Tariffs are by now a well-known form of taxation. There has been much written and even more said. As was the case in March 2020, we are here to help businesses navigate these turbulent waters. We will know more after the timing, magnitude, and agreements are all worked out. It is too soon to claim to have all the answers. However, there are some broad strokes to share.
1. The imposition of tariffs means some US based businesses will “win” and others will “lose.” We will be working specifically on identifying the two camps, because the advice and calls to action will vary.
2. The new tariffs that have been put in place (Canada and China as of this writing), those that may be put in place in 30 days (Mexico), and those scheduled to be imposed in mid-February are not going to cause a recession in the US economy in 2025.
3. The service sector is expected to fare better than the industrial side of our economy in general.
4. Tariffs will create price increases placed upon the consumer, usually not to the full extent of the actual tariff paid. Since inflation-adjusted personal income is rising, these price increases will pinch discretionary income. In general, consumers will have less money after taxes, rent, food, and other nondiscretionary expenses. Businesses operating in the discretionary spending spectrum of our economy will face greater indirect pressure stemming from the tariffs.
5. It is unusual to place tariffs of this sort on neighbors and close trading partners. Accordingly, we will be diligently analyzing the potential for variant consequences for our clients.
6. Retaliation is an inevitable aspect of tariffs and forms the secondary dampening effect on the issuing country, the US in this case.
Keep in mind that tariffs will slow the rate of growth in the US, but we will still grow. Tariffs will add to the rate of inflation but only incrementally. The consequences of the discussed February and March tariffs, as well as others yet to come, are more significant for the US’ neighbors and trading partners than for the US.
Longer-term, nationalism is the new economic world order. Expect more tariffs over the rest of this decade and the beginning of the 2030s. The consequences of tariffs compound through time and are ultimately consistent with ITR Economics’ forecasts for the 2030s.
If you have any questions, please don't hesitate to reach out to us.