When it comes to tariffs Trump is as decisive as a squirrel crossing the street. I’ve given up trying to keep up with it all. He announces tariffs, delays tariffs, lowers tariffs. I’ve wondered if it’s not a ploy to increase spending to pump up GDP numbers. Big businesses may consider big purchases now if it could save them millions in the long run.
GDP, the D means Domestic. Imports are not counted and any stuff you’re importing that becomes a component of some domestic product is eventually backed out in the accounting.
So no, pumping imports shouldn’t increase GDP one iota. Imports count AGAINST the GDP.
Yes, of course prices will go up. GDP (as a specific measure) takes the imported materials and removes them from GDP.
Example: let’s say you have a chocolate factory in Poland. When you’re calculating the Polish GDP, you can’t count sugar and cocoa that you import as ingredients. You can only count the things that Poles add domestically, so labor and other value you create inside your own country.
In this example, you would take the price of the chocolate bar and subtract the costs of the imports.
Now let’s say sugar and cocoa went up in cost. You have to charge more for the chocolate bar but you also subtract more for the imports in the GDP calculation. GDP could stay the exact same. Also, if the price goes up, maybe people will buy less chocolate, so GDP might even fall.
Ok let’s say for example a car rental agency in a year normally buys 1,000 cars from GM and these cars are 25% foreign parts and 75% domestic parts. Seeing Trump is threatening 100% tariffs on the foreign made portion, the rental agency anticipates the price of GM cars going up substantially. To save money they may buy 2,000 cars now before the tariffs are enacted. I understand your point that the 25% foreign portion of the car doesn’t affect GDP but the domestic 75% sure does. Doubling the number of cars bought this year would raise GDP.
If I understand the numbers correctly, autos and auto parts made outside north america will get a 25% tariff. Presumably this is 25% of the wholesale costs as listed on the invoice when they come over the border.
I am not sure what the markup is on cars, but let’s ignore this for now and just assume that we are paying a tariff on 25% of the MSRP that the consumer pays.
So 25% of 25% would be the final tariff extra charge, which is 6.25% of the total pricetag of the car.
For a rental agency, my guess is that a lot of the car fleet they run, they don’t buy for outright cash but they more than likely finance the vehicles, rent them for a while and then sell them on for their residual value and pay off the loans.
I’m not sure that most car rental agencies would consider the 6.25% enough of a price jump to go out and double their car fleet purchase UNLESS they think they have a good shot at renting those vehicles.
Because of the way that vehicles depreciate, having aging vehicles that are costing you insurance, storage, cleaning, capital depreciation etc is a huge liability.
Also, consider that they need to resell these cars in a year or two. The resale market has to be able to absorb the vehicles so that the car company is able to liquidate and reduce their liabilities.
Putting this in simple terms, a car company shopping ahead of the tariffs would be getting 20 cars today for the price of 19 tomorrow.
I suspect the fundamental rental business will be the largest factor. Sure companies may pull orders forward a few months, but in this example I doubt they will buy an entire double annual allotment of vehicles… There is not enough “savings” there to make borrowing that much money (and paying interest) make any sense. They are going to optimize around having the vehicles they do run being fully rented as much of the time as possible
And so at the end of the year, you’ll take your GDP calculator and figure out what the economy did.
Perhaps all the orders that would have happened in July were paid in March, but it could work out to be the same size economy.
When it comes to tariffs Trump is as decisive as a squirrel crossing the street. I’ve given up trying to keep up with it all. He announces tariffs, delays tariffs, lowers tariffs. I’ve wondered if it’s not a ploy to increase spending to pump up GDP numbers. Big businesses may consider big purchases now if it could save them millions in the long run.
It is pure madness and shows this administration is a total shit show. I guess at least the US can make all the countries laugh.
GDP, the D means Domestic. Imports are not counted and any stuff you’re importing that becomes a component of some domestic product is eventually backed out in the accounting.
So no, pumping imports shouldn’t increase GDP one iota. Imports count AGAINST the GDP.
You’re oversimplifying things.
GDP = C + I + G + ((X − M))
M = Imports. Note the negative sign.
The GDP is specifically designed to not count any imports in any estimated domestic production.
But given that goods produced domestically often use materials that are imported won’t that raise the cost of those goods?
Yes, of course prices will go up. GDP (as a specific measure) takes the imported materials and removes them from GDP.
Example: let’s say you have a chocolate factory in Poland. When you’re calculating the Polish GDP, you can’t count sugar and cocoa that you import as ingredients. You can only count the things that Poles add domestically, so labor and other value you create inside your own country.
In this example, you would take the price of the chocolate bar and subtract the costs of the imports.
Now let’s say sugar and cocoa went up in cost. You have to charge more for the chocolate bar but you also subtract more for the imports in the GDP calculation. GDP could stay the exact same. Also, if the price goes up, maybe people will buy less chocolate, so GDP might even fall.
Ok let’s say for example a car rental agency in a year normally buys 1,000 cars from GM and these cars are 25% foreign parts and 75% domestic parts. Seeing Trump is threatening 100% tariffs on the foreign made portion, the rental agency anticipates the price of GM cars going up substantially. To save money they may buy 2,000 cars now before the tariffs are enacted. I understand your point that the 25% foreign portion of the car doesn’t affect GDP but the domestic 75% sure does. Doubling the number of cars bought this year would raise GDP.
If I understand the numbers correctly, autos and auto parts made outside north america will get a 25% tariff. Presumably this is 25% of the wholesale costs as listed on the invoice when they come over the border.
I am not sure what the markup is on cars, but let’s ignore this for now and just assume that we are paying a tariff on 25% of the MSRP that the consumer pays.
So 25% of 25% would be the final tariff extra charge, which is 6.25% of the total pricetag of the car.
For a rental agency, my guess is that a lot of the car fleet they run, they don’t buy for outright cash but they more than likely finance the vehicles, rent them for a while and then sell them on for their residual value and pay off the loans.
I’m not sure that most car rental agencies would consider the 6.25% enough of a price jump to go out and double their car fleet purchase UNLESS they think they have a good shot at renting those vehicles.
Because of the way that vehicles depreciate, having aging vehicles that are costing you insurance, storage, cleaning, capital depreciation etc is a huge liability.
Also, consider that they need to resell these cars in a year or two. The resale market has to be able to absorb the vehicles so that the car company is able to liquidate and reduce their liabilities.
Putting this in simple terms, a car company shopping ahead of the tariffs would be getting 20 cars today for the price of 19 tomorrow.
I suspect the fundamental rental business will be the largest factor. Sure companies may pull orders forward a few months, but in this example I doubt they will buy an entire double annual allotment of vehicles… There is not enough “savings” there to make borrowing that much money (and paying interest) make any sense. They are going to optimize around having the vehicles they do run being fully rented as much of the time as possible
And so at the end of the year, you’ll take your GDP calculator and figure out what the economy did.
Perhaps all the orders that would have happened in July were paid in March, but it could work out to be the same size economy.
I tried to use a simple example to make my point. You’ve ignored my point and are debating the imaginary example.