In less than 2 weeks on his return to white house, US President Donald trump had announced implementation of tariff on top 3 trading partners – 25% on imports from canada & mexico while additional 10% from China. Leaders of Mexico & Canada negiotiated with Mr. Trump and managed to hold it for a month while tariff’s on china has gone ahead. In response China hit back tariff of 10% on US crude oil, Farm equipments, large displacement vehicles & pick up trucks as well as 15% tariff on US Coal & LNG. With tariff war on , let’s decode same in more detailed manner. 

What is Tariff & Why Trump is so big on tariff?

Tariff are tax on imports on specific countries on specific goods at specific rates. Tariff mainly stems from his America First Policy, he view tariff’s as way of protect american industries  from foreign competition like China & Mexico. By imposing tariff , he believes US can encourage countries to produce products domestically rather than outsourcing same which will enable localization & more job opportunity for American citizens. Secondly, Mr. Trump says it is also about reducing trade deficit with other countries but it is also one of the big pressure tactic to force other countries negotiating good deals. 

Implications of Tariff on Consumers & Investors

Vast Majority of Economists believe tariff’s can be bad news for local consumers as it will hit their pockets due to price increases and ultimately reduction household spending powers. Tariff also worries Street investors as there is market volatility on daily basis as well as inflation would leave Federal reserve less willing to cut interest rates which in turn will hurt consumers and businesses. 

American consumers will face increase in prices due to tariff’s. While overall tax collection for US will increase but it may shrink economic output to some extent. Industries in US are in tough spot to make swift decision around raw material cost increments whether they will absorb some costs and hurt their profits or they will pass on to costumers. 

Impact on Foreign Relations 

The entire story of tariff’s will impact US relations with many of their allies , there will be definitely rockier diplomatic relations and lack of trust moving forward. Mr. Trump had already mentioned imposing reciprocal tariff’s on European Union, India, Japan, Vietnam and other Asian countries. Specifically on European Union , in his speech he mentioned about trade deficit of around $350B and EUnot importing US made cars and farm equipments. 

What Next on Tariff? 

Mr. trump unpredictability on foreign relations and economic policy have been defining feature of his presidency period before as well. It is hard to know what his next move will be but what we know that trade war is not over it is just begin. 

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