With the 2024 elections behind us, Americans will once again see Donald Trump back in the Oval Office. The President-Elect has promised to impose a plethora of new policies and regulations, which includes a new set of import tariffs. With his return just around the corner, what can we expect for the U.S. economy?
What are tariffs and how do they work exactly?
Tariffs are taxes imposed by the government on companies/individuals that import goods. Though the importers pay the fee on tariffs for imported products, it is important to note that it is the indirect result is that consumers wound up covering a bulk of the tariff costs. Although importers pay out of their pocket for tariff fees at the time of importation, they recoup the cost via mark-ups when sold at “retail”.
What are Trump’s tariffs specifically?
When Trump was first elected in 2020, he placed costly tariffs on a vast majority of products manufactured in China. The tariff was implemented on a vast category of products ranging from plastics, garments, and metals. With his second term set to begin in January 2025, Trump has confirmed that he will expand on his initial tariffs. China will once again be targeted with a 10% tariff increase on top of the 25% they currently have in place. However, Trump has plans to expand upon the tariffs during his second term. Our neighboring countries, Mexico and Canada, are facing 25% on their manufactured products.
Effects on domestic manufacturers and the economy
In economic theory, the increase in tariffs should incite economic growth and production of domestically manufactured goods. If foreign manufactured products become much more expensive to import, it should incentivize U.S. manufacturers to make goods domestically to cut down on costs.
Although possible, there are numerous concerns about this idea. A prime example is that many domestic manufacturers rely on importing materials for production. Adversely, if the cost of raw materials increase, it will become marginally more expensive for domestic manufacturers to produce their goods. One could argue that the manufacturers could switch to importing from a different country, but then the manufacturers would still have to increase consumer prices to cover the costs, with U.S. consumers eating a majority of the costs.
It boils down to the fact that tariffs actively promote price increase while dissuading trade. Below are the top 10 US goods imported by value in 2022, which will very likely be products/materials that will face an increase in value next year.
Potential effects it could have on foreign countries/producers
Though it’s hard to accurately gauge the effect these tariffs could have on foreign producers and international trade, it is a safe bet to assume that it would become exponentially more difficult for any party trying to export goods into the United States. We will likely see many foreign manufacturers alter their supply chain to bypass the hefty tariffs that could be in place. We’ve seen this occurrence many times, with China primarily, in which they add a pit stop on their supply chain as a loophole out of the additional tariffs. With the 2nd round of tariffs in place we could be seeing a major increase in these stops in all shipments as global suppliers become eager to circumvent the fees.