This posting is very timely. The Dow Jones futures have dropped 1.2% this morning, after Trump announced plans to levy tariffs on imported goods from Canada, Mexico and China. It is a very good indication that investors are fearful of the impact of tariffs.

Almost immediately, Canada, Mexico and China will be enacting retaliatory tariffs on US exporters making it more difficult for the US to compete abroad. Tariffs are based on protectionism, or simply to keep the US industries profitable against unfair competitive practices by other countries.

Trump’s Big Lie

Trump lie is that we are making China, Mexico and China pay the tariffs. The companies that import foreign goods must pay the tariffs. The companies paying the tariffs will pass this additional cost to the consumer. Thus, the cost of many goods will go up.

In the article below it is stated, ” Trump has said that tariffs “are paid mostly by China,” rather than by Americans.” And then goes on to explain that this is untrue, as tariffs are paid by US consumers. 

What are tariffs? Here’s everything you need to know about the import duties.

Inflation to rise

Increases in inflation will hurt most Americans. The cost of buying a home will rise as the lumber to build homes will increase. The loans for homes will be more expensive. Fewer houses will be built. Cost of gas will increase, as the cost of imported oil increases. So, consumer spending will be more for staples (food and gas) and much less for discretionary spending (vacations and luxury goods).

Typically, the Fed tries to bring inflation down, by increasing interest rates they charge banks. This becomes difficult in a slowing US economy. The right solution is to drop the tariffs, because they are bad for our economy and consumers. For a variety of reasons, including Trump’s ego, this is unlikely to happen.

Stay tuned,

Dave