When I watched this clip by Wilbur Ross – all I could think of was Mr. Ed. But what did he say?
“In a can of Campbell’s Soup, there are about 2.6 pennies worth of steel. So if that goes up by 25 percent, that’s about six-tenths of 1 cent on the price on a can of Campbell’s soup,” Ross argued. “I just bought this can today at a 7-Eleven … and it priced at a $1.99. Who in the world is going to be too bothered?”
Ross is doing his best (I guess) to explain the Effective Rate of Protection:
The principle objective of a tariff is to dampen imports in order to encourage domestic production of the protected industry. Until recently, the protective effects of a tariff were measured in terms of nominal rate of tariff on the imports of final products. It was believed that a higher nominal rate tariff of would bring a larger increase in the output of the protected industry. But the various duties imposed by a country are not likely to give a true picture of the degree of production afforded by the nominal tariff rate. For the nominal tariff rate does not take into consideration the amount of the duty on imported intermediate products and raw materials which are used in domestic import competing industries. The theory of effective rate of protection takes into account duties levied on such raw material and intermediate products. It measures actual rate of protection that the nominal tariff rate provides to domestic import competing industry. The nominal tariff rate is the rate of duty on the value of the imported final product (as for example the ad valorem tariff). It is important to the consumer, because the nominal tariff rate affects the price of final goods which the consumers ultimately consume. The effective rate of tariff, on the other hand, is important to producers, because the degree to which their production activity is protected from foreign competition depends upon effective and not the nominal rate of tariff.
In cases where the percentage of the imported inputs in the locally produced good is very small, then maybe we should not be too bothered, but let’s consider another example:
it does.
well, i dunno
if a penny a can is too small to notice, why do the soft drink companies go crazy and spend a million dollars to defeat a nickel a can tax on soft drinks. or even a refundable nickel a can deposit?
meanwhile that’s a penny on one can… how much is the tarrif going to cost the consumer all all the cans (assuming he does not recycle)? and all the other things he buys with a penny or a dollar or a hundred dollar tarrif hidden in the price?
thing here is you need to distinguish between an honest argument and one designed to fool the people, or the reporters and commentators who cover them.
and why does everyone go crazy when i propose a one tenth of one percent per year increase in the payroll tax…. that you get back with interest when you need it most?
and i didn’t even mention the cost to the consumer of the retaliation tax (tariff) other countries will impose on our exports.
or the roughly one thousand dollars i lost on the market when the market heard about Trumps tariff?
That said, I would favor a patriotic tax on companies that relocate overseas to avoid paying american wages and avoid american environmental protection and health and safety regulations.
Based on estimates, the material cost for one can is ~$0.02
(Real pricing estimate is $0.01575 – I just rounded up. (2016)
The Can
A Can estimate: $0.01/can
Aluminum soda cans are around $0.05 – $0.10 per can for orders of less than 100,000 units.
Prices decrease substantially as quantity increases, so I suspect that Coca-Cola is paying less than $0.01 per can, given that they distribute 1.9 billion servings of coke per day. Granted, some of these “servings” are from soda fountains and glass bottles, etc, but it gives a good picture of the scale at which they are operating. https://www.quora.com/How-much-does-it-cost-to-manufacture-355-ml-12-fl-ounces-of-Coca-Cola-Do-we-pay-much-more-than-that-What-accounts-for-the-difference-How-do-they-get-so-many-people-to-pay-so-much-more
Cost of 1.9 billion Coke cans a day in material is $19 million. Multiplied by 10% in additional cost or $20.9 million. The can went from $.01 to $.011 in material cost. I would fight for a $1.9 million dollar cost reduction.
Use any number you wish as the cost of material for soda. The difference due to a tariff is large and worth ~$750 to Coca Cola.
RE runs comments is that for the cost of the can or the cost of the aluminum only. Also consider that 60% of soft drink cans are now recycled and I suspect a few campaigns could make that number go up.
It appears there are 14.9 grams of Al in a can. Note that the us also imports empty soda cans, where the tariff would not apparently apply. The us recycling rate is 63% so that would mean each can needs 5.5 g of virgin Al. It appears then that you can get about 363,000 cans per ton virgin al. Assuming all the al increases it is $.0018 per can. With soda at 4.67 per 12 pack, it would then increase the cost by .02 per pack.
Lyle:
Granted my calculation was for virgin aluminum which would result in a much higher cost for aluminum in production. My number for Coke is true considering such. Using your 63% recycled material in coke cans and other beverage, the cost penalty to the beverage industry is ~$347 million.
“According to third-party analyses, this 10% tariff will create a new $347.7 million tax on America’s beverage industry, including brewers and beer importers, and result in the loss of 20,291 American jobs. We appreciate the many members of Congress—both Republicans and Democrats—as well members of the cabinet who spoke out against imposing this tariff, many of whom specifically cited their concerns for how this tariff would negatively impact America’s beer industry.” http://www.beerinstitute.org/press-releases/beer-institute-condemns-president-trumps-announcement-impose-tariffs-aluminum-imports-next-week/
That six pack is still going to cost more in price and in lost jobs.
Lyle
I appreciate your, and Run’s, information on the cost of Aluminum per coke can.
But aren’t you falling into the trap set by Wilbur Ross and focusing on the cost of a very tiny item instead of the cost to the economy, including the cost of big items and retaliatory tariffs…?
