Understanding Tariffs and Their Economic Impact

Introduction

• Items like iPhones, umbrellas, shoes from China make up a significant portion of the $505 billion worth of goods imported to the U.S.
• President Trump has increased tariffs on many imports, prompting retaliation from China and others.

What are Tariffs?

• Tariff: A tax on items entering/exiting a country.
  • Money collected is called a duty or customs duty.
• In the U.S., duties are collected by U.S. Customs and Border Protection.

U.S. Tariff Statistics

• U.S. import duties in the previous year: $33.1 billion (1.4% of total imported goods value).
• U.S. tariffs are among the lowest in the world.
• Tariff rates vary widely:
  • Some items not taxed at all.
  • Others, like shoes, taxed around 11%.

Impact of Increased Tariffs

• Example: Watches from China
  • Original cost per watch: $10.
  • With a 20% tariff: $12 per watch.
  • Large orders (e.g., 15,000 watches) increase total cost significantly from $150,000 to $180,000.

Reasons for Tariffs

• Revenue Generation: Funds general U.S. Treasury to help run the government.
  • Last year, almost $35 billion collected in duties.
• Protection of Domestic Industries: Makes foreign goods more expensive, encouraging locally made products.

Challenges and Alternatives

• Domestic production is not always a straightforward alternative due to the need for imported supplies.
• Potential to source goods from other countries like India or Vietnam to avoid tariffs on Chinese products.

Global Reactions and Trade Deficits

• Tariffs have led to retaliation from countries like Canada, Mexico, and the EU.
• Trump's Objective: Reducing the U.S. trade deficit, particularly with China.
  • U.S.-China trade deficit: Estimated $370 billion.
  • Goal: Reduce to $200 billion by 2020.

Impact on Consumers and Businesses

• Increased tariffs often lead to higher prices for consumers.
• Companies like Kimberly-Clark have had to revise their annual forecasts.

Impact on Chinese Industries

• U.S. exports to China: Soybeans, aircraft, electrical machinery.
• China's retaliatory tariffs (e.g., 25% tariff on U.S. airplanes) impacted U.S. companies like Boeing.

Economist Opinions

• Majority believe tariffs will harm the U.S. economy more than benefit it.

Conclusion

• Ongoing uncertainty as governments, companies, and consumers respond to tariff changes.