Tariffs Explained: Who Really Pays, Who Profits, and What the News Isn't Telling You

In this podcast, you'll get the real story about tariffs—the story you won't hear from most major financial news networks. I'll explain how tariffs are collected, who actually pays them, and where the money goes. We'll also discuss the tariff laws and policies you hear quoted in the news and what they really mean.

Most importantly, I'll share real-life examples of when tariffs work, when they don't, and how tactical investors should look beyond the headlines to understand their downstream effects on companies, industries, and the broader economy.

Transcript

SPEAKER_00 0:16

Hey, well, welcome to Tactical Investing in Your Strategic Plan. Yes, your strategic plan is what we're going to talk about, and the information here is I'm going to pass along is good information on tactical investing for your strategic plan. Before I get into my favorite topic of all time, which is yeah, maybe not all time, but I'll leave it uh I'll leave you suspensible for the moment. Um let's talk a look and see how the markets did last week. All right, just the three major indexes I'm gonna take a look at uh and report here. So the Dow was down uh a negative 0.38%, uh the SP was down a negative 0.61%, and the NASDAQ, uh they did it again, they're leading the downside of the markets down 2.13%. So that's how the markets ended up last week. Uh on Monday night here, the trading. I saw nothing in today's trading that would make me change any of my mind about what's going on or how long or if anything's gonna change from a trading standpoint or a short-term market uh look. Now, let's talk about tariffs. Tariffs have been in the news again and quite a bit since uh our president has found a new way, or thinks he found a new way to hit tariffs and keep them going. Um but I talked to a lot of people and there's a lot of misunderstandings. So let's get the proper uh course that tariffs go through. All right, so the government imposes the tariff, right? And an example is like uh a shipment of machinery enters the US uh declare or uh declare through customs value, the declared customs value, let me get that straight, is $100,000. The tariff rate is 20%, and the tariff owed is $20,000. Now, who actually pays the tariff? Well, the U.S. importer of record pays the tariff, not a foreign manufacturer. For example, Samsung manufactures a television in South Korea, a U.S. distributor imports it. The U.S. distributor pays the tariff to the U.S. customs before the goods are released. And that uh person who wants the uh tariffs, they pay. Now, how does it collect it? Let's look at that. The tariff is actually collected by the U.S. Customs and Border Protection and at the port of entry, and the uh importer either pays you know through uh immediately or uh uses a customs broker or pays through a deferred payment account. Now, without payment or an approved bond, the shipment generally cannot be released. So that's who's paying for it. Now, this is important too. Where does the money go? And this is gets talked about a lot. So let's clear this up. The money goes to the U.S. Treasury's general fund. All right, it becomes federal revenue. Just like income taxes, just like corporate taxes, just like excise taxes, Congress ultimately decides how federal revenue is spent through the appropriations process. Uh, the tariff revenue is not earmarked specifically for any particular program. So let's take a political view here, and it makes sense that uh you know we're all complaining about uh you know wanting more money in our pockets, so let's do a nice tax cut. Let's let's cut taxes and put everybody, we're all gonna get more money in our pockets now. Wonderful. Uh but what we can do, how we can handle the shortfall here because there is gonna be shortfall, there's math, right? So the shortfall is covered through how about tariffs? It goes to the same account as income tax, so I'll give money more back in income tax and take money and give it back in through tariffs. Uh will that be nice? Will it work out? A little bit left to see, but I'm not optimistic. Uh, you know, will I save uh five percent on uh my income? Will I collect an extra 5% on the gring, or will I pay an extra 30%? And I'm being ridiculous, obviously, okay, just to make a point. And let's pay a 30% on uh the extra cost of goods. It doesn't quite work out for me. But the guy who gave me the tax cut, he's a hero. Alright, that's that's enough of my soapbox crap. All right, let's now let's take a look at examples of tariffs and how they work and and have their hand. They, you know, you've heard a lot about um, you know, the different acts that uh Trump has or read about different acts that Trump is trying to uh utilize to get his uh tariffs in place and keep them there. One of the acts was talked about was the Smoot Harley Haley, Smoot Haley tariffs tax or tariffs um legislation that passed uh around 1929. And when that passed, a group of more than a thousand economists signed a public appeal against the tariff increases. Basically, their um comment overall was America is now facing the problem of unemployment. The proponents of higher tariffs claim that the increase in rates will give work to the idol. This is not true. We cannot increase employment by restricting trade. And we all know what happened to employment after 1929 or so. Let's see, uh United States unemployment uh 6% in the 1930s, uh the following year like 9%, and a year later unemployment was 15%, and the year after that it was like 26%. Yeah, swing and a miss. So now that's the 30s, right? That's depression. We don't have the same market we had now as we did then. So let's let's get realistic. Let's talk about more recent uh news or evidence, if you will, to go either way. All right. So let's talk about sugar because I've got a story um that I want to share. Uh I am a uh senior economics student. Uh I've taken a lot of upper-level international trade and economic courses. So I am, you know, smart, I am knowledgeable. And I'm flying from uh uh LA to Washington, DC, and just guess who's sitting next to me? But a professor in economics from UCLA. Whoa, I hit the jackpot. So I got hours next to this guy, and I got to pick his brain. Well, I didn't beat him up too much. Uh I tried to be