Weekly Updates
Weekly Updates
- US President Trump is expected to raise the tax burden of US consumers with yet more tariffs in the coming days. The automatic reaction is that this is bad for international exporters to the United States. The truth is more nuanced, and it may take some time for the economic damage to be assessed.
- With widespread tariffs, domestic companies may also pay taxes on imported components, creating domestic inflation pressure. This is relevant to the US auto sector—imported foreign cars are taxed, but so are important components used by domestic auto companies.
- Domestic companies might use tariffs as a convenient excuse to increase profit margins by raising prices rather than keep prices steady, undercutting foreign competitors and increasing market share. When Trump taxed buyers of foreign washing machines in 2018, US manufacturers used this opportunity to increase their own prices.
- US trade taxes hurt exporters, because like any other tax increase, they will slow the US economy. However, the more US companies raise prices because of rising input costs or because of a desire to expand margins, the less damage there is to exporters’ sales. At a time of trade wars, higher US producer price inflation signals less damage to global growth.
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