President Donald Trump has raised tariffs on all imported goods from China by 20% and has placed taxes of 25% on imports via Mexico and Canada. With these announcements being sent into a tailspin regarding these trade policies.
However, to maintain long-term financial stability, tariffs are not always the best solutions. Tariffs are paid by the importer rather than the exporter. All these additional charges are absorbed by U.S. companies rather than Chinese businesses. Though this can increase domestic production, there is a higher likelihood that those countries will retaliate by putting tariffs on the U.S.
It is shown through research that companies pass on a large proportion of the costs of tariffs by increasing the cost of goods. A Taiwanese firm Acer said that laptops will increase by10%, and Hewlett-Packard (HP) has warned that their profits will be lower because of these tariffs. While all three of these countries have promised to retaliate with tariffs of their own, Trump has promised to increase these tariffs to 60%. There is a great risk of driving up the price of tech goods around the world and forcing companies to relocate to other countries where the cost of labor is higher.
This comes in the dawn of possible economic stagnation as a sell-off is occurring in the stock market. S&P 500 fell by 2% followed by Dow Jones and Nasdaq. Trump says that there is a period of transition that the U.S. must go through a transition as the economy faces increased tariffs.
The Commerce Secretary though admitting there will be an increase amongst some of the products, but there will be no contraction in the U.S. economy. However, investors feel differently.
“The level of tariffs that Trump is imposing, I think no doubt, will have to cause inflation somewhere down the line,” Rachel Winter, investment manager at Killik & Co, told the Today program.
Mohamed El-Erian, an economist, said investors were highly optimistic towards the president’s plans. However, with the stock market contracting, investors are slowly adopting their judgements. Investors are extremely worried that the U.S. will enter another recession. Tesla’s shares fell by eight percent, and Nvidia and Meta fell by 4%.
Ontario premier Doug Ford said that he will push a 25% of the surcharge on U.S. bound electricity. On the U.S. northern border there are 1.5 million American who call it home. This is in response to the U.S tariffs, and Canada has made it clear they will have no issue turning off the electricity. Composing their own reciprocal tariff on over $30 billion dollars of U.S. goods exported to the north.
These coming months will create a tense time on the geopolitical stage. With other countries using tariffs on the U.S to halt Trump’s tariffs, will force investors to sell companies as they prepare for the worst possible situation. We in the coming months will see the market fluctuate and even contract, however it is up to the president’s policies to help investors regain faith within his economic plans.
