Posted 3 years ago on Feb. 13, 2012, 9:29 p.m. EST by FriendlyObserverB
This content is user submitted and not an official statement
A profit Cap would reduce outsourcing.
Here is how :
If the cap is ten percent allowable markup on sales , than an item brought in from china at $40 dollars would profit the retailer $4. But if the same item was produced domestically at $400 than the profit market up would be $40.. there fore the salesman would prefer to sell domestic made products because.. the profit would be higher on each sale.
Lets say the retailer sells furniture. and the table from china costs $200 plus tenpercent markup .. would than sell for $220 . at @0 profit for the retailer.
If the retailer buys the table domestically produced at $2000 with ten percent profit it would sell for $2200. this is a $200 dollar profit for the retailer.. with marketing tachniques the retailer will attempt to sell to the customer the item which makes the retailer the most profit.
With out the cap, the retailer buys the table from china for $200 and reslls it for $750 making $550 profit or 275% profit..
What we need to understand is the items brought in from china may be cheap but they make huge profits for the retailer , because the domestic competition is so highly priced the retailer can add on as much profit as he wants on the china product and still sell it less than the domestic product .. and his incentive is the huge profit he makes on the china product .. but withthe cap on profits his iincentive suddenly changes to selling domestic as I already explained.