Download the Schwab app from iTunes®Get the AppClose

How Could the U.S. Economy Be Impacted by Tariffs?

Click to show the transcript

LIZ ANN SONDERS: Let’s talk what everyone’s talking about, the trade war with China and tariffs. A lot of different views as to whether ultimately this will serve the purpose of getting China to back down from its more aggressive practices around intellectual property theft or force technology transfer. We won’t know whether this is the appropriate method to solve that problem, but what we have to do here at Schwab is just objectively analyze the impact that tariffs are having, and will potentially have, on the economy on measures like inflation.

So, on that subject let me start with inflation. We’re already starting to see a breakout of the goods that have been most directly impacted by tariffs, whether it’s in indexes like the Consumer Price Index or Personal Consumption Expenditures--to see whether it’s having an impact, and it is indeed. In fact, the overall impact, the consensus, is that so far we’re looking--by summer--at about a quarter percentage point impact on measures like the CPI, and if the additional proposed tariffs on an additional $300 billion in Chinese goods kicks in, you would probably add another eight-tenths of a percentage point to inflation statistics, and that is meaningful given that we’ve been in a somewhat low-inflation environment.

I think the greater impact is through the confidence channels. What we saw at the outset of tariffs being placed on imports of Chinese goods was a diminution in some business-confidence measures, and in turn things like capital-spending intentions. The hope was that we could extend this economic expansion years into the future by adding this next capital-spending cycle, but it’s hard to envision a scenario where, if there’s not a comprehensive deal with China, that you can reignite those animal spirits, bring that business confidence up, and kick back in that capital-spending cycle. So, that’s the indirect effect that this is going to have.

In addition, this latest round of tariffs, as well as the additional proposed tariffs, more directly go right to consumer goods. So, if we do see those additional tariffs kick in, I would call it more meat on the bones in terms of impact that this is going to have on the economy felt by consumers; and with the U.S. economy nearly 70% driven by consumer spending, that’s an impact that could have meaningful implications for overall economic growth.

Liz Ann Sonders discusses both the current and potential impacts that the trade war with China could have on elements of the U.S. economy, including inflation, capital spending, and consumer goods.

What you can do next

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.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.


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.