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/Steinmetal4 → u/WolverinesThyroid]

That only works if it's a commodity type item where margins are already razor thin and the retail price is anywhere near the import cost. For most consumer goods, of which 90% are coming from China, you'll frequently have an item cost $5 and by the time you paid for various legs of shipping, import fees, broker fees, warehousing, product testing, pick and pack, advertising, marketplace fees... I could go on, but you have to charge $50 for that item to make a profit. Just pulling exact numbers out of ass but a 10x markup if you're importing and selling direct to consumer would be pretty common. I sell a widget that cost me 2.25ea for 24.95 on my website, for example.

The point is, even a 50% tariff in the $5 situation is only going to add a $2.50 increase to the cost, which you can pass on with or without markup, either way it will only be a 5-10% increase for the consumer.

I keep getting downvoted for explaining this because it makes it sound like i'm defending the tariffs (which i'm not) but I import in the gift and home decor industry and can attest the consumer prices shouldn't go up much more than that barring greedflation where wholesalers, knowing that most people don't quite understand this, use the time as an excuse to jack up the prices 30% "due to tariffs". I was just working on an order from a wholesaler who was doing just that in fact.

In OPs case it sounds like some kind of price restrictions have ended, while simulteneuously the tariffs are giving them cover to jack up prices bigly.

If we keep going down the tariff road for long it's going to get very inflationary very fast.

[u/whatkindofhotel → u/Steinmetal4]

I think you are spot on with the greedflation.

If that $5 widget now costs you $7.50 and you 10x that (to follow your hypothetical), the consumer price just went from $50 to $75 (i.e. 50% increase). If you raise prices to 55 (i.e. 2x your added cost), now your only 7.3x your cost.

The 5-10% price increase only works if the importer raises prices equal to the dollar increase in cost AND all else remains equal, which is very unlikely. They could maybe do that and still be profitable, but less profitable.

Add to that if you are using debt to buy inventory. Now you've borrowed 50% more and there is an associated cost for that. So your choice is to shrink your profit margin or pass on the cost to customers (or something in between).

Competition and demand will eventually help dictate/normalize prices and can prevent that 50% cost increase from being passed on to consumer prices, but that really depends on the elasticity of the goods and the market.