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.
You’re arguing that business will order more supplies, inventory, services, goods this year than their business fundamentals would be able to use to “stockpile” items and avoid a tariff.
Like they won’t shift their orders forward in time, they will double their orders.
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.
You’re arguing that business will order more supplies, inventory, services, goods this year than their business fundamentals would be able to use to “stockpile” items and avoid a tariff.
Like they won’t shift their orders forward in time, they will double their orders.
Make the case. How would that work?