On April 2nd, Trump’s administration hit many countries with a series of tariffs on exports. Experts say the repercussions will be massive. Prices are expected to rise across multiple markets. Most people don’t understand that it’s always the customers who pay the bill. These are called “retaliatory or reciprocal tariffs” because they are an answer to other countries’ tariffs on the USA. Are these legitimate, though?
“The calculation finds the ratio between the US trade deficit with a country and that country’s total exports to the US. It then divides the ratio in half to produce what the administration called a “discounted reciprocal tariff”., said by economic experts on The Boston Globe.
“For example,” she said, “imagine you have completely free trade with an island that produces mangos but lacks sufficient income to buy US goods. The US buys $100 in mangos and sends only $20 in exports. This would imply a tariff rate of 40% by the Trump method (80/100 divided by 2), but the imbalance of trade represents only the fact of distinct comparative advantage in trade, not any trade barriers.” Kimberly Clausing, American economist
The ultimate goal of Trump and his administration is to bring back factories and jobs to the economic powerhouse. There are lots of reasons why big companies manufacture their products outside of America.In other countries, the workers’ wages are extremely low compared to Western standards, which means that the production cost will be higher. As a result, the customer will pay more for the same product.
It takes years to build a new factory; another administration could have removed the tariffs by then. Consequently, it is risky to move manufacturers from a country to America, as corporations have no warranty on their investments.
America is the largest pool of consumers in the world.It is only normal that there is a trade deficit between them and other countries. The explanation for this is that they buy more goods than they sell. As a compensation, the US dollars are spread and used to trade around the world. So, it increases it’s value massively. In a world where there is no trade deficit between other nations and the US, they would lose some influence on global trade.
The economic instability brought by these policies leads to a big drop in the stock market. According to Wall Street, the US stock market experienced a 2 trillion drop as soon as the tariffs were imposed. These numbers will rise even more if the tariffs continue to strike.
It is notable that many American citizens had their retirement funds in 401 (k) plans. As the stock market’s value decreases, their savings decrease, too. Furthermore, this situation will impact middle-class workers and families as the cost of living increases. Companies won’t lower their prices even if the tariffs are gone.The exact same thing happened after the COVID era.
“I looked at my 401k this morning, and in the last two days, it’s lost $58,000. That’s stressful,” said Victor Fettes, 54, of Georgia, who retired last week as a senior director of risk management and compliance at Verizon. “If that continues, I can’t stay retired.”, an American citizen affected by tariffs commented on NBC NEWS.
There are a lot of different outcomes to this economic clash.Some countries will eventually fold if they don’t have the cards to come out stronger.Some are going to negotionate to create new economic partnership based on free trade.
List of new tariffs imposed by the US on other countries:
