Trump Reworks Foreign Tariffs to Isolate U.S. Companies; Disrupts Market
President Donald Trump began his second term by announcing a variety of tariffs, igniting a trade war with China. While aimed at increasing domestic production and providing more jobs for Americans, their immediate effects have introduced volatility into the market.
The trade war is widely considered to have started seven years ago when the U.S. raised tariffs on washing machines, solar panels, and the two key metals used in trade and industry: steel and aluminum. At that time, many economists disagreed with Trump’s claims that tariffs on steel and aluminum would help the economy. Although the legality of the move was questioned, the Trump administration cited the International Emergency Economic Powers Act as justification for raising tariffs in the case of an emergency.
The Peterson Institute for International Economics found that reciprocal tariffs on U.S. imports increased from 8% to 21%, while imports from other countries had reduced tariffs of 6.7%. The tariffs remained mostly stagnant during Biden’s administration. For this reason, tax revenue from foreign tariffs was greater for the Biden administration than that of Trump’s.
Historically, the U.S. has been relatively conservative with imposing tariffs, even spurring reduced tariffs internationally.
Retaliating against Trump’s tariffs, China, the UK, and a few other countries placed tariffs on U.S. imports. Trump announced a blanket tariff of 10%, with a notable exception: the total tariff rate for Chinese goods was raised to 145%. China criticized Trump’s plan by calling it a “joke” and responded with a 125% total tariff rate on U.S. imported goods.
Humanities teacher and Upper School Dean of Academic Life Marty Rubio said, “I think there are a lot of strong economic incentives not to [bring businesses back to the U.S.] for companies.” Major factors affecting the cost associated with nationalizing outsourced resources include the increased cost of labor and the cost of building factories in the U.S.. Labor laws in the U.S. make those products more expensive and improve the quality of life for such workers.
The public coverage of the tariffs introduced volatility into the market. Typically, the sudden drop in market prices is an indicator of a recession, but Trump believes these tariffs will pave the way for a more independent future. The S&P 500, Dow Jones, and NASDAQ experienced a slow decrease and then a dramatic dip starting months before Trump’s decision to radicalize the tariffs. The S&P 500 went from $5671 on April 2 to $4983 on April 8. It then regained most of the lost market value after the reduced tariffs were announced.
Controversy arose when Trump wrote on Truth Social, a social media company owned by his namesake Media and Technology Group, the following: “THIS IS A GREAT TIME TO BUY!!! DJT.” This was hours before he announced the reduced tariffs on non-Chinese countries.
Although many accuse Trump of insider trading, market manipulation is hard to prove concretely because of his fundamental duties as the president. Nonetheless, the trade war spurred on by the Trump administration and China has had a dramatic effect on his private interests.
Trump has insisted on the temporary nature of the 145% tariff on China, but he emphasized the necessity to pull away from Chinese imports for the good of the nation. According to the Associated Press, Scott Bessent, the Secretary of the Treasury, said, “Neither side thinks the status quo is sustainable.”
Additionally, China’s Finance Ministry said, “The U.S. side's imposition of excessively high tariffs on China seriously violates international economic and trade rules, runs counter to basic economic principles and common sense, and is simply an act of unilateral bullying and coercion.”
During a meeting in Beijing, China’s president Xi Jinping said that China and the EU should “fulfill their international responsibilities... and jointly oppose unilateral acts of bullying.” The dollar has hit a new three-year low and Beijing has been hit hard by the Phase 1 tariffs.
The direct economic effects of the tariffs are not immediately clear. Marty said, “Nothing has come across at this point, and I think there are reasons for that.” However, specific products have experienced a dramatic rise in price.
Junior Ethan Dandliker said, “I bought AWE boots, but I had to buy them before the tariffs hit, because the boots were going to double in price. That would have been bad.”
In addition, junior Uma Raghavan said, “I went to an Asian grocery store the other day and things [were] hella expensive.”
A speaker in Marty’s class, a hedge fund manager, had also talked about the specific impacts of the new tariffs on a toy company that they were working with. Marty said, “They are trying to come up with a lot of different strategies to mitigate the impact of the tariffs. He actually said there are other industries that they are looking for that are not affected by tariffs, so that they can be a more safe investment.”
Companies that rely on domestic investments may suffer from reliance on foreign imports. Conversely, companies which source primarily from the U.S. will thrive because of these tariffs.
Models predict that more expensive resources will experience a greater price impact from the tariffs when considering pass-through rates.
This tradeoff of market volatility is contrasted by ethical considerations. Marty said, “I think I would not want to be in a country where we had terrible labor conditions and I think everybody is entitled to a dignified work experience and a decent pay. I would put it back to you all to think about: How much are you willing to pay for products that you know have been made by ethical labor? By ethical, I mean safe conditions, reasonable hours, and decent pay.”
The speaker in Marty’s class stated that he wasn’t sure what Trump’s strategy is with tariffs. Marty said, “I recognize that I think free trade is generally good for an economy and most economists would say that, but I recognize there are times tariffs [are] necessary, useful, and practical.”