Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
"Most articles I read said something to the effect of 'imports subtract from GDP.' But this is wrong. Repeat after me: Imports do not subtract from GDP."
"For example, if I buy a $1,000 television from South Korea (think Samsung), it counts as $1,000 of 'consumer spending' and $1,000 of imports—so they cancel out."
"The same goes if Walmart purchases that television to build its inventory. It counts as $1,000 of business 'investment' and $1,000 of imports—again, they cancel out."
"Second, and more importantly, while the actual impact of tariffs is just beginning to show up in the numbers, the threat of tariffs has already influenced consumer and business behavior. Both groups rushed to purchase foreign goods in advance, hoping to sidestep new costs. The front-loading likely inflated first-quarter figures—and could result in less consumer and business spending and fewer imports in the second quarter."
"The typical textbook treatment of GDP is the expenditure approach, where spending is categorized into the following buckets: personal consumption expenditures (C); gross private investment (I); government purchases (G); and net exports (X – M), composed of exports (X) and imports (M). Textbooks often capture this in one relatively simple equation: GDP = C + I + G + ((X − M))."
"International trade is captured in the net exports portion of the expenditures equation ((X − M)). In this approach, exports (X) are added in the same way as the other variables (C, I, and G) and contribute to GDP—an extra dollar of spending increases GDP by one dollar. However, in the expenditures equation, imports (M) are subtracted. On the surface, this implies that an extra dollar of spending on imports (M) would decrease GDP by one dollar. For example, let’s assume you spend $30,000 on an imported car; because imports are subtracted (i.e., “−M”), the equation seems to imply that $30,000 should be subtracted from GDP (Table 2). However, this cannot be correct because GDP measures domestic production, so imports (foreign production) should have no impact on GDP."
Now that tariffs are significantly affecting GDP, it's become a bit more important to understand just what GDP represents and how it is calculated. I posted something similar here:
My economics class professor said that the actual percentage passed through to end consumers is much less than that. That is, importing companies eat a good portion of the tariffs.
However, these are not normal tariffs (145%?) and I doubt importers and retailers are going to absorb the bulk of those ridiculous fees.
Comments
where spending is categorized into the following buckets:
personal consumption expenditures (C); gross private investment (I); government purchases (G);
and net exports (X – M), composed of exports (X) and imports (M).
Textbooks often capture this in one relatively simple equation: GDP = C + I + G + ((X − M))."
"International trade is captured in the net exports portion of the expenditures equation ((X − M)).
In this approach, exports (X) are added in the same way as the other variables (C, I, and G)
and contribute to GDP—an extra dollar of spending increases GDP by one dollar.
However, in the expenditures equation, imports (M) are subtracted.
On the surface, this implies that an extra dollar of spending on imports (M)
would decrease GDP by one dollar.
For example, let’s assume you spend $30,000 on an imported car;
because imports are subtracted (i.e., “−M”),
the equation seems to imply that $30,000 should be subtracted from GDP (Table 2).
However, this cannot be correct because GDP measures domestic production,
so imports (foreign production) should have no impact on GDP."
https://www.stlouisfed.org/publications/page-one-economics/2018/09/04/how-do-imports-affect-gdp
https://mutualfundobserver.com/discuss/discussion/comment/191776/#Comment_191776
While nearly all (90%+) of tariffs are generally paid on the importer (US) side, that doesn't mean that the end consumer is paying all of that.
"the correct value of this elasticity [pass through percentage of tariffs to importers] is close to 1 (0.945 to be exact), based on the single study they cited. Brent Neiman"
https://www.aei.org/economics/trumps-tariff-formula-is-still-wrong-maybe-thats-why-no-one-will-admit-they-created-it/
My economics class professor said that the actual percentage passed through to end consumers is much less than that. That is, importing companies eat a good portion of the tariffs.
However, these are not normal tariffs (145%?) and I doubt importers and retailers are going to absorb the bulk of those ridiculous fees.