OMG! Tariffs are causing HUGE inflation!

The Trump Administration has announced numbers for tariffs collected. The number is huge, something like $77 billion. Of course the panic vendors are now screaming that this means that Americans paid $77 billion in taxes. They also claim that the tariffs are causing the price of everything to skyrocket.

Let’s take the case of a lowly woodworker making a stool. The stool is made from two pieces of 2×4 by 8 ft.

Because the woodworker wants to up his game, he decides to use a different wood; he chooses Canadian maple.

A quick check on wood prices shows that hard maple is running $6 per board foot. The amount of lumber needed is 2*4*8/12 = 5.33 bf.

Or, 2*4*96 / 144 = 5.33 bf

At a cost of $6 per board foot, this means the cost of the lumber will be $32.

The woodworker uses a $25/hour labor rate. It will take him 3 hours to build the stool using hand tools and rough-cut lumber. That is $75 in labor.

There is another cost for the finish and time for finishing. We are ignoring that part of the equation. He also adds a 20% profit for the business.

Putting it all together, we get $32 for the wood, $75 for the labor, and $21.40 for profit, for a total sale price of $128.40.

Now say that there is a 25% tariff put on importing that wood from Canada. This would be $8 that needs to be paid to the US government.

From a bit of insider knowledge, I know that the $8 can be paid by the company shipping the wood, making the 25% come out of their profit. They might split the cost 50/50, or they can pass the entire cost on to the buyer, our woodworker.

Assuming our woodworker gets the entire $8 passed on to them, let’s see what that does to the cost of our stool.

$40 for the wood, $75 for labor, and $23 for profit, giving a total price for the stool of $138. With a 25% tariff on the cost of the materials, we see a $9.60 increase in the price. That is a 7.5% increase in the price of the stool.

The truth of the matter is that many products only use pennies of tariffed materials in their goods. Hershey increased the price of their chocolate recently. While the left is screaming “Tariffs!” the fact is that cocoa costs went up. The tariffs are a small part of the increase in costs.

The more value added in the US, the more the profit margin is the less impact tariffs have on your costs.

I do know people who are having a difficult time because of the tariffs. Their product uses a gizmo they import from China. That gizmo is not made in the US because there was no profit in making that gizmo here.

Until there is a US competitor for those gizmos, she is going to have to pay the tariffs on those gizmos. She has announced a very modest increase in the price of her goods to cover her increased costs. She feels miserable for doing so.

Regardless, our economy seems to be doing much better in 2025 than it was in 2024.