nice. But I did ask why he was going to DC, and his answer was, well, he's going to uh give testimony in front of Congress on uh whether uh tariffs should be put on imported sugar, uh, particularly uh forcing Hawaii and the Hawaii sugar um uh industry would really is really suffering from the low cost of sugar that's being imported and competing with their domestically produced sugar. So uh he's gonna go talk to them about it now. I'm very interested what he's got to hear because I know the answer. I mean, everything I've studied and read about tariffs, they're not good. You gotta find another way, you know. But maybe he knows another way, maybe he's gonna share another way uh to help the sugar industry without putting tariffs down. Well, you know what his answer was? He said, yes, I'm gonna say they need to put tariffs. Well, if you think about it though, it's not a tariff that's punishing a country, it's not a tariff that is placed on everything in the world coming in, it's a tariff placed on one item to help one industry that can be thoughtful going down the economic chain, right? So they got it. Sugar was not bad, but uh guess what? The uh because of the high cost of sugar used in making confections, the confection industry lost jobs, they lost money, they're losing jobs. It's not working out so well. So some of these American firms relocated to Canada and Mexico because sugar costs were lower and they could make their candy there with the lower shock cost of sugar. Um that was around 2010, 2013. I mean, uh 2013, uh let's see here, a uh Atkinson candy company had a factory in Guatemala. So there was a down uh river, downstream, a downstream issue with the higher sugar costs, confection industry. They got hurt. So my point being is that anytime tariffs are done, one, you know, when it's a broad tariff on everything, it really isn't there for an economic reason. Um, but if it's uh um all there, then uh, or it's just you know, even on just one item, you have to think downstream. How's it gonna help? Now, I want to bring this up too from a tactical standpoint because tactical thinkers don't think just okay, sugar, the uh sugar industry is gonna do better, so I'm gonna buy some sugar company stock. No, maybe not. Uh, because if confection companies are paying a lot of money for their sugar and they move to another country and get their sugar somewhere else, then they're not buying the sugar at their price because they just don't need it. So it's uh, you know, you you gotta give this stuff some thought. And hopefully, reading my book, Um Tactical Investing for your strategic plan will give you enough insight and help in thinking the way you need to think when it comes to buy, sell, and hold. All right, and it's not simple math either, because simple math doesn't always um indicate the best process. Um, you know, when you're planning your strategic, when you're having your putting together your strategic plan, uh, it's great to say, well, uh, you know, this uh logarithm of uh numbers tells me that uh you know uh markets are good, uh ratios are good, you know, all these numbers come into play, and it lets you know what industry or company and everything's doing good. Well, you know there's another end result here when it comes to your strategic strategic planning, and then comes to your tactical execution, um, is you need to also recognize uh not just hard facts but your personal goals. What does uh retirement look like to you? Uh ask anybody two years from retirement or in retirement or about to retire, they'll tell you it's a stressful time that uh you know they're trying to figure out what or how they're gonna do things, or maybe they've got it all figured out. Life is good, and they know exactly where they are, and they know exactly what they want to do because they have planned for it, and that's exactly who you are because you've planned for it, you've taken the right tactical uh steps to get there, and you're there, and now you can spend more time with your grandkids, or you can spend more time or spend less time with your grandkids, whatever it is you see is a um good retirement, a goal, achieved goal. It's not always by the numbers, okay? Take a look at what's personal to you. So, all that is very important information. Uh, you know, I bring a lot of this up because I want to make sure you're understanding these uh tactical uh decisions. Uh, it's important to review not just one item, not just the numbers, but go deeper and beyond that. Again, I talk about this quite a bit in my book, and you'll uh hopefully get a lot of uh great information and how to do this and make it work for you because it has worked for me. Um that is the bottom number here. Um, so with all that being said, uh I think what's gonna happen now with the oil prices in that industry, oil came down today. Some of the uh you know, the energy industry was down, the stocks were down a little bit, uh, they've been up. Uh, I still think there's a lot of uh value in the uh energy industry. Now I mentioned a couple of weeks ago, you know, let's pick some up. Uh would I buy some now? I'm a little bit more hesitant now. I I haven't sat down and answered my questions that need to be answered and go through my um matrix of thinking, if you will, um, about uh, you know, what should I do now? Should I buy more, keep what I got? You know, I need to make that decision, and I'm going to, and I'll let you know what that is. But right now, uh my decision is my decision is not to buy anymore, is to hold it. That's what I'm reading now, that's what I'm going through now, that's what my uh tactical thinking tells me. So that's where I'm at with that. Uh with all that being said, you know what? I just want to say thank you for everybody for what you do, um, for the wonderful uh time you give me to talk with you. And uh just remember one thing uh that emotion has no place in making an uh economic decision or a financial decision. Uh the only place that might come in and do, you know, is my sleep factor um caveat. But keep emotion out of these decisions, be practical, be the um major field commander and be successful, win, and you will be successful. Okay, thanks a lot for taking the time to listen. Really appreciate it, and hopefully you'll um see you then and uh talk to you next week. Take care.