Economic Impact of Trade Tariffs

Trump’s TARIFFS EXPLAINED 📈 Wait...did you feel that jolt in the markets?  The US has returned to tariff levels we haven't seen in over a CENTURY! If you work in finance or accounting, you need to understand how these trade barriers will impact your company's bottom line... ➡️ WHAT ARE TARIFFS? Tariffs are quite simply taxes on goods imported from other countries. They're charged at the port of entry, not overseas. Despite some claims, these costs are paid by the companies bringing goods into the country, not by foreign governments. Tariffs have historically been used to encourage consumers to buy domestically manufactured goods. ➡️ HOW WERE THE TARIFFS CALCULATED? The calculation method caught my attention immediately. Instead of mirroring what other countries charge us, the administration used a formula based on trade deficits. They took the US trade deficit with each country, divided by total imports from that country, then halved it. This approach doesn't accurately reflect other countries' actual tariff rates. For example, while Trump claimed China charges a 67% tariff, the average is actually closer to 3-10%. ➡️ WHO IS AFFECTED BY TARIFFS? These tariffs will have a wide-ranging impact: 1️⃣ American Consumers: They'll face higher prices as tariff costs get passed on. The average American family could potentially pay thousands more annually. 2️⃣ American Businesses: Companies relying on imported components will see increased costs. Firms that design in the US but manufacture abroad (Apple, Nike) could be significantly affected. 3️⃣ The Stock Market: Markets reacted immediately with significant declines. We saw an estimated $3.5 trillion vaporized from markets overnight. 4️⃣ Global Trade: These tariffs are already triggering retaliation. China announced retaliatory measures within days. ➡️ PROPONENTS OF TARIFFS: Figures like JD Vance argue that American manufacturing jobs outweigh cheaper imported goods. They call this a "National Emergency" in trade relations. Their primary goal is manufacturing revival in the USA. They aim to protect national security and rebuild American industries. They want to counter unfair competition from countries with subsidized manufacturing. Some believe it could force the Federal Reserve to lower interest rates, helping US refinance debt. ➡️ CRITICS OF TARIFFS: Critics point to the immediate market reaction with significant declines. They warn about higher inflation, with preliminary estimates suggesting a significant CPI jump. They fear large-scale trade wars from retaliation by China and the EU. Many economists see potential for stagflation if the economy slows while prices rise. The scenario of "trade wars and global economic fallout" keeps finance professionals up at night. === How is your company preparing your financial forecasts for these changes? Have you calculated the potential impact to your bottom line? Join the discussion in the comments below 👇

I wanted to share the most complete data I'm aware of to gauge potential inflationary effects of proposed Mexico, Canada, and China tariffs. What I've done is merge in data on domestic production, total imports, trade margins [think retailer and wholesaler markups], transportation costs, taxes & duties less subsidies, and purchaser prices from the Bureau of Economic Analysis 2023 Supply Table (71-industries) and then merged in Canadian, Chinese, and Mexican import data from the Census Bureau. For simplicity, I'm assuming a 25% across the board tariff on all three countries (note, I know the proposed expansion of tariffs on Chinese goods was just 10%, so keep in mind). Thoughts: •In the 4th column of data, we see the percentage of imports for each commodity type Canada, China, and Mexico account for. For example, 68% of oil & gas imports come from these three countries (Canada leading the way), 62% of electrical equipment (NAICS 335), etc. •To arrive at the percentage increase in purchaser prices, I multiply the Imports column by the Canadian & Chinese & Mexican percentage of imports column and then multiply by 0.25 (for the 25% tariff). I take this product and divide it by the purchaser prices column to arrive at the tariff shock estimate (last column). Across all goods, this number is 1.9%; the same figure applies for manufactured goods alone. The number ranges as high as 5.1% for electrical equipment to < 1%. •One thing to note: I'm not accounting for any cost pass-through dynamics in the supply chain (e.g., Canadian crude oil becomes more expensive means Midwest refiners increase prices to pass along higher costs). •I'm also assuming the trade margins (which are very substantial, especially for categories like apparel where they are much larger than the value of domestic production + imports) don't change. I don't see this as realistic, as sellers need to protect gross margin rates. This assumption likely counterbalances any over-estimate from the 25% tariff assumption. Implication: You can't look at these data and say that the Canada, China, and Mexican tariffs being floated won't be inflationary as it pertains to goods. My analysis gives possibly the most complete picture I've yet seen. #supplychain #shipsandshipping #economics #markets #freight

