Tariffs, Economic Boom or Bust?
Good to Know
Consider radioactive fissionable material; it’s beneficial when used to generate electrical power in a reactor but has the potential to create mass extinction in a nuclear war. The author respectfully suggests that — similarly — tariffs can propel our economy to new heights or smother our economic growth. We’ll turn over both sides of that coin, starting with potential benefits.
Potential Benefits
- Protection of Domestic Industries
- Tariffs make imported goods more expensive, helping U.S. domestic companies compete by reducing foreign competition, especially when foreign products are subsidized by foreign governments.
- Job Preservation and Growth
- Manufacturers may relocate (called re-shoring) to the U.S. to avoid tariffs, thereby increasing job opportunities for American workers.
- By reducing reliance on imports, tariffs can encourage the growth of domestic industries, which can lead to job creation. Workers in affected industries benefit from reduced competition from subsidized or cheaper labor markets.
- National Security
- Tariffs can help protect industries critical to national security, such as steel, energy, and technology. By discouraging reliance on foreign supplies, a country can maintain self-sufficiency in strategic sectors.
- Encouragement of Domestic Production
- Higher costs of imports can push businesses to source materials and manufacture products locally, strengthening domestic supply chains and reducing dependence on foreign markets.
- Revenue Generation for the Government
- Tariffs can be a significant source of government revenue, and could be used pay down our national debt or invest in public infrastructure, education, and healthcare.
- Leverage in Trade Negotiations
- Tariffs can be used as a bargaining tool in international trade negotiations. For example, tariffs may be useful in pressuring another country into lowering its own trade barriers or stopping the flow of fentanyl into our country.
Potential Disadvantages
- Potentially Higher Prices
- Tariffs could increase the cost of imported goods, and businesses could pass these higher costs onto consumers.
- Retaliation
- Trading partners may retaliate by increasing their own tariffs on exports. This can escalate into a trade war, harming global trade and leading to economic uncertainty.
- Economic Inefficiency
- Many believe that tariffs disrupt global free market principles by artificially increasing prices, leading to inefficiencies. This theory seems to presuppose a zero-tariff international economy — which is sadly not the case.
- Others point out that if a U.S. trading partner levies tariffs and value-added taxes on US exports, our tariffs, used judiciously, merely level the playing field.
- Impact on Global Supply Chains
- Many industries operate on global supply chains, sourcing materials and components from multiple countries. Tariffs disrupt these supply chains, forcing companies to find alternative suppliers, restructure logistics, or absorb higher costs, which can decrease efficiency and profitability
Next Steps
Now let’s bring this discussion down from international and national economics to your wealth management. If you’re tempted to stress over a potential economic downturn or tempted to invest heavily at each downturn, reach out to your financial advisor. As a Marine client of the author once opined, “when the bullets are flying, make no sudden moves and stay in your foxhole.” Your financial advisor can help you keep the purpose for your portfolio in mind and the risk vs. return trade-off you established previously.
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The material contained in this article is to raise awareness—it is informational, general in nature and does not constitute financial advice. It should not be relied upon or used without consulting a credentialed financial professional to consider your specific circumstances. This communication was published on the date specified and may not include any future changes in the topics, laws, rules or regulations covered.
