The latest economic numbers don’t look good. The inflation rate, which had inched down in the last two months, started to rise again. Moreover, stock prices continue their downward trend as the market faces ongoing uncertainty and volatility. And then there are tariffs.
The short-term impact of tariffs may be painful. If the 25% tariffs stick, your favorite European cars will be more expensive — as will all Canadian goods and possibly many Mexican goods. Nearly all American-made cars contain components manufactured elsewhere, meaning their prices will rise too.
Americans will see a vast increase in their standard of living.
A tariff is just like a tax: It increases the cost of producing a product and, therefore, its price. The key question is how much of that increase will be passed on to consumers through higher prices and how much the producer will need to absorb. That largely depends on how much consumers want the product and whether they can easily find alternatives.
The consumer will bear most of the tariffs’ cost for essential products. For products where consumers say, “I like the product if the price is right,” they will pay a smaller portion. Either way, the price of imported products in the United States will rise.
That’s the short term. In the long term, Americans will see a vast increase in their standard of living — the most critical outcome of economic policy.
Short-term pain, long-term gain
Since January 2021, prices have increased rapidly. However, personal income has not kept pace, meaning households have been forced to buy less and opt for lower-quality goods, leading to a decline in their standard of living. Over the past 50 months, this steady decline has worn on the average American.
This needs to stop. Right away.
The United States must restore domestic manufacturing, especially for critical goods like steel, aluminum, and medical devices. These products are often made overseas simply because it costs less.
Americans have long believed they should buy goods wherever they are cheapest. But that mindset has caused serious economic harm.
Each year, about $1.2 trillion leaves the country through imports. That wouldn’t pose a problem if U.S. exports matched that amount. Instead, exports total less than $400 billion annually, creating a trade deficit of more than $800 billion.
Only two solutions exist: import less or export more.
Removing high tariffs and quotas on American-made products would give U.S. manufacturers better access to foreign markets. More exports could help close the trade gap.
That’s Trump’s preferred approach — open global markets to American producers. If U.S. companies can shrink the $800 billion deficit, free and fair trade will benefit everyone.
If that approach doesn’t work, then the U.S. must import less, leading to the second long-term gain.
For decades, U.S. manufacturers moved production overseas to meet consumer demand for lower prices. As a result, the country lost much of its industrial base.
In some cases, producing goods abroad makes economic sense. But the United States must bring back a strong commitment to “Made in America” products.
The only way to make that happen is to lower the relative cost of American-made goods. Tariffs can help by raising the price of foreign imports, making U.S. products more competitive at home.
Buckle up!
This shift will lead to a massive increase in U.S. manufacturing, creating more opportunities for American workers. In turn, this increase in U.S. manufacturing will lead to higher wages, stable prices, and a higher standard of living. Americans will be proud to say “Made in America” is best.
But in the short term, it will lead to more inflation.
Trump’s plan to combat inflation includes increasing domestic energy production, lowering energy prices and reducing overall inflation. Energy directly accounts for about 7% of the Consumer Price Index and indirectly nearly 30% of it. Though this will buffer some of the effects of inflation, it won’t absorb all of it, and we have to buckle up for some tougher times before we reap the rewards.
However, though we will have some short-term pain, the long-term gain will be well worth it.
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