Episode 37
Tariffs Beyond the Headlines: Who Really Pays the Price?
Episode Description
Tariffs are back in the headlines, fueling debates over inflation, trade wars, and economic uncertainty. But beyond the political spin, who really pays the price? Do tariffs actually protect American jobs, or are they just another hidden tax on consumers and businesses?
The reality isn’t as simple as politicians or news pundits make it sound. In this episode, Jason Blumstein, CFA, CEO & Founder of Julius Wealth Advisors, cuts through the noise to break down what tariffs really do, how they impact markets, and what it all means for your wallet.
What You’ll Learn in This Episode:
✔ The real purpose of tariffs—and why governments use them
✔ Who absorbs the cost—businesses, consumers, or both?
✔ How tariffs impact inflation, supply chains, and investments
✔ Which industries benefit from tariffs and which ones suffer
✔ Why tariffs are like Major League Baseball’s luxury tax
✔ What smart investors should watch for in a tariff-driven economy
We’re talking money, markets, and strategy— blending financial insights with sports analogies to make economic policy actually make sense.
Want to stay ahead of the game? Tune in now and learn how trade policy impacts your financial future.
Episode Transcript
Welcome back to the Big Bo $how, where we break down financial topics in a way that actually makes sense. Right now, markets are convulsing over the threat of Trump tariffs. The mere possibility of higher import taxes has investors scrambling and headlines screaming out potential price spikes and economic slowdowns.
But here's the thing. Money isn't made by reacting to headlines. It's made by understanding the facts and making informed decisions. So today we're cutting through the noise and diving into tariffs, what they are, why governments use them, and who actually pays the price. And are tariffs really a way of bringing back jobs or are they just another hidden tax that makes life more expensive?
And most importantly, will they fuel inflation? These are big questions, and as usual, the answers aren't as simple as politicians or talking heads make them sound. So today, we're breaking it down without the noise, just the facts. And make sure you stick around to the end, because in our Bono segment, we'll be looking at how tariffs are a lot like Major League Baseball's luxury tax.
My New York Mets have been outspending everyone, but has that translated to success? Nope, just like tariffs, the luxury tax forces teams to make tough financial decisions, and not all of them pay off. So buckle up, because we're about to separate the real impact of tariffs from the political and news channel spin.
Let's get into it.
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Alright, let's get after this episode. We set the stage. Tariffs are in the headlines and markets are reacting. But before we get into the impact of tariffs, let's take a step back and start with the basics.
What exactly is a tariff? Most people hear the word and immediately think of taxes, higher prices, or even trade wars. But tariffs have been around for centuries, used for different reasons at different times. So before we debate whether they're good or bad, let's first break down what tariffs actually mean.
and why governments impose them. Because to understand what's happening now, we need to know how we got here. So let's get into it. So what is a tariff? A tariff is a tax imposed on imported goods. When a product is brought into a country, the government charges a fee. The importing company is responsible for paying the tariff, but who actually absorbs that cost?
We'll get into that later, but first, why do governments use tariffs? There are three main reasons governments impose tariffs. The first is protecting domestic industries. When foreign competitors can produce goods at lower cost, U. S. companies can struggle to compete. A major reason for this, labor costs.
You see, the average U. S. manufacturing worker earns about 35 an hour. In China, that number is about $6.50 per hour. In Mexico, it's about $5 per hour. And in India, some estimates put manufacturing wages as low as $2 per day. That's not a small difference. Countries like China and Mexico have a huge labor cost advantage over US companies.
So tariffs make imported goods potentially more expensive, helping domestic industries compete by offsetting lower foreign production costs. Governments often use tariffs to protect key industries like steel, agriculture, and manufacturing, sectors considered critical for national security or economic stability.
The second reason, revenue generation. Did you know that before income taxes, tariffs were the primary way the U.S. government raised money? In the 1800s, tariffs funded over 90 percent of revenue in some years. That changed in 1913, with the 16th Amendment introducing income tax, giving the government a more stable revenue source.
