The US is set to face a massive influx of tariffs on imported goods, with rates as high as 25% on Mexican and Canadian imports, sparking concerns about a global trade war. The plan aims to raise revenue for tax cuts, bring back manufacturing to the US, and leverage concessions from trading partners.
Under President Trump’s “America First” agenda, nearly half of US imports come from three countries: China, Canada, and Mexico. Tariffs on goods from these countries could become steep, with potential economic implications.
The impact of tariffs will not only affect businesses but also consumers. Some experts warn that the rates imposed, how widely they are applied, and whether trading partners retaliate all influence the outcome. The public is divided on tariffs, with some supporting them as a means to protect domestic industries, while others oppose them due to concerns about inflation.
The plan involves taxing not only consumer goods like avocados and French wines but also equipment, parts, and machinery imported from abroad. Canada is a major source of energy and raw materials, making the decision on exemptions challenging.
Consumers seem ready to stockpile products at current prices, shop more carefully, and save more, potentially leading to a slower economy in the future. Business managers are poised to raise prices, and economists regard tariffs as a one-off price shock that may not resonate broadly.
However, a full-on trade war could be globally damaging. The US Federal Reserve has warned of faster inflation and slower growth, which could have far-reaching consequences for households from two directions.
The sweeping nature of Trump’s plans has created uncertainty around the economic outlook, pushing down business investment and potentially offsetting by firms moving operations to the US. This uncertainty is part of a broader trend, with the Trump years being exceptional in terms of economic policy uncertainty, even before the COVID-19 pandemic erupted.
Sources:
U.S. Global Imports: U.S. Census data via Fitch Ratings
Imports as a share of GDP, Change in Inflation: U.S. Census Bureau via Federal Reserve Bank of St. Louis
Average Tariffs: U.S. Census data and International Trade Commission data via Tax Policy Institute
Survey via Olivier Coibion, University of Texas at Austin; Yuriy Gorodnichenko, University of California, Berkeley; Michael Weber, University of Chicago, Booth School of Business
Steel and Aluminum Imports: U.S. Census Data from S&P Global Market Intelligence via Department of Commerce
Economic Policy Uncertainty Index: U.S. Census Bureau via Federal Reserve Bank of St. Louis
Source: https://www.reuters.com/graphics/USA-TRUMP/TARIFFS-GRAPHIC/gdpznyllrpw