Let’s Talk… Tariffs and Trade Wars (Part 2)
With the election of Donald Trump, I started a weekly look at tariffs because I knew they would become more prevalent over the next four years. What follows is my opinion on the topic, informed by extensive travel to over 50 countries and years of observing trade policies in action around the world.
Tariffs represent quite a departure from the free trade mantra that dominated for so long. While controversial, they can have several notable impacts:
1. Inflation Risks (or Not)
Tariffs can cause inflation, but not always. For example, production costs in places like China are so low that manufacturers often absorb the tax instead of passing it on to consumers. If they raise prices too much, they risk losing buyers who may switch to a slightly more expensive but higher-quality product made in the USA.
2. A Negotiating Tool
Tariffs can be a powerful negotiating tool. Take Europe, for example: some products from Europe enter the U.S. with little to no tariff, while the same American products going into Europe face a 100% tariff. That’s a trade imbalance, plain and simple. Tariffs could help level the playing field.
3. Shifting Supply Chains
With regard to China. As tariffs make production in China more expensive, countries like Vietnam and Indonesia are stepping up. Watch for these countries to strike trade deals with the U.S. to capture the manufacturing that’s shifting out of China.
Finally, let’s address globalism. On paper, it sounds great—companies moving production abroad to save on labor costs. But middle America suffered as a result, and they called out the establishment by electing a quasi-protectionist like Donald Trump. It’s a sea change, and there’s no end in sight.
In the next post, I’ll dive into what we can expect as this shift continues to shape trade and the global economy.
The content in this material was created for educational and informational purposes only and is not intended as an investment advice.
The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
