From Shel Holtz and Scott Monty comes an explanation about tariffs. It involves a car dealer and a shocked pizza delivery boy.
A wealthy Cadillac dealer orders a pizza for his family every Friday night. His family loves pizza from a particular restaurant because it’s the best tasting pizza and the Cadillac dealer likes the price. He’s even developed a friendship with the pizza delivery boy who cycles several miles to bring them their pizza.
One day the Cadillac dealer is doing his accounts and has a thought: “Over the years, I’ve given the pizza delivery boy thousands of dollars and yet never once has he bought a Cadillac Escalade from me. How is that fair? This guy is ripping me off.”
The more he thinks about it, the more angry he becomes.
“I’m running a massive trade deficit with that kid on that bicycle. He is deliberately not buying my cars to screw me over. I’m a Cadillac dealer and he’s a puny kid on a bike. I hold all the cards. I’m going to put a stop to this.” So, the following Friday night he confronts the delivery boy.
“You have been robbing me for years. I’m subsidising your business with thousands of dollars and yet you never buy my Escalades. So, I’m going to impose a 50% surcharge on every pizza you deliver to this house and there’s nothing you can do about it!”
The pizza delivery boy looks confused.
“I’m sorry but I couldn’t afford to buy or run a Cadillac Escalade even if I needed one, which I don’t.” “I don’t care,” says the Cadillac dealer. “It’s not fair me subsidising you thousands of dollars. Why should I be paying you these subsidies?”
“Because you like my pizza and that’s what they cost. That’s not a subsidy. It’s called trade,” answers the delivery boy. “Well, it’s not trade if you refuse to buy a Cadillac, so I’m going to charge 50% on top of the price of your pizzas so I get some payback.”
“Who are you going to charge?”
“My family!”
“How’s that going to work?”
“They’re going to be livid! They’ll be so angry that the pizza is going to cost 50% more that they’ll stop telling me to buy them from you. They’ll start making their own pizzas and you’ll go bust!”
“Can they make pizzas this good? Do they even want to?”
“That’s not the point!”
“And how many more Cadillacs will you sell if we go bust?”
“Who cares? At least I won’t be being ripped off by a mere pizza delivery boy on a bicycle!”
“OK. Here’s your pizza. Keep the tip. It was nice doing business with you.”