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Who Pays the Tariffs in the Trade Wars?


I wanted to do a brief update on the tariffs, since that's what is rolling markets as of the last couple days and today. So who pays  the tariffs in the tariff wars? The short answer is we do, the US taxpayer. Global markets are down because of the trade disputes between the world's two largest economies, China and the US and in a game of tit-for-tat the US and China are ratcheting up  tariffs placed on one another and the president has said that the American tariffs on Chinese products are bringing in billions to the US government. Well that may be true but the source of the billions is not China or the Chinese companies, it's the US taxpayer.  

Our Consumer Prices May Be Going Up

With import taxes as high as 25 percent our prices are probably going up.  For example, the cost of an iPhone might go up $160 per phone to the US purchaser or Apple will have to eat part of that cost which will hurt their profit margins. So the u.s. tariffs on imported items represent an additional tax directly on the wallets and purses of American consumers or on the earnings of the companies that decide to absorb some of those costs.  There  will probably be a combination of higher prices for consumers and smaller margins for American businesses. 

Will There Be More Impact For Farmers?

There may be an impact for American farmers like the ones we've seen on the for the soybean producers. While soybeans have been up the last few days they are down over 30% from when the trade dispute started. When the cost of American products go up due to the retaliatory tariffs imposed by China, the Chinese consumers can go to different markets where they buy the items that aren't being charged  taxes or tariffs.  Chinese importers have shifted their purchases of American crops to South America unfortunately, which has long sought a foothold in the world's largest consumer market. Most economists believe the tariffs impede global trade and health of the global economy. Tariffs create uncertainty about a company's existing supply chains and sources of manufacturing items that go into their final products like iPhones and automobiles. I think that's one of the big objectives of this trade war is to get some of our companies to source stuff outside of China rather than have it all done there. This is why the imposition of additional tariffs and the threat that they will continue into the future is spooking investment markets.

I Don't Believe Market Timing Can Be Meaningfully Achieved

How might this affect your investments? Depending on how long the wars continue or how long it takes to them to come to an agreement, our investments may go down. They may go down quite bit. For many reasons we do not plan to make investment changes based on the trade wars despite the fact of how markets are responding. 

It's goes back to the market timing issue. Think of it this way, let's say the markets go down ten percent over the next few weeks and then the president tweets "We have a deal!" and then the markets go up ten percent in two days,  similar to what happened at the end of December. I think it was the day after Christmas when markets rallied 5 percent after being down about 20 percent the last few months of the year. 

The markets are still up double-digit for the year and things aren't looking terrible but this will obviously  have some effect on everything. I don't believe market-timing can be meaningfully achieved so we will just continue with our strategy of owning the best companies in the world believing that they will create value over time. 

Thanks for you time and please like our Facebook page https://www.facebook.com/eagleridgewealthadvisors and subscribe to our updates on our web-page and feel free to reach out with any questions/comments or topics you would like me to cover in the future.   

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