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United States Tariffs Cause Global Apprehension

Will It Work?

Many in the Gift & Home Industry are concerned, or as one industry insider put it on LinkedIn, "freaking out," about the tariffs the Trump administration imposed on 180 countries earlier this month. The industry relies heavily on cheap goods imported from China. The administration maintains the United States has been disadvantaged for decades because other countries already tariff US goods at much higher rates than those traditionally charged by the US.

About 75 countries as of this writing have indicated a desire to "come to the table" to negotiate tariff rates, and some, such as Israel, Taiwan, Zimbabwe and Viet Nam, immediately reduced their US tariffs to zero percent. However, some countries, including China, have retailiated, raising tariffs, which brought corresponding increases from the United States.

Late on Friday, however, the Trump administration exempted smartphones and computers and the chips that power them from the punishing China tariffs in an effort to ease the expected pain on consumers (source).

Photo by Aaron Kittredge: from Pexels.com

It's easy to forget that for the first 123 years of United States history tariffs were the lion's share of Federal government revenue. There was no Federal income tax from 1789, when the Constitution was ratified, until 1913.

The stock market responded to Trump's tariff announcements on April 2 with three straight days of losses, but the "Black Monday" some predicted for April 7 failed to materialize when the Dow fell only about $350 compared to Friday's close. The market had rebounded almost 1500 points by midday Tuesday, but by Tuesday's close, the Dow was down again almost 300 points. Wednesday saw a record-setting rally, closing up almost 3,000 points on the news that President Trump had paused the tariffs for 90 days on the 75 countries which have expressed a desire to negotiate. That was the biggest surge in the history of the Dow, but it lost a third of that gain on Thursday, so the rollercoaster continued. On Friday, the Dow closed up 619, which was a gain of 5% on the week (source).

All told the Dow Jones closed at $42,225.32 on April 2, President Trump's "Liberation Day," and as of the close on April 17, the Dow stood at $39,142.23, a loss of 7% (source).

The Trump administration has emphasized they are playing the long game, but there could be rough going in the short term. "The top 10% of Americans own 88% of the stock market. The next 40% owns 12%," Treasury Secretary Scott Bessent said. "The bottom 50% has debt. They have credit card bills, they rent their homes. They have auto loans. And we've got to give them some relief."

Jobs, Jobs, Jobs

Bessent's emphasis relates to the Trump administration concern that the US has ceded manufacturing jobs to other countries, especially China, which it sees as a national security concern. This was highlighted during the COVID pandemic when it came to light that the US didn't manufacture medical supplies or pharmaceuticals in large enough numbers to meet the demand. Trump has also talked about the lack of steel production in the US and how it makes the country vulnerable because of the inability to replicate the "arsenal of democracy" the US became during World War II.

"I don't think the bottom 50% of Americans are losers," Bessent continued. "I think the system hasn't worked for them... So we are going to fix the system. They want good jobs. They want their kids to do better than they do. They want a home. They want to pay down their debt. This isn't hard. We can do this in the next four years."

So for the administration, the tariffs are about jobs; jobs which the US exported for decades, transforming the once manufacturing power house in the Midwest into "the Rust Belt."

Anecdotally, some overseas manufacturers were already moving operations to countries like Viet Nam and India before the tariff announcements.

China's Problems

China has issues of its own. China's economy is heavily dependent on exports to the US; if that market is closed to them because of tariffs, they have real problems. Several China watchers have warned that internal struggles between Chinese Communist Party leaders and the military could destabilize the country. Also, the vaunted 1.4 billion population figure appears to have been vastly overstated; according to some, the real figure was never more than 800 million. But during COVID, some have estimated deaths as high as 55% of the population. External estimates are that today China may have a population barely larger than that of the United States. Obviously, China's "one-child" policy exacerbated the decline, even though the policy has been discontinued. Since 2020, China has destroyed many partially completed high-rise apartment buildings, representing thousands of residences, because there is no one to occupy them. Also, salt imports from Japan have fallen to 50% of former levels. Iron imports from Australia have fallen as well.

Will the Trump administration's tariff gamble work? Only time will tell. It may be a bumpy ride in the meantime.

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