working with ad valorem tariffs

Here is an example you can follow for figuring out what the world price would be and what the dollar value of the tariff is.

Suppose you pay $80 for an imported widget. The NTR tariff rate on imported widgets is 7.25%.

How many dollars did you spend on tariffs? What is the world price of widgets?

The relationship follows:

Pw(1+tariff rate) = Pt

Where Pw is the world price, and Pt is the Price with tariff. It is important right here to know that the tariff rate now should be expressed in decimal, rather than percentage form...or the relationship would not make sense in many cases...besides you'll get the wrong answer. So tariff rate is also 0.0725.

Let us substitute in what we know:

Pw (1 + 0.0725) = Pw (1.0725)=$80

We can solve for Pw by dividing both sides by (1.0725).

Pw = $80/1.0725 = $74.59 (rounding to the cents).

So how much, in dollars, did you spend on tariff tax?

That would be (Pt - Pw) = ($80 - $74.59) = $5.41.

Now if you follow that for each good, with two different sets of tariff rates (NTR and COL2). To find out how much total you spent on taxes, add those up for total spent on taxes.

Yes, you'll do this procedure twice for each good.