the US, are being damaged by the Trump tariffs. Some will be forced to close, throwing staff out of a job.

Chinese Products Now at 104%
The public spat between presidents Xi and Trump has seen tariffs reach an extraordinary level of 104% this morning. This means that anything imported from China into the US will now cost more than double. Later in the day, the Chinese retaliated with an 84% tariff on any US goods entering China.

US consumers don’t appreciate the damage this will do to their personal finances. Many Americans use online shopping sites such as Alibaba and Temu to buy products and have them shipped directly to their homes.

From today, when the courier knocks at the door with a package from Alibaba, the US customer will be expected to pay the tariff.

Let’s take an item on Alibaba that costs $100 plus $10 to ship, a total of $110 door-to-door. Not anymore. While the US home buyer will see $110 go to Alibaba, a 104% tariff now applies. The consumer standing on their doorstep is the importer now, so the 104% applies.

Tariffs are paid on the products plus shipping, so the calculation starts at $110 in this example. A 104% tariff on $110 comes to $114.40. That parcel from Alibaba now costs $224.40.

Couriers may also charge a fee to manage the tariff collection, so add a few more dollars before the parcel is in your hands.

In reality, the courier is unlikely to arrive at the front door until the tariff is paid. They will contact you ahead of time and expect payment before delivery. So, if you think that shipping to a parcel locker will avoid tariffs, think again.

If you refuse to pay the tariff, your parcel might be returned to China, but don’t expect a $110 refund. Of course, charging back your credit card would be open fraud.

Are tariffs on US consumers starting to make sense now?