You’ve likely heard more than you care to know about the current trade war. Every time you turn on the TV, visit a news website, or look at a magazine you’ll see some headline surrounding it. With so much information being blasted at you 24/7, it’s hard to identify how exactly the trade war will effect YOU. That’s exactly what this article aims to address.

The Start of the Trade War

The trade war really began in early 2018, when tariffs were applied to solar panels, washing machines, steel, and aluminum being brought into the US from various countries. Additional waves of tariffs have since been imposed, the largest of which was a 25% tariff on $50 billion worth of goods coming in from China.

It’s these additional waves that have taken the conversation from being labeled as ‘foreign policy decisions’ to now being a true ‘trade war’. And while our President states that tariffs only HELP the United States, the trade war actually directly impacts both the global economy and U.S. companies alike.

How Tariffs Effect the U.S. Economy

Companies who have been outsourcing manufacturing to low-cost regions (in foreign countries) are now having to pay a 25% increase in order to import their ‘goods’ from China. This means that every company using this business model now has to account for a significant increase in the cost of the operations needed to make and sell their product.

What’s even worse is that there’s not a great way to avoid this impacting their bottom-line. Corporations only have a few choices when it comes to the tariffs:

  • Eat the additional cost – if the company elects to eat (pay) this tariff cost, then it will, in turn, eat away at corporate earnings. These earnings are the lifeblood of public companies. They rely on their earnings to keep investors wanting to buy more stock, which in turn keeps the stock price high. If earnings decline, fewer investors want to purchase shares which results in decreased share prices.
  • Pass along the additional cost – companies can elect to pass this cost along to the consumer of the goods they make. Now, the consumer may be another company who uses a product in their own product, but eventually this additional cost will make its way back to you in the form of more expensive electronics and various other products.

While this is one of the biggest ways that the trade war effects the U.S. economy, it certainly isn’t the only one. If you’re interested in a deep-dive into it, please read this article.

Next Up: Stock Market 101 Part 3/5 – Market Stability


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