Are tariffs still a major source today? Let's check it out. Let's run the numbers. In 2024, the government collected $4.92 trillion in total revenue. Of that, custom duties, mostly tariffs, accounted for 1.7% or about $83.6 billion of this revenue. That's a fraction compared to income and corporate taxes.
So while tariffs still generate revenue, they're no longer a primary funding source. And even if these numbers double or even triple, still a very minor percentage.
And number three, trade policies and political leverage. Tariffs aren't just about money. They're a bargaining tool in trade disputes. A lot of what's going on right now.
Governments use tariffs to encourage other countries to change their trade policies, punish unfair trade practices, and strengthen negotiating power in trade deals. For example, what went on under Trump's first term in the U.S.-China trade disputes? The U. S. imposed tariffs on Chinese electronics, citing concerns over intellectual property practices and trade imbalances.
In response, China imposed tariffs on U.S. agricultural exports, impacting American farmers. The result is increased trade tensions, leading to uncertainty supply chains, and shifts in business investment strategies.
And let's highlight that word uncertainty, because what's playing out right now, not just with China, but also with Mexico, Canada, and Europe, is uncertainty.
Businesses and markets hate uncertainty. When tariffs get thrown around, businesses don't know the rules of the game. So they pause investment, slow hiring, Or shift supply chains. And that's exactly what's happening now. No one truly knows the rules. So people are pausing to see. However, once people know the rules, businesses should be able to adjust accordingly and march forward.
We just need to know the rules of the game and businesses and people tend to adjust accordingly. So now that we've broken down what tariffs are and why governments use them, they can protect industries, generate revenue, and serve as a leverage in trade negotiations, but also create ripple effects, some intended, some not.
Here's the big question. Who actually pays for tariffs? On paper, tariffs are a tax on importers, but does the cost stay with the businesses bringing in the goods, or does it get passed down to the consumers? And more importantly, do tariffs drive inflation, making everything more expensive? We'll get into that in our next segment, but first let's take a quick break, but stick around because what we're about to discuss might just change the way you think about tariffs.
We'll be right back.
All right, now that we understand what tariffs are and why governments use them, let's tackle the next big questions.
Who actually pays for tariffs and do they cause inflation? These are huge topics and like most things in finance, the answer isn't as simple as it seems. So let's break it down and separate the facts from the headlines. Tariffs impact different groups in different ways. And I always say the number one answer in finance is it depends.
So, who pays? The common belief is that tariffs are a tax, so they get passed down to consumers through higher prices. But that's not always the case. Why? Because pricing isn't just about cost. It's about competition. There are multiple parties in this equation. The importing business, the consumer, and overall market forces, supply and demand.
So, who absorbs a tariff? The weakest hand. Whenever there's a tax in economics, the weakest hand will absorb tax. If businesses can push higher prices onto consumers, they will. But if consumers refuse to pay, businesses may be forced to eat the cost to stay competitive. Sometimes the tariff gets split with businesses absorbing some and consumers paying some as well.
For example, let's look at a 25 percent tariff on imported goods. Let's just say a company comes in and has a 25 percent tariff. What are their options? They can raise prices and pass the cost to the consumer, absorb part of the cost to stay competitive, or find alternative suppliers. Maybe a domestic manufacturer who can now compete.
In industries with tight competition, companies can't raise prices too much or they'll lose business. For example, some highly competitive industries are electronics, clothing, furniture. They have high competition with lower ability to pass costs to consumers. However, some companies do have pricing power, meaning they can charge more without losing demand.
For example, iPhones, some luxury brands, and niche products. So let's look at an example. Let's look at avocados versus iPhones. Who has the pricing power in this equation? If tariffs make avocados more expensive, people may stop buying or switch to a substitute product. You do not need to eat guacamole and you do not need to put avocados on your salad.
So maybe you switch, maybe you put something else on your sandwich. But if tariffs hit iPhones, Apple knows that consumers will probably still pay more. That's why some industries feel the impact more than others. Now that we know who might pay for the tariffs, let's talk about whether they may actually drive inflation.
