Will tariffs affect price of watches

[77T]

Tariffs are an economic weapon that needs careful use. And economics is a dismal science said Carlisle, a Scots philosopher. This phrase is often used to highlight the perceived limitations of economic analysis when it comes to addressing complex social issues. So we are in a net-negative emotional discussion - but here goes...

While the maths are beyond my actual experience, the $3.3T imported in 2023 is a reasonable jumping off point. But one must consider the entire value chain to be wholistic in a variable tariff increase as proposed (10% overall + a higher % on our top 3 imported goods from China, Mexico, and Canada).

To begin with, globally, the US is the largest importer of finished goods, raw materials, and services. We also over-consume more of that value than we export (for a net-negative balance of trade with several countries).

Tariffs occur when goods cross our national border during any stage of the value chain, meaning they can be applied at the point of importing raw materials, intermediate goods, or the finished product itself, depending on where in the production process the good is being moved across borders. This is difficult to assess accurately.

In a global value chain where production is fragmented across different countries, tariffs can be applied multiple times as intermediate goods cross borders at various stages of production, leading to a cumulative effect on the final price.

Let's be clear - for the $3.3T it is difficult to predict how the final selling price to a consumer will work out. But in retail - when the inventory arrives, the markup can be as high as 2.0 presuming the retailer won't absorb the higher tariffs by lowering its markup to 1.7-1.9 on the dollar.

Depending on where the tariffs are imposed, they can significantly affect different parts of the value chain, potentially impacting the competitiveness of industries relying on imported inputs.

Swiss watches - which we are discussing - have not threatened any purely domestic watch brands. Almost all US brands have some amount of their value impacted by imported goods. Can we say any American wristwatch is completely made in the USA from raw materials to finished product?
(Including the tooling)

Tariffs will ultimately increase the price of the final product for US consumers, as the cost of the tariffs is usually passed on through the supply chain.

In times of economic inflation (as we have experienced the past few years) there is one economic side-effect of tariffs - a damper on consumption.

We tread very close to causing a recession if consumers stop buying discretionary goods for a full business cycle.

I said it is a dismal science so please forgive the honesty.


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