Devetra - Great question and one that trade specialists and economists are reporting on continuously (I read at least 2-3 articles a day on this now). Marc and Elyse provided great answers already, so not much I can add. On a large scale, tariffs will have a negative impact on the economic output (gross domestic product) of the countries initiating the tariff war. The harder question is how to gauge the impact on a more minute level. The butterfly effect (https://en.wikipedia.org/wiki/Butterfly_effect) comes to mind here, as does the economic idea of u<span style="color: rgb(0, 0, 0); background-color: transparent;">nintended consequences (</span>https://en.wikipedia.org/wiki/Unintended_consequences). As an example, the U.S. raises tariffs on steel, so U.S. firms that use steel to manufacture bulldozers have higher manufacturing costs and have to raise the price of their products (i.e. U.S. bulldozers are now more expensive). Since foreign steel is now more expensive in the U.S., U.S. demand decreases, which provides more supply of foreign steel to international markets. We know more supply means lower prices, so companies that make bulldozers in other markets (let's say Japan), can now make their product for less (i.e. Japanese bulldozers are now cheaper). This means the cheaper Japanese bulldozers are more competitive in global markets and also in the U.S. than the more expensive U.S.-made bulldozers. So, the U.S. steel industry may benefit from the higher tariff, but the U.S. bulldozer industry loses. Now play this example out over other sectors that use steel as an input (and this example is related to steel only, not the hundreds of harmonized tariff schedules (https://hts.usitc.gov/) in the current dispute with China). Marc also correctly points out how supply chains will alter as firms try to diversify their suppliers. I worked in Vietnam for four years and saw the continued increase in foreign direct investment there as US, Asian, and Chinese firms all invested in manufacturing there. The interest in investing in locations like Vietnam, Thailand, and Bangladesh has increased since the trade dispute between the U.S. and China, and will likely continue even once the two sides reach agreement.
Stuart recommends the following next steps:
Thank you for your question, as a student of international business from my perspective and thoughts I think that tariffs will affect international trading by creating trade barriers, and will become unfriendly towards consumers. But just like most things, they change over time depending on business, consumers and the government when implementing new tariffs.
In short a tariffs is a tax on a good that will increase the price of the imported good. Due to this the domestic producers are not forced to reduce the price of their goods and or services, therefore the domestic consumers are having to pay higher prices on the good or services that are being traded internationally.
I hope this answer helps you
Elizabeth recommends the following next steps:
Thanks for the question. As an Export Cheerleader and trainer for new exporters, the answer would be....it depends. In The Riddle of the Exporter™, we teach an #exporting8stepprocess. Tariffs are part of export-import, always have been. Free trade agreements lower or eliminate tariffs. In Step # 3 Market Entry, you must know the tariffs in order to calculate your "landed costs". Definition: What does it take to land your product in the other country (export) or the U.S. (import)? This will affect your distributors selling price or your wholesale costs prior to markup. Without accurate landing costs you or your foreign distributor cannot be competitive.
Trade wars have been around forever. When trade wars happen, certain countries' tariffs change and certain industries suffer i.e. recreational marine boating , cherries, lobster. Unfortunately in today's trade climate, the list is long. There is no easy solution. Their trade alliance groups are working hard to search all avenues to help find some relief. So yes, ..certain industries are dealing with the fallout and it is painful.
The only long term solution is to continue to look for new markets. Why? As #bettysueexportqueen says....someone, somewhere is always buying something! As an Export Cheerleader, I would say that "always" is the perfect time to look for new markets. It should be a ongoing part of a company's strategy. In a study done by the NSBA from 2005-2009 ( recession 2008) small companies exporting had a 37% increase in revenue; those that were not had a 7% decline. Those statistics are compelling.
So glad your focus of study in international business! We love exporting and think every student, banker, accountant and consultant should learn the actual nuts and bolts of The Riddle of the Exporter™ #exporting8stepprocess.
