I know this may come as a shock, but fundamentally, the topic of tariffs is actually good. Government leaders implement tariffs on foreign products and services to restrict imports by tacking on additional taxes or fees. The goal is to make foreign products less attractive to domestic consumers.
Tariff supporters argue that they helps correct trade inequities and boost domestic production and growth. They believe that well-targeted tariffs foster fair trade and create a more open and robust international marketplace, despite the tension in the short run.
Those against the idea argue that establishing tariffs is a highly arbitrary fix to flaws in a very complex international market that will lead to unnecessary and unproductive trade wars that historically have ended tragically.
What's Going On Now?
- President Trump has threatened to implement tariffs on nations to correct trade imbalances, unfair exporting practices and marketplace offenses.
- Trump imposed tariffs on Chinese goods as punishment for the country’s intellectual property theft.
- The U.S. trade deficit with China has reached a record high of more than $375 billion.
- Trump has also instituted tariffs on steel and aluminum shipments from Canada, Mexico, and the European Union.
Who Will It Help? Who Will It Hurt?
First, who is expected to gain from the U.S. policy on tariffs?
- U.S. steel producers stand to gain significantly. The 25% steel tariff makes a strong argument to go for domestic steel.
- The U.S. aluminum market has been growing with the implementation of tariffs.
- Foreign firms serving the markets affected by U.S. tariffs may benefit.
Second, who is expected to get the short end of the tariff stick?
- American whiskey exports may suffer. U.S. whiskey producers shipped $737 million in bourbon to Europe in the 12 months prior to March 31.
- Harley-Davidson and other U.S. motorcycle manufacturers say tariffs will put the brakes on production.
- Prices for beer and soda, in aluminum cans, may rise.
Tariff Impact on Stock Market
Tariffs—and the potential for a trade war—will loom heavy on the stock market, most analysts believe. But by how much, to what extent, and in what direction remains unanswered.
Investors, at this point, are breathing a little easier, as the U.S. stock market seems to be adjusting to the news of the tariffs. Traditional wisdom suggests trade wars don’t produce positive, short-term results. However, Trump’s reasoning rests on the premise that vast trade imbalances favoring foreign countries has unfairly put the brunt of global economic development on U.S. shoulders.
While U.S. stocks have largely climbed to unprecedented heights following Trump’s “Tax Cuts and Jobs Act” and other economic incentives in late 2017 and early 2018, the market has undergone some remarkable shifts, including the sudden 12% drop in February 2018.
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Certain sections of this commentary contain forward-looking statements based on reasonable expectations, estimates, projections and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.