Hello everyone. So it's been almost a week since Trump has assumed office. And today I want to look into his probably favorite word, tariff. I want to explore how this might end up in the global economic perspective and what are the implications that both the USA and the rest of the world can have because of the tariffs that Trump talks about.
First of all, we need to understand what tariffs are. Tariff is the excess cost that is put on imports from outside countries. So if America imports something from another country, The business that imports the product pays the premium on the price to the government. This does not increase the cost of the exporter from that foreign country, rather increases the cost on the local importer. Now the office thinks that this will boost local production and it is to ensue a trade war with countries that are hostile to America. Such as Mexico and China. The rumor is that the American government is trying to impose a 25% tariff on Mexican goods and Chinese goods will receive 10%.
This will make imports from those countries less intuitive because the importers from the home country will have to pay more to import the same product. Unlike in taxes, where the exporting country needed to pay the premium from the sale price they got from the home importer. So instead of actually boosting the local businesses, it will hurt the general public. Because Yes, there are some businesses that import goods from foreign countries which will be forced to develop their products within America to comply with not paying the tariff. But most businesses actually have a supply chain with these tariff imposed countries. So these businesses will have a hard time shifting their whole logistics facility in order to comply with the new tariffs. And if they fail to do so, prices will simply rise because the product may be American, but the raw materials are from foreign countries which are imported while paying the tariff, and the cost flows through to the consumer. So the consumers will actually be harmed alongside these foreign countries when tariffs are imposed. At the same time, local competitors to importing businesses can raise their prices because the ceiling will go higher because of these same tariffs.
So what I think is, Trump might actually go on with his tariff impositions. And he will wage this trade war against those countries that are supposedly hostile to the United States. But at the same time, even though he speaks about these tariffs paying for the tax cuts, I don't think the numbers will eventually add up and the average American will suffer a significant price increase in his daily spendings.
