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April 2, 2025,” Liberation Day” as described by President Donald Trump, began a new era of US trade with our global partners. Another chapter in the book of “Making America Great Again” has started, and the plot continues to change.
Concern by investors moved the stock market so negatively that Trump was forced to back off on individual tariffs to countries of various degrees on April 9 for 90 days. Kicking the can further down the road, leaving more confusion and uncertainty as Trump negotiates better deals with individual countries.
In the meantime, across the board tariffs of 10% are in place on every country on Earth, whether inhabited by people, penguins, or no one. China is penalized with tariffs of 145%, which this could be different by the time you read.
As those who have been diligent in saving, the chaos of on-again, off-again, and how-much-again tariffs will continue to rattle the balances in retirement accounts, as well as nerves. Consumers will need to decide whether to pull the trigger and buy something now before tariffs are imposed, or taking the chance that Trump will reconsider and not impose tariffs.
Borrowers waiting for a drop in mortgage rates will continue to be disappointed as interest rates remain near current levels (hopefully, they do not go up). With inflation rising due to higher costs from tariffs, the Federal Reserve will not be motivated to lower rates. Bond investors will demand a higher rate to offset their loss of purchasing power because of higher inflation, putting even more upward pressure on interest rates.
Tariffs make items more expensive to those who import (bring into the US) those products or materials from another country. A business importing a product or material into the US will pay a tariff, which is a fee aka tax, to the US treasury to “land” that product or material into the US, creating revenue to the US Treasury. The cost of the tariff will most likely be passed onto other businesses and eventually consumers. Good for Uncle Sam; not so much for the rest of us.
Assume that a US company imports (or lands) a widget from another country at a cost of $1.00. Assume that the company can market and sell the widget for $1.10 to a US consumer, making a profit of .10₵ per widget.
Imposing a tariff of 10% or .10₵ wipes out the profit the business was making. If the business wants to continue to make .10₵ per widget, they will have to increase the price to the consumer to $1.20.
Trump declares that in addition to the extra revenue to the US from the tariffs, businesses will create more manufacturing jobs by moving production from overseas to the US. Thus, rather than paying a .10₵ per widget tariff, the business will build a factory and produce widgets right here in the US, hiring thousands to produce them. Thus “Making America Great Again” by creating more US jobs.
Or will it? Before spending tens of millions of dollars to build a factory and hiring thousands of people to produce widgets, the business will do a cost/benefit analysis. It will determine if it can produce a widget using 100% US parts, and market them for the same price or lower than the imported one widget at $1.20.
A significant variable in this analysis is that the imported widget is produced in an overseas plant by employees making $8 per hour, or less. Trump has told us that the main reason for implementing tariffs is that they will create good paying manufacturing jobs paying at $25 per hour, or more. At the very least, US labor as an input to the cost of manufacturing will cost $17 more per hour.
Say that the US plant will be able to produce more widgets per hour because of “automation” that will reduce the per unit cost to .90₵ (down .30₵ from the imported widget). Successful manufacturing companies currently operating in the US have spent millions in automating processes wherever possible to lower per unit costs. According to the Federal Reserve Bank of St Louis data, there were approximately 50% less manufacturing jobs in 2023 as there were in 1980. Manufacturing employment will never be the same as it was 40 years ago, regardless of tariffs.
Businesses moved manufacturing operations overseas because they could produce and import into the US a product cheaper than they could by producing it in the US. This allowed them to sell the product to US consumers at a lower price. If you increase the cost to produce the product, the price of the product will go up. Plain and simple.
Trump assures us that although there may be some short-term pain there will be “great joy and prosperity” when the US manufactures or produces everything we need. No longer will we have to rely on other countries that have been ripping us off for the last 50 years.
I am not exactly sure how being “ripped off” by other countries negatively impacted us. We have existed and functioned in this capitalist, global economy blind to tariffs that are being paid on products we consume. If a product we wish to purchase is available at a price we are willing to pay, we buy it. Regardless of what “tariff” has been paid to get it to the store shelf.
Stay tuned. We are in for a wild ride.