I’m pleased that President Trump has announced a pause on implementing some of the “reciprocal tariffs” that he announced last week.   In the short-term, tariffs can hurt economic activity. They cause costs to rise, and companies will either absorb those costs, decreasing margins, or pass them on, which will affect pricing and demand. So delaying the tariffs will avoid these short-term impacts.   But we remain in a period of high uncertainty, including the near-term rising risk of an escalating trade war with China. This uncertainty will likely dampen global investment and growth. Every investment decision is based on both risk and return. The large uncertainties in the global trading system have substantially increased risks for most companies.   BCG’s trade and geopolitics experts, put it this way: “Every company, regardless of sector or location, needs to build tariffs and the related uncertainty into its planning and operating model.” In other words, core decision making just got a lot more complicated for business leaders. You can read more from our Global Advantage team on navigating the impact of tariffs: https://lnkd.in/ert8gazK Some companies have already built geopolitical muscle, developing capabilities to anticipate and respond to policy shifts. They’ve set up teams to map out tariff impacts, consider pricing strategies, and work with suppliers to share cost burdens. They should be better positioned to confront the current turbulence and headwinds. But even the leaders of those companies are now asking harder, longer-term questions. All businesses need to understand how sustained high tariffs could affect their supply chains and manufacturing networks—and prepare in advance as much as possible.   Trade battles and higher uncertainty are not what most of us would have wished for, but that’s the world we’re in. Leaders must embed a mindset of resilience grounded in adaptiveness and agility and seek advantage and opportunity amid uncertainty.

Even the threat of tariffs comes with costs, because it can change people’s behavior — and there are signs that Americans are wary of tariffs. Here's from my latest Bloomberg Opinion piece. Many Americans are taking Trump’s threats of broad-based tariffs seriously, which is the first step toward changing their behavior. According to a recent poll, Americans expect heavy tariffs on all trading partners, from 50% on imports from China to 35% on those from Canada and Europe. Contrary to the president’s claims, most people expect tariffs to affect them directly as consumers — through higher prices. When asked about a hypothetical 20% across-the-board tariff, they said that almost half of the cost would mostly be passed on to US consumers in higher prices (with the rest shared by foreign and domestic producers). One crucial question is how people prepare for the tariffs. In the poll, 43% of respondents said they would buy ahead of the tariff to avoid price increases. In another survey in January, 20% of respondents said now was a good time to buy large durables because prices would rise. If people were to act on their intentions, demand for those goods— and their price — would increase now. There is evidence that spending spikes ahead of a tariff’s enactment. A common response of businesses to the threat of tariffs is to source goods from unaffected countries or to stock up on inventories before the tariffs take effect. There are already signs that this is happening: The increase in exports from China to the US in December was the second highest on record, at least in part as an effort to get ahead of tariffs. Stoking inflation in the current context — even temporarily — would be costly. The Federal Reserve is holding further interest rate cuts until it sees more disinflation. A pick-up in core goods prices, largely from motor vehicles, halted progress on inflation in the fourth quarter. Further inflationary pressures in anticipation of possible tariffs would likely delay the next rate cut and keep rates higher for longer. Threats of future tariffs also reinforce the holding pattern at the Fed. More at the link: https://lnkd.in/eiZSpVaZ

The tariff announcement on April 2nd has sparked a sharp selloff in stock markets, and a flight-to-safety across asset classes. The new tariffs are estimated to raise the effective rate on all imports from 2.3% last year to around 25%, the highest in at least 100 years. After two years of above-trend economic growth in the U.S., the probability of a downturn has increased in coming quarters – assuming tariffs remain in place at current levels. Estimates based on a 2018 Federal Reserve model suggest a potential 2.4% hit to U.S. growth and a 1.4% rise in prices. In response to the reciprocal tariffs, however, some countries may choose to retaliate, while others may try to negotiate, and this process will play out over time. But in the near term high uncertainty will keep market volatility elevated. Despite the headwinds, the fundamentals heading into the tariff escalation are supportive: 1) Unemployment is low, 2) the Fed remains in a rate-cutting cycle, 3) corporate profits are still likely to rise this year though potentially less than the 10% expected before tariffs, and 4) the policy agenda may soon shift to pro-growth measures such as tax cuts and deregulation. While the immediate drawdown in stock markets may be jarring, investors with balanced and diversified portfolios have weathered the pullback better than those with concentrated positions. U.S. value sectors have outperformed, bond prices have rallied, and international markets are higher. We recommend that investors stay with their long-term investment strategy, emphasizing diversification and quality investments. Read more in our latest Daily Snapshot authored by Angelo Kourkafas, CFA Kourkafas.

