TARIFFS AND THE COLLATERAL DAMAGE OF TRADE WARS
Today’s media is fraught with predictions of impeding economic disaster, spurred by the imposition of tariffs on goods entering our country from other nations. News outlets across the United States and beyond have sounded the alarm over the staggering new percentages demanded by the most recent round of tariffs added to those implemented in January.
Compounding the universal 10% tariff imposed on all foreign imports, higher “reciprocal tariffs” targeting specific countries with 34% levied on Chinese goods, 20% on European Union (EU) imports, 24% on Japanese products, 26% on Indian commodities, and 10% on Great Britain’s imports began today.
Consequently, at the time of this writing, stock market indexes have plummeted – losing more than $11 trillion since January – with futures on the S& P 500 down more than 20% percent, the Stoxx Europe 600 dropping 11.26% and the international oil benchmark for pricing Atlantic basin crude oils, Brent Crude, spiraled 7% sending oil prices to their lowest value since 2021.
The aforementioned economic policy will almost certainly impact your ability to purchase goods and services – including those of the essential variety. How catastrophic they’ll be depends on a variety of factors, but it is important to have a basic understanding of what a tariff is, its functions, and what their potential effect will be on us as individuals and as a collective society.
Gaining increased attention during the 2024 election season, this “Economy 101” subject has, at times, been improperly defined or misconstrued. Plainly, tariffs are taxes imposed by a government on imported goods. “Reciprocal” tariffs are taxes im-posed in a tit-for-tat fashion by a government attempting to equalize trade imbalances with other countries. Typically calculated as a percentage of the item’s value, tariffs are collected by customs authorities at ports of entry. The primary intent behind tariffs is to make imported goods more expensive, thereby encouraging consumers to purchase domestically produced alternatives. While this can protect local industries from foreign competition, the increased costs are often passed on to consumers, leading to higher prices for imported goods.
Given that demand for most imported goods decreases as prices skyrocket, tariffs ultimately hurt the economies of exporting countries at the producer end of the global supply chain. It’s no wonder, then, that the announcement of these tariffs has elicited consequential backlash from the US trading partners, as the extreme percentages placed on our allies and adversaries alike have struck the first blow in this burgeoning trade war.
Unsurprisingly, China’s Ministry of Commerce condemned the move as unilateral and retaliated with a 34% tariff of its own. The European Commission warned of severe economic consequences and indicated plans for countermeasures. Other nations, including Japan, South Korea, and Australia, expressed regret and called for dialogue to prevent escalating tensions. Such angered responses have heightened the risk of a full-scale disruption to global trade flows and national economic stability.
While these trade schemes are unprecedented, there is an abundant failed history of implementing protectionist policies that is worth analyzing. In the 1930s, the Smoot-Hawley Tariff Act raised US tariffs on over 20,000 imported goods, aiming to protect American farmers and manufacturers during the Great Depression. However, this led to retaliatory tariffs from other nations, resulting in a significant decline in international trade and exacerbating the global economic downturn. Similarly, during the 2008 financial crisis, while tariffs were not the primary tool used, protectionist sentiments influenced policies that affected global trade dynamics. These chronicled instances underscore the potential pitfalls of isolationist trade measures.
Economists worldwide have taken to the press to plead with executive politicians over current plans in a shared attempt to avert increased consumer prices, supply chain disruptions, and reduced business investments. The International Monetary Fund warned that such tariffs could reduce the US GDP by 1% to 2%. While experts have encouraged individuals to ready themselves by taking actions such as diversifying investments to mitigate risks associated with market volatility, reducing personal debt to enhance financial resilience, and building an emergency savings fund to cushion against potential economic downturns.
As the Sheriff of Suffolk County, my primary concern is the wellbeing and safety of our shared community. Economic instability can lead to increased hardships, which may, in turn, affect the livelihoods of our residents. Here at the Department, we make it our mission to promote financial literacy internally and externally to provide knowledge and a better understanding of things like budgeting, investing, banking, mortgages and more. Our vocational education programming offers residents the ability to learn basic automotive and small engine repair; how to plant, grow and harvest produce; perform general carpentry and more. Our Richard Pacitti Reenty and Transitional Center, along with other social services and programming, provide academic and practical training – including classes where participants can earn a Commercial Driver’s License – for those entering the job market upon release to help them navigate the ever-changing economic landscape and offer tools that can lead to sustainable, higher paying jobs.
While similar support from all sectors will be crucial in helping those who can least afford the economic crisis unleashed by these tariffs, the ultimate solution lies in the hands responsible for unleashing them.
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