Questions around tariffs have been coming up in most of my meetings recently. So, here are the answers to the top questions I’ve been getting.
What is a tariff?
A tariff is a tax on imported goods that is paid to the federal government. These can be imposed at a country level or on specific goods.
How do tariffs work?
The importing country is responsible for paying the tax, which makes getting goods from certain countries more expensive. This is done is to encourage the importer to find a domestic source for their supply or get this good from a different country (other than the one being tariffed).
What are the economic effects of tariffs generally?
- Retaliatory tariffs: Countries with tariffs being imposed on them may respond with tariffs as well.
- Higher prices for consumers: May contribute to an increase in inflation and higher prices as companies may choose to pass the cost onto the consumer.
- Slower economic growth: Tariffs can provide a boost for domestic companies but can slow the overall pace of the country’s economic growth because higher prices can lead to a drag on consumer spending.
What tariffs have been implemented?
- As of 4/3/25, tariffs have been imposed on 50+ countries.
- Tariffs are 50% of the rates imposed on the US, by country.
- There is a 10% baseline tariff on all countries worldwide.
- 25% auto tariffs on all foreign made vehicles and auto parts.
- Reciprocal tariffs of 34% on Chinese goods, 20% on EU imports and similar tariffs on imports from the UK, Japan, India, and Vietnam.
How may new tariffs impact the U.S. economy and inflation?
If the tariffs were imposed on an annualized basis, estimates show that inflation would rise by .5% to 1%. U.S. economic growth would be expected to decline by a similar amount. The disruption should alleviate over time as businesses adapt to the new changes.
In the short term, tariffs could impact some businesses as they might delay shipments in hopes that the tariffs are revoked. If implemented, some U.S. manufacturing operations may need to be shutdown, specifically in the auto industry.
Tariffs could also lead to a stronger U.S. dollar.
What impact may new U.S. tariffs have on the markets?
They could slow economic growth and lead to increased inflation. Given market expectations of interest rate cuts and inflation coming down in 2025, this would likely cause the market to trend downward and create increased volatility. Investors are concerned about the uncertainty, potential for a trade war, and negative impact on corporate profits and economic stability. I believe we are in for a lot of volatility in the near term.
I believe the greatest risk for markets this year is inflation increasing significantly to the point where interest rates need to be raised.
Could the new tariffs become permanent?
The Trump administration can impose near-term tariffs but any lasting changes to trade policy would require Congressional legislation and approval. In my opinion, tariffs are very unlikely to be implemented over the long-term. Congress members, specifically in automotive heavy states, would not support these changes.
Tariffs on goods from China are likely to be sustained for a longer period.
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