Wall Street agrees: Tariffs are bad 👎

But will they actually be implemented as proposed? 🤔

Shipping containers. (Photo by Tim G on Unsplash)

President-elect Donald Trump has proposed tariffs of 10% to 20% on all imported goods and additional tariffs north of 60% on goods from China.

Tariffs, or taxes on goods traded between countries, are almost universally understood to be bad for the parties involved — because the negatives outweigh the positives. By raising the prices of certain goods, tariffs make more expensive goods more competitive. This ends up being costly for consumers, who pay for the higher price and will in turn have less money to spend on other goods. This inefficiency forced into the economy is known as a deadweight loss.

On top of that, the ultimate cost of new tariffs is uncertain because of the risk of retaliatory tariffs from other countries.

In his efforts to estimate the effects of these proposed tariffs, UBS economist Jonathan Pingle considered the 2018-19 tariffs that the Trump administration implemented on about $375 billion worth of imported goods from China.

"The research literature finds that the U.S. bore +90% of the cost of its own import tariffs,” Pingle observed on Friday. “There is little to no evidence that tariffs helped employment, as the higher cost of production and the cost of retaliatory tariffs outweighed the benefit to protected industries (e.g. steel consuming jobs vastly outnumber steel-producing jobs)."

Pingle expects new tariffs to cause economic growth to slow and inflation to rise.

Goldman Sachs’ David Kostin thinks tariffs could reduce S&P 500 annual earnings by 1% to 2%.