The "Liberation day" tariff announcements have amounted to the market's worst-case scenario. As the macro and market impact shakes out in the coming days and weeks, we have some top through-lines: - Tariffs are both an opening bid for negotiations and a policy approach in themselves. Though targeted concessions are likely for some countries, we expect the average effect tariff rate to be significantly higher. - These announcements pressure inflation meaningfully to the upside, and growth meaningfully to the downside. This puts the Fed in a bind – and likely on hold – unless employment deteriorates meaningfully or tighter financial conditions (widening credit spreads and/or an equity selloff) threaten growth. - The risks of both higher inflation and lower growth are now significantly higher. Before this news we had the risk of recession at 15%; that risk is now 45%, and would rise if these tariffs stick or escalate. Investors have options in how to adapt to the new policy environment, shared here:

Oh, how quickly things can change. Two weeks ago, most Wall Street analysts expected slower, but still solid, growth for the U.S. economy. Now, as tariffs whipsaw financial markets, roil businesses and send many consumers into a panic, hordes of experts on the Street are ramping up their recession calls. Goldman Sachs recently raised the odds to 45%, the second hike in a week, and that’s under the assumption that the massive April 9 “reciprocal” tariff hikes won’t go be fully implemented. Meanwhile, J.P. Morgan’s Michael Feroli says a recession is his base case, becoming one of the first major analysts among the big banks to officially forecast a downturn. Bankrate released its own Economic Indicator Survey, and our findings echo this sentiment. The odds of a recession over the next 12 months are now at 36%, up from 26% in the prior-quarter poll and marking the sharpest jump since Q3 2022. Yet, there's more at play than just tariffs. Economists are worried about a self-fulfilling downward spiral. When financial markets are volatile and recession fears grow, consumers and businesses might pull back on spending or hiring, inadvertently creating the recession they fear. Some expressed concern that enough economic carnage has already been done, even if reciprocal tariffs aren't implemented. Gregory Daco sums it up: "The forces weighing on growth are intensifying, and the risk of a self-fulfilling downturn is real. The interplay between policy decisions, financial markets, and consumer and business sentiment will be critical in determining whether this slowdown remains contained or spirals into something deeper.” This situation makes me ponder two key points: 1. Fiscal policy is taking center stage: It seems that fiscal policy (and really, just one person in particular), is driving the U.S. economy, not monetary policy. Fed officials, once the key players in dictating the economy’s direction, find themselves on the defense with limited options. We heard from Powell on Friday that tariffs could both drive prices higher and weigh on growth, which means the Fed is likely not coming to the rescue at the first signs of trouble. 2. Testing the "vibescession" theory: Consumer sentiment surveys weren't great predictors of economic growth and consumer spending the last time inflation was high in 2022. Back then, though, consumers were employed and enjoying massive wage hikes. Today, the job market has massively rebalanced, and it doesn't have much steam left to lose. All that’s to say: Three years ago, consumers hated inflation, but they didn’t stop spending. This time could be different. So, what do you think? Do businesses have the same amount of pricing power as before, or will this time be different, making the 2022 era an outlier? Share your thoughts in the comments and check out our latest survey results.

Tariff Terror The two major surveys of consumer attitudes, the Conference Board Survey of Consumer Confidence and the University of Michigan Consumer Sentiment Index have both deteriorated sharply since November 2024. The losses were due to a toxic mix of rising uncertainty on the trajectory for inflation - expectations are moving up - and an erosion in job prospects - they are moving down. The deterioration is broad based, hitting all income and wealth levels, ages, races and party affiliations. Headlines regarding tariffs and high profile layoffs no doubt fueled those concerns. The problem is that those concerns are starting to show up in the hard data. Consumer spending, which is the single largest driver of overall growth in the US, slowed markedly in the first quarter. The slowdown in spending, notably on leisure and hospitality coupled with a rise in the saving rate, suggests that consumers are hunkering down. That is to be expected in a highly uncertain policy environment. This is the same time that the PCE measure of inflation, which the Fed targets, accelerated in February. Other input prices have risen ahead of tariffs as firms scramble to front run tariffs. Investment is rising for the moment, as firms stockpile ahead of tariffs. Those shifts are borrowing from the future. The trade balance is widening on the front-running of tariffs. That is a drag on growth. Those figures include a surge in gold bullion, which is not included in the GDP data. No matter how the data is cut, we are seeing a slowdown in overall economic growth that is punctuated by rising prices. Employment has held up but is looking much weaker in March. That gets us edging closer to a mild bout of stagflation - rising inflation and unemployment. The rise in unemployment is limited by a loss in participation in the labor force. Foreign born workers participate ar higher rates than native born and older workers. The result represents a conundrum for the Federal Reserve. Much of the Fed’s leadership has evoked the 1970s as a cautionary tale. A failure to eradicate inflation and stimulate too soon triggered a vicious cycle of inflation and unemployment, or stagflation. One Fed leader has suggested that it might need to hike rates. When were tariffs deflationary? The Smoot Hawley Tariff Act of 1930 tipped off a trade war with 25 countries and a 67% drop in global trade, which plunged the global economy deeper into the depths of the Great Depression. That was chilling. Our analysis suggests that the effective tariff rate will easily lapse the peak of the 1930s by year-end. We have retaliation and a mild bout of stagflation. No rate cuts in such a scenerio.

