It’s a Bird! It’s a Plane! It’s The Tariff Man! Let’s Talk International Trade
A Keynesian economist may tell you that the 4 Asian Tigers — Hong Kong, Singapore, South Korea and Taiwan — were able to rapidly industrialize because of their protectionist agenda. Between the 1960s-1990s, the Tigers set out to become the mega-powers they are today through aggressively boosting exports by offering major subsidies to import-substituting industries (i.e. manufacturing). As expected, these industries flourished making these Asian countries “crazy rich.”
Although it worked for the Asian Tigers, creating barriers to international trade has risks and consequences. Unarguably, there are some winners, but usually low-income populations become disproportionately exposed to the economic strain. Although the U.S. committed to free trade back in the 1930s, the current administration’s increasing protectionist regulations have set a new tone for global trade. President Trump has already imposed new tariffs on goods worth billions of dollars from around the world whilst cautioning the markets that there are more tariffs to come — speech that is sure to increase stressed-induced acid reflux for FX traders. For example, the administration has increased tariffs on steel and aluminum imports, allowing national steel manufacturers to grow while facing slim competition. This increases profits and adds jobs to the steel industry. However, there’s no such thing as a free lunch, since the extra cost of U.S. steel will be passed on to finished products — cars, appliances, medical supplies, and even the beer cans in your cooler as you relax on the beach this summer.
The Tax Foundation estimated that newly imposed tariffs will reduce the lower and middle class’ income by 33% and wealthier groups’ income by 23%. Not accounting for retaliatory tariffs, tariffs on Chinese goods alone may decrease a middle-income household’s yearly income by $146. If you don’t think this sounds like much, just talk to a college student living on boxed mac and cheese (yes…the kind that you microwave before stirring in the fake cheese). This loss comes in the form of rising prices of consumer goods, lower income, reduced overall employment, and lower economic output due to a stronger dollar. A strengthening dollar may seem like a good thing, but it just means that your daily oat milk latte will be even more expensive.
Imposing tariffs on foreign goods not only hurts U.S. consumers, but also affects suppliers. A report from the San Francisco Federal Reserve Board shows that for every dollar spent on a Chinese good, 55 cents goes to services produced in the U.S. These 55 cents per dollar go to transportation services, labor or rent. Therefore, figuratively, “Made in China” really means “55% Made in America.”
Maria Clara Uquillas, Investment Intern
As tariff uncertainty continues to increase and no trade deal is reached with China, farmers in the U.S. grow impatient since retaliatory tariffs on US soybean, corn and wheat are in question. To keep the farmers at ease, Trump has pledged $28 billion in aid.
TEDx Video: https://www.youtube.com/watch?v=xT6TQSxlDOY
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