Elyse Eriksson aka #bettysueexportqueen
The Riddle of the Exporter™-Export Training For Entrepreneurs By An Entrepreneur
What a fascinating query you have posed, hope the conversation continues and from my perspective, as a political scientist and and international business strategist, I am so very glad to live in the Internet era, as even though one may be able to preclude some trade of goods, some trade services, some labor market mobility, the possibilities and opportunities online are endless.
To find out more about US trade relations, specifically check out the links below!
chiara recommends the following next steps:
Tariffs, in the end, are political tools of national policy. The potential for painful, short term disruption is often why they are applied. Long term, suppliers who are hit by tariffs by one market may look to other markets for more reliable customers. Suppliers might use financial incentives to attract new customers. For customers/ producers/ importers being hit by higher prices, they may look to other regions not be hit with tariffs. For example, if you had an electrical item being made in China and imported to the USA, the importer might look to India, or Vietnam, or Indonesia for a replacement factory. Or perhaps their existing Chinese partner might source a factory in these other countries, preserve the relationship and by pass some or all of the tariffs. We will always have international trade. At the same time, we will often experience these types of disruptions. Remember, you can create a tariff by other means, as a way to restrict or stop an import as a way to protect a domestic supplier. But in the end, these methods do not last forever.
Marc recommends the following next steps:
In an ideal capitalist system, prices would be determined by the cost to produce the item and demand would depend on the quality benefit of the item to the consumer. Of course, that system doesn't exist, and government can meddle in the system to, say, enforce fairness of competition or to have political leverage. And consumers can be swayed by differentiators -- real or imagined -- unrelated to quality benefits. This sort of stuff really muddies the waters. In the current situation, tariffs are being used, supposedly, to "make things right" -- to try to undo what are perceived as unfair practices on one side, this time supposedly China's. Now, if all that is obvious, the short term and long term effects could be very different. Also, probably obvious to some.
There are some products that have little differentiation -- commodities. Steel from X is about the same as Steel from Y. Other products, like cars or computers or some foods can vary markedly depending on who or where they come from.
All that being said, on average, higher tariffs would, you'd think, cause consumers to choose lower-cost suppliers, and placing a tariff on something should knock its marketability down. For discretionary purchases, this would hurt marketability for those goods. For stuff you just need to buy, not so much, as folks who need something will buy it anyway and the loss of market share will be borne by other stuff. You need electricity, you put off buying the new car or the computer stuff.
My prediction is that China provides more discretionary products to the US, and the current state of China's economy will first result in public posturing ("Do not even think about it") and then the players will negotiate. The stock market will dive a bit and then recover. There will be a compromise. Why? Because after the politicians blow out all their wind, the actual stakeholders want to get back to what they do, and that's business to make money. So I think the end result will be that the elasticity of the markets will come into play and not much will change except one or both sides will give a little.
Hi Devetra-I can provide some insight on the trade war from the retail perspective from my previous role as Sr. Director Global Supply Chain Compliance. As mentioned in some of the other answers, in an effort to offset the increase in the China Tariffs, retailers need to be creative and look to other countries to source goods from. The problem here is that some of these countries don't have the infrastructure or capacity to handle in influx in demand for factory space-especially in the short term. Companies can look to help offset by utilizing Free Trade Agreements, but often, the quality is not there or the cost to get the fabric to these locations ends up costing just as much as the increased tariff. While Chinese factories may try to stay partners with US companies by sharing some of the cost burden, this is unlikely. Sadly, the cost impact will hit the US consumers in the long run as retailers will not be able to eat the costs.
Lisa recommends the following next steps:
Tariffs increase the prices of imported goods. Because of this, domestic producers are not forced to reduce their prices from increased competition, and domestic consumers are left paying higher prices as a result
I don't think anyone knows exactly what will happen, however, usually when tariffs are implemented there is usually retaliation.
This will give some incentives to local produces, will increase employment, will protect consumers, also play a vital role in the national security, however at the same time it has some disadvantages, like US President impose tariff on Chines products, they will do the same in response. Its only possible if the competitor is not strong and our dependability is less on their products and theirs are more on our products.
An increase in tariffs could results in a back and forth between large market powers (such as the U.S. and China). In order for any one player to come out on top, dependability must be low.