First Trust Advisors LP Chief Economist Brian Wesbury will discuss whether Trump's tariffs will affect Varney & Co's inflation.
president Donald Trump's Newly implemented tariffs and additional tariffs under consideration disrupt trade relations and industries rush to respond to the higher costs brought by import taxes.
Trump's tariffs are enforced on products from Canada, Mexico and China (the three largest trading partners in the United States), respectively, with Chinese goods facing 10% tariffs above the original 10% tariffs imposed by the president. Canadian and Mexican products face 25% tariffs, while Canadian energy products have 10% tariffs.
President Trump has additional tariff plans that have not yet come into effect. He plans to raise tariffs on imported steel and aluminum from 10% to 25% on March 12, and hopes to implement mutual customs policies from April 2. Additionally, we expect a 25% tariff on cars and a 10% tariff on important imports in the European Union.
“These tariff packages could support some domestic industries, but they would hurt others,” writes Goldman Sachs Economists, led by Jan Hatzius, in an analysis. “Rising tariffs will raise prices for imports and increase demand for goods produced in some domestic countries. However, increasing tariffs will increase production costs for some domestic producers and encourage foreign retaliation for some US exports.
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Trump's current tariffs and upcoming tariff packages could spark a trade war as US trading partners retaliate. (Photo by Reuters/Mike Blake/Reuters)
The economist analysis examined 20% tariffs in China, pending tariff packages for steel and aluminum, important imports, and European cars. Steel and aluminum producers, as well as oil and gas producers, have found that the industries involved in producing these materials into final products are the most beneficial.
“The biggest beneficiaries are the major steel and aluminum manufacturing and raw material processing, while the industry is most industries, specialized in the production of secondary materials such as steel and aluminum products, petroleum and coal products, and pharmaceutical production,” the economist wrote.
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According to the analysis, manufacturers using steel and aluminum products will be damaged by customs duties. (Bill Pagliano/Getty Images/Getty Images)
They added that while the US does not have a significant market share for importing final drugs, the 10% tariff on drugs and related chemicals “produces a significant 1.0% drug on drug manufacturing production,” as the “relies heavily on the global supply of intermediate pharmaceutical products for production.”
Goldman Sachs noted that tariff hikes on important imports of steel and aluminum, oil and gas, semiconductors and pharmaceuticals will have a greater impact on US companies than higher tariffs on imports from China.
“The reason is that both US producers use more important imports than imports from China as intermediate inputs to domestic production, and compete with some of the important imports of these tariffs more than imports from China on the part of producers,” they wrote. That overlap and policy uncertainty could “be a more meaningful deterrent to investment than the policy uncertainty regarding tariffs on imports from China.”
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Oil and gas producers will be harmed by manufacturers using these products, but are supported by important import duties. (Photo by J. David Ake / Getty Images / Getty Images)
“In addition to the potential retaliatory tariffs imposed by foreign governments, it appears that US producers are also facing boycotts of consumers,” the economist points out, citing examples of limited boycotts during the Iraq war.
“It is difficult to know that recent boycotts on US products such as Canadian alcohol and European cars can ultimately go on, and past experiences point to limited impacts, and we estimate that reported declines since early February have been hit by just -0.1% on US exports,” they write.
Taken together, Goldman Sachs estimated that the net effect of these tariff packages would be “through these production channels strictly, U.S. industrial output is only -0.2% and -0.04% on GDP, which would have a slight impact on most industries.
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“While the net effect through the production side channels is small, we expect it to have a greater effect through other channels, particularly by reducing real household income and tightening financial position,” they write.
