Tariffs and Potential Impact on the US Labor Market

A tariff is essentially a tax on imported goods to make them more expensive.  This tax is paid by domestic companies importing the goods, and not the foreign companies exporting them.  This in turn, is then passed onto the domestic consumer.  The theory here is to increase the cost of imported goods and thus make them less attractive, enticing domestic consumers to purchase goods domestically.

The rationale behind implementing a tariff, historically, is to stimulate domestic manufacturing by protecting industries internally, influence other countries on policies, and in part to generate revenue through the collection of taxes from domestic economic activity.

Economists largely consider tariffs to be inflationary as domestic producers tend to increase their prices due to lack of foreign competition and due to the increased costs of raw materials sourced from foreign countries – think Musk and sourcing all of his foreign-based car parts for Tesla.

Inflationary environments effectively squeeze profit margins for domestic industries.  Should domestic consumers not wish to ‘pony up’ for the more expensive products, economic activity slows – domestically.  If this occurs, domestic companies will be forced to implement hiring freezes, and potentially layoffs, to protect their now slimer profit margins.  Curbing employers spending on wages is the primary way companies can protect their profitability. 

Additionally, tariffs cause a disruption of global supply chains, incite foreign currency fluctuations and create heightened market volatility.  Historically global markets tend to outperform US during tariff policy initiatives.

Most US industries and manufacturers rely on sourcing their raw materials outside of the US.  By inflicting this Trade War, we are essentially curbing domestic productivity (GDP) and thus hurting our own labor market.