But first we have to analyze how inflation actually works. There's cost push inflation, and there's also demand pull inflation. What we're talking about here with tariffs is simply cost push inflation, where higher costs for materials or labor forces businesses to raise prices. And this is how tariffs might play a role.
If tariffs make raw materials like steel, aluminum, or semiconductors more expensive, the cost of that good increases. Companies might either absorb the cost or raise prices, which can lead to inflation. The key difference here is that this inflation is totally different than what we experienced over the past few years.
The inflation that we experienced over the past few years is what's known as demand-pull inflation, where there's too much money in the system chasing too few goods. When monetary and money increased over the past few years during COVID, this amount of money in the system created excess money supply causing demand-pull inflation.
It's a totally different phenomenon than cost-push inflation. The other way is supplying chain disruptions and scarcity. Tariffs don't just increase cost, they can also reduce supply. If foreign suppliers get hit with high tariffs, they might cut shipments or stop selling to the U.S. altogether. Fewer goods available equal higher prices due to scarcity.
However, in today's economy, the U.S. is the largest importer for most countries. So it's unlikely foreign suppliers will completely pull out. And the third is the psychological impact. Sometimes just the expectations of tariffs can influence prices. Businesses may preemptively try to raise prices.
Workers may demand higher wages. And these behavioral shifts can potentially lead to inflation even before tariffs fully take effect. However, once businesses and consumers adapt, this effect may fade over time. On the flip side, can tariffs potentially reduce inflation? Let's take a look at this. Because here's where things get interesting.
Tariffs don't always lead to inflation. In some cases, they may even help lower prices or slow inflation. The first way is by decreased consumer demand. If tariffs raise prices too much, consumers will buy less. Companies may be forced to lower prices to maintain sales. This is deflationary. It's also potentially recessionary, as demand can slow price increases.
Number two, domestic production increases. If tariffs encourage domestic manufacturing, competition may stabilize prices over time. If companies invest in U.S. production, they may reduce reliance on imports. However, this only works if domestic costs stay competitive. So in conclusion, do tariffs cause inflation?
Sometimes, but not always. It depends on who absorbs the cost, how supply chains adjust, and whether businesses raise prices or absorb expenses. The economy is a game of strategy. And competition. But speaking of competition, what can tariffs teach us about sports? Coming up in our Bo Know$ segment, we're going to compare tariffs to Major League Baseball's luxury tax, and how teams adapt to financial penalties.
It's going to be a game changer, folks. Stick around.
Alright, we spent this episode breaking down tariffs, a heavy subject. What they are. Who pays for them and whether they will cause inflation. But here's the fun part. Tariffs don't just exist in the world of economics. Let's kick this off with the Bo Know$ segment and talk about where this appears in the world of sports, major league baseball.
It has its own version of a tariff. The luxury tax, also known as the competitive balance tax. And just like tariffs and global trade, the luxury tax in baseball impacts how teams operate, who spends what, and ultimately who wins and who loses. So let's break it down because as any Mets fan like myself, I know that spending doesn't always guarantee success.
So how does baseball's luxury tax work like a tariff? You see in baseball, there's no salary cap, like in the NFL or the NBA. Instead, major league baseball has a luxury tax threshold. If a team exceeds that threshold, they get taxed on every extra dollar they spent. Sound familiar, right? It's basically a tariff on high payrolls designed to make excessive spending less appealing and promote a more level playing field for smaller market teams.
Just like tariffs discourage companies from relying too much on foreign goods, the luxury tax discourages teams from outspending everyone else to stack their rosters. Instead of protecting domestic manufacturers, the luxury tax protects a smaller market team, like the Rays, the Brewers, and the A's, from being competitively outmatched by the Dodgers, Yankees, and yes, my New York Mets.
