Download the Schwab app from iTunes®Get the AppClose

A Closer Look at U.S. Tariffs

Click to show the transcript

LIZ ANN SONDERS:  I don’t have to tell anybody that there are a lot of hot topics on which we can opine these days, but I want to focus in on what is probably top-of-mind for many people, which is the so-called trade war.  Now, I only put the qualifier of "so-called" because, arguably, we can’t quite define it as a full-on war. I think we are heading down a slippery slope, at least as it relates to China--and we’ve talked about trade and the possibility of a trade war being one of the biggest risks for the market and the economy--but I want to go inside what’s been happening with trade and tariffs and highlight two things that I think are not getting the attention that they deserve.

One, I think, is a bit of a misstep on the part of the financial media. I have seen on countless occasions headlines that come across the screen or pop up on my Twitter feed, or I see in the newspaper, that talk about the dollar amount of tariffs. I’ll use the most recent proposal--one that we are facing a month from now--which is tariffs on $200 billion dollars’ worth of Chinese goods. Now, that’s a proposed 25% tariff on $200 billion dollars’ worth of Chinese goods. The problem is many in the financial media will write the headline as "$200 billion in tariffs are set to take place," you know, whenever that is. Obviously, 25% of $200 billion is $50 billion. Now, that’s not a trifling sum, but it’s just inaccurate the way the headlines are written, so I just wanted to make that clear.

Then there’s another bigger picture issue that I think of, to some degree, as a bit of vicious circle. So we are a consumption-based economy. Most people know that. Sixty-nine percent of the US economy is driven by consumer spending. We just got a huge shot in the arm to consumer spending by virtue of fiscal stimulus in the form of tax reform and tax cuts that kicked in at the very beginning of this year. That had the effect of boosting the economy, and when you boost the US economy, and in particular, if it’s through tax cuts that benefit consumers, you boost consumer spending, consumer confidence. We’re seeing it in the numbers. So when you boost the economy and you boost consumer spending and you’re in that tight a labor market, to fill that demand you’ve got to go elsewhere. And what tends to happen when you boost consumer spending is it widens the trade deficit. That’s because we buy more imported goods than we export.

The trade deficit is being used as a yardstick, as a rationale for moving into this trade war or trade skirmish, as we’ve been calling it. Yet at the same time, tax cuts have helped to boost the economy, boost consumer spending, which, in turn, will widen out the trade deficit, because we simply buy more imported goods. Yet a widening trade deficit may be used as a rationale for more tariffs. 

So I’m just not quite sure how we get out of this circle, but it’s an aspect to this so-called trade war that I think very few people are either talking about or focused on, which is why I wanted to devote this video to that, so thanks.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, market, business, and other conditions.

Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request.


Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.