Trump’s Tariffs Signal Trouble Ahead

  President Trump has made Tariffs the focal point of the first two months of his administration. 

    Tariffs are a charge billed to countries that export its manufactured goods into a country.  The money from the tariffs goes into the coffers of the Treasury of the country charging the tariffs. 

Most often the manufacturers paying the tariffs raise the prices of their goods, which is passed on to the consumer that buys them resulting in higher prices. Inflation. 

     Many countries around the globe have been charging tariffs on goods exported by the US for decades while the US remained tariff free or very low charges on imports. The tariffs Trump imposed on countries on April 2 is estimated to amount to a $640 Billion increase in the costs of goods in the USA in a year.  

     Trump thinks the trade deficit is grossly unfair.  Simply put Trump feels if you charge us, we will charge you.  Since the end of WWII we have been importing all sorts of goods from all over the world:  cars from Europe, electronics & appliances from Japan, and tons of stuff from China and recently Vietnam. 

     On the surface President Trump’s position seems reasonable. If you’re going to tariff us we will tariff you.  The President thinks it’s anti-American for the US to buy products not made in America.  The reason Americans buy foreign goods is simple. The products are much cheaper. 

     Labor costs and manufacturing costs across the globe are dramatically cheaper than in the US so prices are much higher on goods made in our country.  This has led to huge trade imbalances on a yearly basis.  Foreign countries sell a ton more stuff in America than we sell abroad. 

     But tariffs are not the reason for trade imbalances.  The reason is that America is the richest country in the world and our citizens spend many more times on goods here than citizens spend in other countries. 

     To wit: 

• America spends $77,280/yr on goods per household 

• China spends $3,900/yr 

• Germany spends $31,476/yr 

• Great Britain spends $38,220/yr 

• Japan spends $24,000/yr 

     Tariffs are not going to cause America to spend less, they will cause us to spend more.  People overseas make so much less money than Americans.  So, they have limited budgets to buy. The response by other countries is to raise tariffs on US. This hurts American farmers more than any sector because farmers need international sales to stay afloat more than almost any business selling overseas. Farmers also import fertilizers and equipment for which they pay more. 

     The downside for the US is higher prices in our country will lead to less demand resulting in less workers needed to produce less goods.  Layoffs will follow.  The result will be higher unemployment and higher prices for consumers.  This is called stagflation.