The huge vacillation in the stock market this week was due to President Trumps global tariff impositions, and the removal of some of them and the escalation of others. Expect for that to continue until a period where both sides negotiate a more favorable deal structure where both sides feel comfortable with, prevents a net economic loss.
Many people do not know what the word tariff means. It is usually a very bad idea to use words if you do not know what they mean. Therefore: A tariff is a tax levied on imports to the United States (in this case) of foreign-produced goods or services. A tariff causes a change in economic behavior and the economic outcome of countries. It redistributes some of the benefits of trading from U.S. consumers and foreign producers to U.S. producers of import-competing goods, via raising the net price a US consumer would have to pay (in SOME cases, but not ALL) because the importing company will most likely not absorb the increased cost of the tariff, and will most likely pass it on to the US consumer. That will cause the US consumer to either pay the increased cost or seek domestically produced alternatives at a cheaper price.
The tariff now acts as a tool to level the competitive playing field of international commerce because it takes away the competitive advantages that some foreign companies have, e.g. much lower wage costs, lower regulatory restrictions, lower production costs. A tariff acts as a tax on consumption as well as allowing import-competing businesses to raise prices without losing market share to foreign producers. Until recently, tariffs on U.S. imports averaged 2.2% in accordance with numerous international agreements negotiated by the U.S. government–though many items entered tax free.
Tariffs are most effective when they focus on well-defined and industry-specific goals. They work very well when paired with a larger, more comprehensive and logical economic or political strategy… which is what you have today.
Tariffs are part of the political strategy and ideology of America First i.e, reclamation of American economic dominance on a global scale. You may recognize it as “Go Big or Go Home.” The development of key industries and maintaining them during periods when trading partners are engaged in market-distorting subsidization of their exports is part of the ideology. . Tariffs can help correct these pervasive distortions and improve economic efficiency, allowing firms to thrive in the face of these distortions.
Tariffs reduce one country’s reliance on products made by another country, thereby producing and encouraging domestic production of similar products. This leads to job growth, which is always a political talking point. If there is no job growth, there is no economic growth. If there is no economic growth, there will be market unrest e.g. stock market values will diminish which will precipitate increases in unemployment which will lead to increase crime and social unrest. So, tariffs are a central part of America First… even when it is painful at first. People always adjust.
