Since Donald J. Trump has been in office for each of his terms (first 45th and second 47th), tariffs have been a divided talking point. The left (Democrats) have been trying to strike down, imposing the same percentage of tariffs on countries that charge the United States, sometimes double the tariff percentage on goods exported from the United States. For example, The EU charges the United States 10 percent for each vehicle the United States exports to the EU. In contrast, the United States only charges a 2.5 percent tariff tax on cars from the EU entering the United States. If or when the United States levels this tariff to the same percentage, it should bolster the United States economy and drive more companies to build and sell in the United States.
There are many factors to consider when tariffs are in place. There are pros and cons to every nation’s economy. China, for instance, has an enormous economy and exports by far the most to other countries. However, China’s economy is not solid, and it needs exports to keep it functioning despite its internal turmoil. Playing tit for tat may not be in the cards for a weak economy.
When comparing the trading balances of two countries with the same percentage tariff tax, the country with the higher surplus will notice the effect more. A trade surplus economy has more to lose. China, for instance, would fit into this category, and as they raise their prices to support their failing economy, you will see other countries looking for alternatives. For example, companies like Tesla, Apple, and Samsung have pulled resources from China. Countries like the United States, Japan, and the EU have also removed resources from China. All this would come under the next factor, Market Size and Alternatives. Moving resources from one country to another affects that country’s Market Size and the Alternatives they can provide. Donald Trump has stated that if a company decides to move its resources to the United States, it will not be taxed. This is an incentive to increase the size of the United States market and produce more national alternatives.
Government support might also play a factor if a product increases via export costs. This could hinder that part of the market. The government cutting costs in other places would help to offset that market until recovery. Doge would be a great reason we could monitor and handle any market tension while still bringing down the nation’s deficit. The government can strategically place what has been deemed governmental monetary waste and pipe it into the needed markets while the United States strengthens its market size.
How easy will switching to a domestic alternative be, and what will the switching cost be? This is where things might change in the United States. This question will be a tricky question to pin down. Depending on what domestic product you need will determine how easy it will be to switch. With Amazon, Wayfair, Etsy, and others, it’s easy to get cheaper Chinese products at a fraction of the price. I go to my adult candy store, “Harbor Freight,” all the time. If this equal percent tariff goes wrong, I must get some of my tools at Lowes or Home Depot. Not that I don’t go there for some tools, but I will not have access to a bargain basement tool store anymore as the Chinese tools also rise in price. At least shortly. However, as our market size increases due to new companies bringing their resources tax-free to the United States. I expected that price to go down eventually, and now I have a product that was bought and made in the United States.
So, when discussing an even-percentage tariff, the question that needs to be asked is how do we find the markets that are going to suffer in the beginning and what the government will “not can” but will do to bolster their market for the supplier and those that have a demand for the product.
Strengthening the national currency can also reduce the cost of imported goods. When the United States currency strengthens, Chinese imports cost less and could flood the US market. Imposing tariffs counteracts cheaper goods saturating the market.
In the last few weeks, prices have fallen from what happened four years ago. With all the price hikes four years ago and now some relief, it seems depressing to say prices may go up again. At this point, I have to ask myself, with the low to extreme prices that happened four years ago, will I survive a nominal price hike now since prices are currently dropping?
……….. Yup.