Key Takeaways:
– Trump pledges a minimum of a 10% tariff on all imports.
– Experts warn that tariffs could result in U.S. households and businesses footing the bill.
– The implementation of tariffs could decrease U.S. customer spending power by up to $78 billion annually.
– Countries targeted by tariffs are likely to retaliate, leading to potential economic uncertainty.
The Impact on Households and Businesses
In a move that startled many, president-elect Donald Trump recently declared ‘tariff’ as the most beautiful word in the English language. This seemingly innocuous statement paints a more profound picture, shaping the vision of Trump’s second term which would see sweeping tariffs applied on the total $3 trillion U.S. imports. The question now is what this change could mean for U.S. businesses and households.
In his pledge, Trump clarified intentions of implementing at least a 10 percent tariff on all imports. For Chinese goods, these tariffs may elevate as high as 60 percent or more, directly stepping up charges on Beijing. His aim, he explained, is to target those countries that he believes have been unfairly exploiting America for years. We can also expect tariffs above 200% on Mexican vehicles to safeguard the U.S. automotive industry.
However, experts warn that the cost often falls on U.S. businesses as they pay these fees directly to the government.
The Legal Aspect
According to Scott Lincicome from the Cato Institute, the risk is significant. Interestingly, there are laws that allow the president to apply tariffs unilaterally for various reasons. Sometimes, national security justifications are enough. A practical example was the imposing of hefty tariffs on steel and aluminum in 2018. Despite this, courts historically hesitate to act as a check on presidential power which increases the likelihood of tariff success.
Numerous laws, including the International Emergency Economic Powers Act, permit a president to declare a national emergency and modify trade habits as required.
Potential Consequences
The consequences for U.S. consumers could be vast if the tariffs are implemented. The National Retail Federation estimates that Americans may lose from $46 billion to $78 billion in spending power annually. This is considering only six product categories: apparel, toys, furniture, household appliances, footwear, and travel goods.
“Retailers rely on imported products so that they can offer their customers a variety of products at affordable prices,” said Jonathan Gold of the NRF. He stated that the tax ultimately comes out of consumers’ pockets through higher prices. The tariff changes could also bring significant uncertainty to companies, particularly for those in industries with retaliatory risks.
Possible Reactions from Affected Countries
When tariffs were previously imposed, the reactions were swift and decisive. After Washington slapped tariffs on European steel and aluminum exports valued at 6.4 billion euros in 2018, the EU retaliated quickly, imposing its own tariffs on U.S. exports.
China responded similarly when tariffs were announced on billions of Chinese products between July 2018 and August 2019. Beijing imposed tariffs on more than $185 billion worth of U.S. products which saw the U.S. farming industry suffering the brunt of this retaliation.
Retaliation against U.S. tariffs might not just come in the form of counter-tariffs. Countries could use other levers like regulatory approvals, and striking deals to avoid these tariffs.
In Conclusion
While this jarring approach to trade agreements may fulfill some immediate objectives, the long-term effects on U.S. households and businesses could be significant. It’s important, now more than ever, to watch the developments and understand the potential outcomes as these tariff changes unfold. USD trade partners are seemingly caught between retaliatory tariff implementation and diplomatic negotiations. In either case, U.S. businesses and households are invited to prepare for potential changes.