Apr 03, 2025

America Needs a Crash Course on Tariffs—Fast

This isn't about politics—it's just supply chain math, plain and simple. As someone who's been deep in the trenches of business, I want to share a clear explanation of how tariffs work and why misunderstanding them can have devastating effects.

First, Some Definitions

COO (Country of Origin): The country where a product is mostly manufactured. This determines its origin for trade classification.
HTS (Harmonized Tariff Schedule) Code: A standardized numerical system used globally to categorize traded goods and assign tariffs at a product-specific level. Historically, HTS codes have allowed for nuanced tariff adjustments—raising or lowering rates depending on the exact product.
Before a shipping container gets to port there is a 7501 form where a tariff is applied and the bill is paid by the freight forwarder, then the importer pays the freight forwarder.

What Seems to Be Happening Now

From everything I can gather, the current administration appears to be ignoring HTS codes entirely and defaulting to COO-based tariffs. That’s a radical shift. Instead of fine-tuning tariffs by product, they’re applying blanket rates based on country.

Worse yet, it looks like the administration calculated a so-called "reciprocal tariff" using this logic:

U.S. Trade Deficit with China: $292 billion
U.S. Imports from China: $434 billion
$292B / $434B = 67%
67% ÷ 2 = 34% “Reciprocal” Tariff

This math wouldn't pass a kindergarten quiz. But if we assume it’s going forward, here’s what that 34% tariff could look like in practice.

Impact of a 34% Tariff on the Supply Chain

Let’s say an importer currently brings in a product with a cost of $100. Here are three common strategies they might take in response to a new 34% tariff:

1. Tariff Not Recovered by Wholesale Price

Importer COGS: $134 (after tariff)
Wholesale Price: $200
Gross Margin: $66 (33%) ↓ from $100 (50%)

Retailer Price: $400 → No change
Consumer Impact: None
Bottom Line: The importer is bleeding margin. Unsustainable.

2. Tariff Cost Recovered Dollar-for-Dollar

Wholesale Price: $230
Gross Margin: $100 (43%)—dollars preserved, % eroded

Retailer Price: $430
Consumer Impact: 8% inflation
Bottom Line: Everyone survives—for now—but the consumer starts to feel it.

3. Price Increase Matches Tariff %

Wholesale Price: $260 (30% increase)
Gross Margin: $130 (50%)—profit dollars and percentage protected

Retailer Price: $520
Consumer Impact: 30% inflation
Bottom Line: Business margins are preserved, but this is a train wreck for the consumer. Demand likely drops.

Takeaway: You Can’t Escape the Math

Importers have three basic choices:

Absorb the tariff (and maybe go out of business)
Pass it on partially (hoping consumers tolerate it)
Pass it on fully (and watch demand plummet)

None of these are great options. But only one—a deeper understanding of tariff mechanics—gives policymakers and voters the tools to navigate this intelligently.

I am a visual person, here is a screen shot of the mathematics: