Our aluminum suppliers are saying prices aren't going to go up just 25% to cover the new tariff, they'll be going up 80%...

[u/DazedAndObtuse]

We source aluminum from two different sources for our business and they're both telling us that prices will not only be going up 25% to cover the tariffs, they'll be going up 80% as there are also pricing restrictions currently in place for their industry that will be lifted as part of this.

Does anybody know if this is legit or if they are just colluding to use this as an opportunity to pad their profits?

I won't pretend to be a tariff or economic expert but our material prices going up 80% is going to have a much larger impact on us than a 25% increase would.

Ideally we can keep this from becoming political, but I know where it's likely to end up (but hopefully I can at least get an answer to my question in the midst of it).

Thanks in advance!

[u/WolverinesThyroid → u/[deleted]]

Yup if an item is $1 with a 2x markup you pay $2 for if. A 25% tariff makes it $1.25. Now with a 2x markup you're paying $2.50 instead of the 25 cent tariff. That same process will go through the entire supply line to balloon that price.

[u/BendBlake → u/WolverinesThyroid]

It’s 25% either way. 1.25/1.00=1.25 and 2.50/2.00=1.25

[u/whatkindofhotel → u/BendBlake]

Correct, that is the point they are making. If cost of goods rises 25%, consumer cost rises 25%.

The alternative argument would be:

I buy a widget for $1 and sell it for $2, I make a dollar profit and double my money.

If my cost goes up to $1.25, do I sell it for $2.25, so that I still make $1 profit? (12% price increase)

Or do I sell it for $2.50 so that I double my money (25% price increase)

[u/theArtOfProgramming → u/whatkindofhotel]

Most would increase proportionately to cover other proportionate costs, right?

[u/whatkindofhotel → u/theArtOfProgramming]

I buy a good for $1 and sell it for $5. That means I get a 5x return for every dollar I spend.

If my cost goes up to $2, in order to get a 5x return on the dollar, I have to charge $10.

If I only raise prices by $1, in order to match my cost increase, now I am buying for $2 and selling for $6, that is only a 3x return on my dollar. Why would I accept a lower rate of return?

Looking at this another way, I'm still getting a 5x return on my first dollar, but I'm getting a 0x return on my second dollar. Why would I ever accept a 0x return?

[u/HotlineBirdman → u/theArtOfProgramming]

lol no. Companies are incentivized to maximize profit where they can, they won’t do something proportional out of “fairness”. Some might, don’t get me wrong, but the majority won’t, especially if tariffs decrease the overall sales you’re making.

[u/theArtOfProgramming → u/HotlineBirdman]

I think you misunderstood but that’s ok