I'm not going to get into politics. I'm just going to talk tariffs.
Tariffs are typically implemented to make a market correction or to penalize another country. So for example, let's say I sell widgets I manufacture in Indiana. It costs me $1 to make them there. China calls me up and says "Hey man, I can make your widget for $.25. Same stuff. Shipping will add another $.10 but you'll drop your costs by $.65. Awesome right?" So the American business owner thinks about it for a second, and says "screw it. Let's do it." The result is the American business owner closes his factory and opens an office with just administrative staff and a lot of people lose their jobs. The infrastructure to make that property is either sold off, potentially heading back to China or South America, or just destroyed.
Now the only reason China can afford to make the product for $.25 is because it's literally China. It's the government subsidizing the manufacturing, wages, and shipment costs. It's clearly an unfair advantage. It's a massive manipulation of the market which creates a ridiculously unfair advantage.
So what a lot of governments might do is they'd see a trend. They'd say "Wow, China is stealing a lot of our manufacturing jobs. This is really helping build up their economy. Maybe we should step up and do something about it." So they look into it and theoretically decide to implement tariffs. So now your $.35 item is $.75. Because the difference isn't that significant, you might just say "I'm sticking to the way we've done it for years. Screw China."
This is how tariffs are typically implemented and the way they should be. The problem with these tariffs are, they are 30 years too late. Manufacturing in the US is pretty much dead. To rebuild would require the investment of billions if not trillions. The vast majority coming from private business. If I'm the CEO of some huge company, I'm not spending $300m on a new plant unless the government is paying for most of it AND I know the tariffs are going to be implemented long term. Otherwise, I invest all this money, a new president comes in, gets rid of these tariffs, and now I'm not able to compete. It just doesn't make sense.
So what these tariffs ultimately are are three things. First, a tax increase on Americans. It's that simple. Second, it's a short term way to flex against China. Third, it's a way to artificially boost purchasing.
Now the third is important because it actually reflects on these numbers in the economy. So let's pretend I'm Grimco. I buy ACM panels from China. Normally I get 12 shipments a year spread out. With the tariffs I do a little math and realize doing this would be stupid. I can do 1 big shipment, before the tariffs come into place, and save 25%. Money is cheap at the moment, so I get a little loan from the bank, make a bulk purchase, and bring it in. I then tell all my customers "Hey listen, in a few weeks prices are going up so you better buy now." So now every shop instead of buying 5 sheets, buys 15 because they'll use them eventually. And the cycle just keeps continuing until one point things just slow down a bit. You realize that the price increase is coming but you just don't need to stock up anymore. Also, people are going to slowly realize these 2-20% price increases add up. So that 3-5% annual price increase you did has left you behind. You're actually making less this year than you did the previous year. So you've got to increase your prices, but you realize you can't because your competition down the road is already 5% lower than you and going another 5% higher might hurt your business.
And this is how inflation and bubbles occur. Buying based on theoretical demand. Demand slows. Prices are inflated. People can't afford stuff anymore and slowly but surely you see the decline/burst. Now to be clear, I'm not saying categorically there will be a big burst or that we're going to see some massive recession. But I do know that these trends are basic economic theories and ideas.
Just to go political for a second, we have to be extremely careful when digesting the information from Washington at the moment. The tariffs have been explained incorrectly from Day 1 from this administration and I recommend being extremely cautious. People generally do what they need to, to justify their decisions.