And these are the people running our country.
““Whatever his final decision is, is what will happen. What he has said he has said; if he says something different, it’ll be something different”
Wilbur Ross
we are so screwed
@Run75441
Making numbers bigger does not make them meaningful. In the overall scope of Coca Cola’s operations cost $341 million is utterly trivial, and for that company to get excited about such a minor expense would be a case of “stepping over dollars to pick up pennies.” Companies managed in such a fashion fail rapidly. The equivalent of the Pentagon counting paperclips.
Similar tactics are used to make corporations appear evil, citing their profits in billions of dollars, and not mentioning that they are actually on the order of 8% of sales.
Bill:
I used pure Aluminum in the calculation, which Lyle reminded me was not the case. The question still remains whether a tariff will have an impact on the economy. In my opinion, it will and it will cost jobs rather than create new ones or save jobs.
Coke soda cans is an example of the impact of a tariff on Aluminum. There are many other products where Aluminum is used and an impact will be felt. Overall, the impact will be “yuge.” I would take $347 million as a cost-save and eliminate the tariff. The imposition of such on the nation is just another example of the ignorance of this president. If you wish to associate with such stupidity be my guest as you will get no quarter from me.
The Pentagon should be counting paper clips instead of wasting money on boondoggles; but then again, was this a part of the post by PGL? Was Corporate profits? Nope neither were.
Bill H
I am sure I will not change your thinking, but you need to consider the other side of the coin you are transfixed by.
while a few billion dollars may not amount to much in a trillion dollar economy, when that few billion is multiplied by number (and size) of the other businesses affected it starts to add up to real money. and as Run points out, you ain’t seen the backlash yet.
similarly, 8% profit does not sound like much, but on a billion dollars in sales it adds up to some people living in luxury undreamed of by kings and emperors while others are living in misery and the squalor produced by poverty.
and over the whole economy that 8% adds up and concentrated into a few hands gives them the power to control the country… always, it seems, for the purpose of giving them more money and to hell with the good of the country, the people, the world, or the planet.
instead of being a sucker for the sleight of hand by paid liars for the financial elite, who care for nothing but money, try to look at the bigger picture.
Trump equates our trade deficit with us being ripped off. Let’s do this as a simple example, You walk into Best Buy and purchase a $1000 computer but do not have cash. So you put it on your card incurring a $1000 liability. Even though you now have the computer and Best Buy does not – Best Buy just ripped you off as you have a $1000 financial obligation. An odd statement from someone who routinely defaulted on his financial obligations!
“effective rate of protection” is the dumbest term I
have ever read.
What the hell as dat mean? I am sure that no one
with a IQ over 100 would even understand what it
would mean.
Bill Billson for some odd reason thinks the term Effective Rate of Protection is a dumb term. Menzie Chinn would disagree:
http://econbrowser.com/archives/2017/01/two-trade-policy-terms-to-remember-ver-and-erp
ditto on your comment.
“Similar tactics are used to make corporations appear evil, citing their profits in billions of dollars, and not mentioning that they are actually on the order of 8% of sales.”
I’m curious where this 8% operating margin figure is from. Coca Cola’s operating margin is usually near 25% whereas Campbell Soup’s is generally near 15%.
Of course that is sort of Wilbur Ross’s point I guess. My point was that there are a lot of industries where the role of steel inputs is a whole lot higher than these two silly props.
not being literate in these matters, i do not know the difference, if any, between “profit” and “operating margin.”
it may be that everyone else at AB knows, but I would suggest that it would help thinking (at least for the rest of us” if people were careful to be sure they were talking about the same thing.
certainly people (other people) use big numbers to scare people, or small numbers to hide from them that they should be scared.
it has flabbergasted me that the “serious people” can talk about the “huge” Social Security debt (which is not a debt at all) as 12 Trillion Dollars (or now, from CRFB, 84 Trillion) and never even wonder what that works out to divided by 200 million people and 75 years. or report a 33% tax increase, without noting that it would be 33% of a 6% tax, or a 2% of payroll tax increase.
of course, it flabbergasts me even more that the few people who by now ought to understand both the numbers and what is being talked about don’t seem to care.
CRFB (Committee for a Responsible Federal Budget) do not tell what their 84 Trillion means. since it is too large even for the “infinite horizon” misdirection I suspect it includes the health care misdirection, (also infinite horizon) and of course no consideration of what the cost would be, per person, if the costs were controlled as they are in the civilized world. which we were not part of even before Trump.
i guess “it;s just the math.”
March 6, 2018 9:04 am
Bill Billson for some odd reason thinks the term Effective Rate of Protection is a dumb term. Menzie Chinn would disagree:
http://econbrowser.com/archives/2017/01/two-trade-policy-terms-to-remember-ver-and-erp
Run75441
March 6, 2018 9:30 am
ditto on your comment.
It is easy to be a clone. The phrase sound like a business card
from a mobster, with his extortion fees on it.
BTW, Professor Chinn, is just using convention.
Could you two fine gentlemen proffer a substitute? Probably not.
Someone reading that phrase will not know what the subject is, hence
why so few people have any interest in economics.
Long an adage that the bean counters have destroyed more businesses than any one or other thing. Did a Yuban line once where a desiccant packet was to save 2-3 cents a can. On start up, Mitsubishi, the packet maker, raised the price of a packet by 3 cents.