Proposed Tariffs Negatively Impact Stock Market

By Bryan Smilek, Opinion Writer

Recently, President Donald Trump has proposed a change to tariff laws. Under the hypothetical change in regulation, $50 billion in goods would receive higher tariffs as a means of reprimanding China for stealing technological designs and intellectual property. Furthermore, all Chinese goods involved in foreign trade would experience a 25% increase in tariffs. Interestingly, the United States has targeted innovative fields, such as medicine and technology in the proposed tariff act as a form of punishing China for its actions. To further increase the extent of the punishment, Trump has excluded the European Union and Canada from the tariffs in order to emphasize the country’s displeasure with the Chinese government.

In response to the elevated tariffs, China has stated that they will suspend their obligations to the World Trade Organization that include reducing import duties because the country has targeted a battle with the United States’ economy regarding tariffs. Also, China enacted raised taxes on pork, wine, and nuts, ordered 120 U.S. imports to receive a 15% increase in tariffs, and 8 United States imports will be taxed an additional 25% as a means of China starting a taxation war with the United States. Specifically, the pork tax will drastically affect the U.S. trading economy because China is the third largest foreign trading market for pork, and an increase in taxes on pork will result in dramatic losses for the industry in the US.

As a result of the economic warfare between the United States of America and China, the stock market in the U.S. has already begun to experience decline. The S&P 500, NASDAQ, and Dow Jones have all experienced a decrease ranging from 1.9% to 3%. Drops in stock, such as the aforementioned percentage decreases. This illustrates the impact that a potential economic war between China and the U.S. will have on the United States. If stock is already dropping due to the new Chinese fiscal policies, the rates of decrease will become much more enlarged when Trump’s proposed tax bill becomes enacted. The main reason for the anticipated stock turmoil is due to the items that have experienced the raised tariffs. For example, pork is an extremely profitable industry for the United States in foreign affairs. Due to China’s increased tariffs on pork, the revenue will decrease in the market and investors will experience major losses. As a result, investors will become fearful of the market, causing the market to lose both investors and value in terms of stock.

Although losses in the pork industry alone cannot crash the stock market, the effects of all the markets in which China has increased tariffs combined can create turmoil for the United States. If markets that are essential to daily life, such as medicine and technology, in the country begin to depreciate in value and lose investors, the United States’ economy will become stagnant. This will result in a loss of investment into stock and potentially force the U.S. to become a weaker force in foreign affairs. Therefore, many citizens will lose income, become unemployed due to the stagnation of the economy, and look towards the government to provide unemployment benefits that may not be available.

As a result of the potential impacts of an economic war with China on the lives of American citizens, it has become evident that the proposed tariff plan needs work. If a revised plan can generate government revenue in a manner that does not negatively impact the stock market, the country will benefit and avoid substantial losses. However, as it stands today, the proposed tariff plan has the potentiality to stagnate the economy, harm the majority of Americans, and burden the federal government. This would be detrimental to both the government and the citizens, hyperbolizing the need for the tariff legislation to reduce the harshness against China, a powerhouse economic force that has the authority to singlehandedly ruin the Unites States’ economy.

 

A version of this article appeared in the Tuesday, April 10th print edition.

Contact Bryan at

bryan.smilek@student.shu.edu

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