I wouldn’t use for a few reasons.
1) Oil is nearly perfectly inelastic, especially in the short and medium term (< 5 yrs). A 50% increase or decrease in price barely moves demand – maybe 1% change in qty demand. A typical good in the consumer market is elastic, meaning a 50% increase or decrease in price would have a change in qty demand by at least 50%. As such, if oil demand shifts outward by 1-2% (or oil supply shifts in) causing a shortage and prices go up 100%, nearly 100% of the increase goes to the producers pockets and 100% comes out of the consumers profits (like what we saw in 2005-2007). Conversely, if oil demand shifts down (or production shifts out) by 1-2% causing an oversupply (like we have now), oil, consumers get nearly 100% of the gain and producers lose 100% of the gain. That doesn’t happen with any other market or product for a number of reasons
2) Most other products have alternatives. Oil – at least for a huge number of years and probably massive government infrastructure investments notwithstanding, doesn’t have a good alternative, despite Obama’s insistence that there are. This is what causes that massive inelasticity. Most products have a huge number of alternative goods.
3) Revenue is divided into several pieces: material cost, labor cost, overhead cost, marketing cost, transportation cost, among others and of course profit. If the cost of labor goes up (eg: import tariffs, new labor contract, min wage, etc), due to alternative products on the market and the demand curve, producers may or may not be able to charge more for the product (ie the cost is increase is born by the consumer if they can pass it on, it is born by the owner if not, most of the time it is split). Additionally, many companies will try to offset labor costs first by other means (acquire material cheaper, reduce transportation costs, reduce overhead, etc) before raising prices which shifts the costs to third parties. In short – the cost is not always born by the consumer. Having worked at HQ in FP&A for a supermarket chain for 4 years and on the ops side of that business for 9, I can guarantee you that nearly all labor cost increases/decreases were born by the corporation (us) and cost increases/decreases for the product varied and was usually mixed (eg: cost of coffee skyrockets by 70%, margins fell from 70% to 50% even with a 10% price increase which resulted in a 25% demand decrease – ie most of the cost increase was born by us, same was true on the reverse). In short, businesses cannot always “raise prices” and force consumers to take price increases due to cost increases.
4) This scenario is static. Real life is not static. A theoretical increase in demand in labor in the US due to tariffs is almost immediately spent back into the US economy, boosting velocity of money, which boosts GDP. Shift $$ overseas for production has the opposite effect for the US and a positive effect on velocity for the other country
Not sure I agree with your math here.
We import around $3 trillion per year and collect $30 billion in tariffs. That's a tax of 1%. We tax profits on US corporations at 35%. Assuming average profit margin of around 30%, the equiv is probably closer to 10x but still makes no sense to tax US corps more than imports.
U.S. consumers, not outsiders, would pay the oil tariff. Agreed.
(eg: cost of coffee skyrockets by 70%, margins fell from 70% to 50% even with a 10% price increase which resulted in a 25% demand decrease – ie most of the cost increase was born by us, same was true on the reverse).
Yes, a 70% tariff on coffee would be paid by US consumers and US businesses, not by outsiders.
We tax profits on US corporations at 35%. Assuming average profit margin of around 30%, the equiv is probably closer to 10x
Corporate profits last year were about $1.7 trillion. I think your 30% average margin is way too high.