Tariffs Fixing Trade or Fumbling It?

Todd Federman, economics instructor at the Feliciano School of Business at Montclair State University, breaks down the real-world consequences of sweeping tariffs imposed by President Trump on April 2nd. From a staggering $10 trillion market loss to the inflationary impact on everyday consumers, Federman outlines how tariffs function, who pays them, and why they may do more harm than good.

Chapters

• 0:06 Introduction to Tariff Discussion
• 0:55 What Is a Tariff? Who Pays?
• 1:55 Trade Deficits and Manufacturing
• 3:20 The Steel Industry Case Study
• 5:10 Historical Context: Smoot-Hawley
• 5:52 International Retaliation Effects
• 6:52 Closing Thoughts on Tariff Impact

Transcript

Speaker 1: 0:06

The American Pronunciation Guide Presents ''How to Pronounce Todd Federman''. Hello, my name is Todd Federman. I teach economics here at the Feliciana School of Business at Montclair State University. On April 2nd, president Trump imposed sweeping tariffs on dozens of countries. The reaction of the markets was swift. On April 2nd, the value of the S&P 500, the index of the largest 500 listed companies, is down approximately 12%, in excess of $7 trillion. Add on smaller companies and the total decline is in the ballpark of $10 trillion. The market has been very clear. The markets do not like across the board tariffs. Tariffs have destroyed $10 trillion worth of wealth.

Speaker 1: 0:55

So what exactly is a tariff and who pays it? A tariff is a tax imposed by a government on imported goods and services. The company that has ordered the goods from overseas has to pay the tariff to the US Customs Service to get possession of those goods. Say, a sneaker store ordered $10,000 worth of Nike sneakers which are currently on a boat on their way to a warehouse in Los Angeles. The sneaker store has to pay an additional 46% tariff because those sneakers were made in Vietnam and the president imposed a 46% tariff on Vietnam. They have to come up with an additional $4,600. Most small businesses don't have that money, but they're gonna have to come up with it somehow. They're gonna have no choice but to pass on these higher expenses to consumers, which will cause inflation. Now imagine tens of thousands of businesses with goods on boats that have to come up with 25 to 50 percent more money to get their items.

Speaker 1: 1:55

The president has stated he wants to bring manufacturing back to the United States and try to eliminate the trade deficit with other countries. A trade deficit means we buy more from other countries than they buy from us. In 2024, we imported $4.2 trillion worth of goods and exported about $3.2 trillion, creating a trade deficit of approximately $1 trillion. This simply is not true. In exchange for that money, we get inexpensive clothing and electronics like cell phones and laptops. We have the ability to make products like that here in the US, but they're very labor-intensive and would cost much more to make here. Who wants to pay $2,500 for a cell phone? The whole point of free trade is to take advantage of countries' abilities to make things efficiently. The United States currently exports $175 billion worth of food to countries all over the world because we're very efficient at making food. On January 30th, right before what the president called Liberation Day liberation from reliance on foreign products.

Speaker 1: 3:06

Retired Senator Phil Graham, an ultra-conservative from Texas, and Lawrence Summers, the liberal former Treasury Secretary under Bill Clinton, came together to write a letter to the Wall Street Journal laying out the case against tariffs. Let's focus on one product steel. In 2018, trump imposed tariffs on imported steel tariffs, which Biden left untouched. On March 2nd, president Trump added a new tariff of 25% on all steel and aluminum. In a recent Wall Street Journal by reporter Andy Kessler, he stated there are approximately 278,000 workers in the steel industry in the United States, but there are an estimated 12 million workers in jobs that use steel. By making the steel more expensive, it reduces the ability of companies that use steel to buy it. Almost certainly, this will destroy way more jobs than the tariff created, because the companies don't have as much money to hire people. In addition, by making products that use steel more expensive, people need to spend extra money for those products, like cars or washing machines. Therefore, they have less money available to spend on other goods, and when fewer goods are purchased, that means less jobs. On April 4th, the Nonpartisan Tax Foundation in Washington DC released a statement that reflects how newly announced tariffs would impact trade and employment. They estimated that tariffs on imports would rise to an overall average level of 16.5%, the highest rate since 1937. By making imports more expensive, it will cause imports to fall by about 25%, or $800 billion. Adding the tariffs announced on April 2 to the tariffs from 2018 and the tax foundation estimates that the GDP, the value of gross domestic product, all goods and services produced in this country, would be reduced by 0.7% over the next decade, not increased.

Speaker 1: 5:10

Speaking of the 1930s, the time of the Great Depression, brings us to the Smoot-Hawley Act of 1930, perhaps one of the dumbest laws ever passed by Congress and signed by the President. It was written in response to the market crash in 1929. It placed high tariffs on 20,000 imported goods. The goal was to make goods made in the US more competitive. However, almost every analysis by economists agrees. Smoot-hawley turned the deep recession into a worldwide depression by making imports more expensive, causing millions of people involved in trade to lose their jobs.

Speaker 1: 5:47

Another consequence of Trump initiating tariffs is the retaliation of foreign governments. For example, china has announced increase in the tariffs on US soybeans to 44% In 2024,. The US exported $12 billion worth of soybeans to China. With a 44% tariff, most of that business will disappear, replaced by soybeans, probably from South America, most likely Brazil. This will leave Midwest farmers with nowhere to sell their soybeans, causing extreme economic hardship and loss of jobs. All over Canada, liquor stores are boycotting selling American wine and hard liquor, like Jack Daniels. Canadian shoppers in grocery stores across the country. When they see an American label on a product, they're turning the product upside down, sending a clear message to other shoppers avoid this American-made product. Countries are now desperately trying to negotiate with the US to try to reduce and eliminate the new tariffs. We can only hope that they will be successful, but as I'm recording this, the market has clearly spoken. Tariffs are a wealth and jobs destroyer. This is Todd Federman from the Feliciano School of Business at Montclair State. See you in the next podcast.