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Comment by headsupftw | Hacker News Reader

Most Americans don't know there's a subeconomy in the U.S. where Chinese merchants buy items from retail stores and sell them to customers in China. The successful ones hire people to shop in stores. What do they buy? iPhones, diapers, baby formula, LV purses, lottery tickets...

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This was enormous for Apple during the iPhone 3G launch. Nearly every retail purchase was 5 iPhones, the max per customer. It was profitable enough that these were all bought on contract then cancelled, which I think was the only way at the time.

Even cars: there is a huge business of people buying up brand new luxury cars in the US, then immediately putting them on a boat to China. The manufacturers hate it, and try to write sales contracts to prevent it, but it's so lucrative that it constantly attracts new people into the game

Illegal Exporter Ordered To Pay Dealership $1.6 Million Dollars For Selling Dodge Rams To China

https://jalopnik.com/illegal-exporter-ordered-to-pay-dealers...

A dodge ram, of all cars. Why go to such length to own a car that isn't really good looking or remarkable in any way?

Its remarkable if its the only one on the block, or in the whole city: I was walking down a quiet residential street in Europe once and was surprised to see a giant red pickup sitting in the driveway. Looked incredibly out of place.

I had a friend in England who said the big thing to do when you "made it" was to import a Cadillac Escalade from the States. You could tell because they were left hand drive. Here in North America, Escalades don't seem like such a big deal anymore.

Why would manufacturers hate it?

Alternative to the other explanation: The only reason it would be a grey market activity is because the vehicle is more expensive in the native market.

So Widgets Ltd. is selling widgets for $100 in China, but $30 in the US. Lots of money to be made in the gap.

Indeed, I suspect it has to do with manufacturer's wanting control over prices and supply. E.g. a manufacturer thinks they can charge a higher base price in China because they are a luxury foreign brand.

Presumably because the manufacturers pay tariffs and other expenses in the course of legally bringing vehicles to foreign countries. Now they're competing with folks evading those overheads, on selling their own product, which they've already paid to to bring stock of legally.

I'm still confused. The people doing this are presumably paying retail for those vehicles, so the manufacturer and dealership got their profits out of it. What do they care if someone skirts taxes as long as they made their profit on the retail sale?

This isn't an area I'm experienced with, but there seems to be some rather obvious problems and I suspect there are far more than I'm considering in this brief thought exercise.

The price of the illegally imported equivalents will be substantially lower than those legally imported by the manufacturer.

This will have the effect of driving down the FMV of the vehicle in the region.

But if the manufacturer can't afford to match that FMV because of legal trade and transport overheads, the effect will be reduced sales of the vehicle in the region overall, because the illegal channels obviously can't operate on a large enough scale to 100% replace the legal channel from the manufacturer's perspective.

The illegal channel doesn't have to (and won't) operate at legal-replacement scales to impact the region's perception of the vehicle's FMV.

Also consider what effect it may have on potential buyers interested in buying legally, but exposed to news of the imported brand being so overpriced and so desirable that there's a substantial illicit market emerging to fulfill that demand. The honest consumer might be completely turned off by this, thinking their new car may be a theft target because it's this desirable import brand people are committing risky trade crimes just to sell as new in the country.

The situation seems likely to harm the overall sales volume for the region.

Most businesses price discriminate by geography. A car manufacturer may charge $25,000 USD for a car in the US, but $35,000 USD for a very similar car in Asia. Brands carry different values depending on market. The car company does not want to lose out on that $10,000/car surplus.

There is perhaps no better exposition of the "double freedom" - freedom from society's productive capacity and the products made therein, and freedom to sell one's labour - of most people in society than the example of Chinese people buying iPhones made in China from the U.S.

My eyes were opened to this when I was hanging out with a group of Russian foreign exchange students in college.

They spent collectively north of over $20,000 USD on Levi's, iStuff, Nikes, etc.

Packed it all up into 10-15 suitcases for transit back to their home towns.

The same thought crossed my mind years ago when I was in a shopping mall in Prague. There was a Wrangler store selling Wrangler jeans — you know, buy-them-for-cheap-at-Walmart Wrangler jeans — for something like $170 a pair. I couldn’t believe it.

That's not really arbitrage.

It's more comparable to the unlicensed Pirate Joe's of Canada stockpiling goods by driving across the border and buying them manually in Trader Joe's stores and selling for a premium.

No it’s really arbitrage. This was a store with wall-to-wall Wrangler branding and product. If it was unlicensed (I doubt it, this was a very high end mall), it was very convincing.

I suspect that the quality was substantially higher than the Wrangler jeans you would find at a US Walmart, despite having the same branding. Other brands like Ralph Lauren and Calvin Klein have products ranging from budget to ultra high-end, all of which bear the respective brands.

Nope. Wrangler, Levi, all made in Poland (for central/eastern market) :)

since the new tariffs are being imposed on imports to the US from China, i wonder if we might see a reversal in the direction of this process at some point. i mean, could we start to see large numbers of US residents and other travelers visiting China and bringing back merchandise for resale in the US?

It already happens plenty. Companies with names like 'uxcell' or 'elegoo' have been making a lot of money off of price arbitrage in cheap electronics, for example.

With things like breadboards, wires, common sensors and microcontrollers, LEDs, etc, there's often a 3-10x difference in price between what you'd pay on ebay and what you'd pay on taobao. Amazon charges maybe $3 to tack prime shipping onto an item and handle the whole customer service/returns headache, so it seems like easy money.

Sure, the provenance is dubious, but if you are buying something from a third-party seller called "elegoo" at bottom-barrel prices, you are presumably expecting that no expense has been attempted.

But if anything, the tariffs have made those bulk-import goods more expensive and less competitive with higher-quality alternatives.

> if anything, the tariffs have made those bulk-import goods more expensive

right, so, i guess i'm wondering more about physically compact, relatively expensive products that an individual might buy in China and bring back and sell at a lower price than it's officially available for from tariff paying retailers. i'm sure this is going on a lot now, but i wonder if it might increase in the near future.

(e.g. replacement parts like iPhone screens (which are so often intercepted by Apple and US customs), except that that's a special case involving a huge powerful corporation. )

Yeah, I've had friends who buy iphones in the US and take it back home to china for relatives, because it's cheaper abroad..... How does that work, exactly? Is it because of some sort of luxury tax in China?

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