Tariffs, while unpleasant, are just another challenge that business leaders face in the quest to guarantee the best possible performance of their companies. This weekend's #tariffs on Canada (25%, 10% on oil), Mexico (25%), and China (10%), while surprising to many business planners due to their targets, severity, immediate enforcement, and justifications, are no different. Work the problem: 🧠 Assess the immediate impact on your #costs, #profitability, and #pricing. If you haven't done so previously, engage in direct, honest, and transparent conversations with your teams, suppliers, and customers to develop a strategic response. Roll out the plan as quickly and efficiently as possible. 🗺️ Consider the medium-term and long-term implications of protectionist trade policies on your business and explore a comprehensive list of tariff mitigation strategies, including: •Strategic sourcing •Product exclusion requests •Country of origin adjustments •Value reduction/first sale tactics •Foreign trade zones and bonded warehouses •Special Harmonized Trade Schedule (HTS) provisions •Duty drawbacks 💡 Normalize a robust #risk assessment and planning process for your organization. Continuously evaluate diversification of suppliers and manufacturing locations. Conduct financial modeling of all inputs. Evaluate manufacturing process changes. Explore vertical integration and ways to eliminate intermediaries. Assess technology adoption and real time tracking of your supply chain. Don't be tariff-ied - you've got this! 💪

Don't just believe what you're told about tariffs. Do your own homework. The real facts impact your wallet. Imagine the world's economy as a global market. Every country is a vendor, bringing its goods, from advanced electronics and designer clothes to agricultural products and essential raw materials. As a consumer or a business in the U.S., you have access to a vast array of products, both "Made in the USA" and imported. A tariff is like a "cover charge" or an "entry fee" that the U.S. government imposes on products before they are allowed into the American section of this global market. This fee is paid by the U.S. company or person importing the goods. So, if a circuit board from South Korea typically costs a U.S. electronics manufacturer $50, a 20% U.S. tariff on that circuit board means it now costs the U.S. manufacturer $60 to import it. By making the circuit board more expensive, the U.S. government hopes American electronics manufacturers will buy a U.S.-made circuit board instead (if available). The reality is: You pay more for goods and services. 👉That smartphone with the South Korean circuit board? The U.S. electronics company will likely pass on the extra $10 (or more) tariff cost to you. So, the price you pay for that phone goes up. This applies to a wide range of goods, from cars and appliances to clothing and food. 👉Many "Made in the USA" products still rely on imported components or raw materials. If a U.S. furniture maker uses imported wood, a tariff raises their costs, and they'll likely pass that on to you in the price of the furniture. If the "cover charge" makes certain imported goods too expensive, U.S. retailers might stop carrying them. This reduces the variety of products available to you in stores and online. With less competition from foreign goods, U.S. companies might face less pressure to innovate, improve their products, or lower their prices. When the U.S. imposes a "cover charge" on goods from another country, that country often retaliates by imposing its own "cover charge" on U.S. products. This makes U.S. exports more expensive, leading to reduced sales for American companies. This directly hurts U.S. industries that rely on exports, leading to lower profits and potential job losses in those sectors. Companies often source parts and assemble products from many different countries to be efficient and cost-effective. Tariffs disrupt these global supply chains, forcing businesses to find new (often more expensive or less efficient) suppliers or even move production facilities, leading to costly complications and delays. Tariffs are essentially taxes on imports that are largely paid by U.S. consumers and businesses. They lead to higher prices, fewer choices, increased costs for American companies, and the risk of triggering retaliatory tariffs that harm U.S. exports and jobs, ultimately making the overall U.S. economy less efficient and competitive.