So let's look at a case study among New York Mets. Because they've been a perfect example of what happens when you ignore the tax and just spend, spend, spend. You see, Stevie Cohen bought the Mets in 2020. And as a billionaire hedge fund manager, he did what the Mets fans ultimately wanted him to do. Spend his unlimited money and started throwing cash at the roster.
The Mets payroll skyrocketed past a higher tax threshold, triggering today, what they call the Cohen tax, a special extra penalty for extreme spending. In 2023, the Mets spent over $350 million on their payroll, more than any team in Major League Baseball history.
The result? They finished under 500, 75 wins on 87 losses, And they missed the playoffs. So here's the lesson. Just like tariffs don't guarantee economic success, spending over the luxury tax doesn't guarantee championships. The interesting part is the Mets didn't really pass all these costs on to the consumer.
Yeah, ticket prices went up marginally. Parking prices did too. But Steve Cohen openly admitted he's not trying to make money on the Mets. He's spending because he wants to win, just like in our earlier examples, the manufacturer quote unquote in this example, Stevie Cohen, he's absorbing some of these extra costs.
He's not passing all of these extra costs on to the consumer. Just like companies adjust their supply chains to avoid tariffs, Major League Baseball teams adjust their payroll strategies to avoid the luxury tax. Take the recent summer spectacle with Juan Soto leaving the Yankees and signing with my Mets.
The Yankees, perennially known as big spenders in baseball, however, they've become more strategic in recent years. They wanted to sign Juan Soto, but knowing that they were already flirting with the tax threshold, they had to make selective decisions on how to structure their payroll. So they passed on Soto.
Will this be a smart decision? Only time will tell. But this is exactly like companies trying to navigate tariffs. They may still import foreign goods, but they adjust how much, when, and from where they limit their tax exposure. Meanwhile, you have teams like the Dodgers, who have spent aggressively pushing into the luxury tax territory.
But unlike the Mets, they're making strategic, calculated moves to get elite talent, like Shohei Ohtani and backloading his contract payments. That's a sophisticated way to help avoid some of the luxury tax. So just like tariffs force businesses to rethink their strategies, the luxury tax forces teams to decide how much they're willing to spend and whether the extra cost is worth it.
The point is strategy wins the game, not just money. It's all about strategy and competition when it comes to business. The Mets prove that just spending more doesn't guarantee results, and neither do tariffs, in one way or the other. Whether you're a government setting trade policy, a business managing rising costs, or a team balancing payroll under the luxury tax, strategy matters more than just raw spending power.
If businesses pass all tariff costs onto consumers, demand may drop. If they absorb too much of the costs, profitability suffers. Similarly, if a Major League Baseball team spends recklessly past the luxury tax, they might end up like the Schmetz, paying a premium without delivering results. You see, at the end of the day, the most successful businesses, investors, and teams aren't the ones that just throw money at problems or react emotionally.
They're the ones that spend wisely, adapt to changing conditions. And play the long game. Success isn't about spending the most, it's about knowing the rules and making the right plays. And just like in baseball or business, the same principles apply to your personal wealth. At Julius Wealth Advisors, we take the same strategic approach, helping you navigate financial decisions. With confidence
Whether it's understanding how economic policies impact your investments, managing risk, or building a long-term wealth plan, we help you make the right financial plays that last beyond just one season. Ready to take control of your financial future? Let's build a winning game plan together.
Visit www.JuliusWealthAdvisors.com. Call us at 201-408-4644 or email us at info@juliuswealth.com because in investing, just like in sports. The best results come from building by choice, not chance.
So that's it for today's episode of the Big Bo $how. Remember when you see these headlines on the news and this political spin, the answer to tariffs is not as simple as it may seem. It's not only going to push up costs. It's not only going to increase revenue. The answer is very nuanced.
The key is people and businesses need certainty. Once people have certainty, they know what rules of the game they are playing and they can make decisions for the long term.
And with that. I'll sign off as I always do, reminding you to live a life of integrity, pursue knowledge, relentlessly and never stop chasing what you're passionate about. Until next time, all the best.
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