Financial encyclopedia

Trump has once again played the tariff card, announcing a new round of tariffs on 66 countries, with the highest rate for some products reaching up to 50%, covering industries such as pharmaceuticals, chips, and automobiles. The reasons are straightforward: protecting domestic industries and reducing the trade deficit. The market's first reaction: Does this mean that "Made in the USA" wins, or is it another kind of hidden tax that is ultimately paid for by consumers?

What is a tariff?

Tariffs are essentially import duties. Once levied, the prices of goods will rise immediately, which theoretically can protect domestic enterprises. This is a "quick-acting" tool, especially in election years. However, the global supply chain is closely intertwined. Once tariffs are imposed, it will not only hit foreign exports but also affect domestic manufacturing and consumption.

Tariff = hidden tax?

Many people think that the tariffs are paid for by foreign countries, but the truth is quite the opposite. After the imposition of tariffs, the costs for importers rose, which were eventually passed on to retail prices. The Tax Foundation of the United States estimates that current policies cause American families to pay an additional $1,270 each year.

Expensive imports: With a 10% tariff on mobile phones, the selling price can increase by 100 US dollars at any time.

Supply chain transfer: Changing the procurement location leads to increased logistics and negotiation costs.

Weakened competition: Foreign goods are more expensive, and the incentive for local discounts is lower.

In other words, a tariff war is an "indirect tax increase", with everyone footing the bill.

The impact on inflation and policies

Tariffs push up commodity prices, which is directly reflected in the CPI. The IMF has warned that if tariffs are expanded, inflation in the United States could return above 2.5%. This means:

Interest rate cut delay: The market originally expected the Federal Reserve to cut interest rates, but with increased pressure, the schedule may be postponed.

Corporate pressure: High interest rates persist, financing costs rise, and investment is weakened.

The tariff war not only affects trade, but also alters the flow of funds and the trend of interest rates.

Lessons of history

The Smoot-Hawley Tariff Act of 1929 raised the tariff rates on thousands of imported goods to 40%, which triggered a retaliatory wave of tariffs and exacerbated the Great Depression.

The trade war between China and the United States in 2018 also proved that there were no winners: American agriculture relied on subsidies, Chinese exports were hurt, and consumer prices on both sides rose simultaneously.

In the short term, some domestic industries will get a breather, but in the long run, costs will rise, efficiency will decline, and the capital market will fluctuate. Eventually, everyone will pay the price.

Investment Insights

Each time tariffs rise, market anxiety intensifies and the demand for safe-haven assets increases. As a result, gold and long-term US bonds often benefit. Industries that rely on imports, such as automobiles and electronics, are under the greatest pressure. Short-term policy dividends do not equal long-term stability. Diversifying assets is the key.