I had previously predicted that the US would get into a trade war with China. President Trump has inexplicably decided to up the ante by starting a trade war with both China and the European Union. That is America two largest trading partners and together they account for a staggering 41% of US trade. The impairment of these trade ties will have severe and long-lasting impact on the US economy. That’s why it is important to understand how a trade war will affect you.
First off, the impact of President Trump punitive tariffs on steel and aluminum won’t hit you tomorrow. Nor will any retaliation by China or the European Union. The effects of this burgeoning trade war will filter through to the economy three to six months down the line.
So let’s look at what’s ahead at how a trade war will affect you …
One of the first things that will happen is a rise in prices (and inflation). Steel and aluminum are used in the manufacture of virtually everything you use in your daily life. Your home, cars, cans for beverages and food and household appliances all use steel and aluminum for instance.
The prices you pay for all of these products will have to rise in order compensate producers for higher input costs. The price rise won’t be huge on individual products but will add up when you put it all together.
Next comes a loss of jobs and a slowdown in the economy. Economist estimate that President Trump’s tariffs will create 33,464 jobs in the metals industry. That sounds good until you find out that rising steel and aluminum costs will shave off 179,334 jobs in manufacturing industry. That’s a net loss of around 146,000 jobs.
And this is just losses from Trump’s tariffs. Both China and the European Union have declared that they will retaliate. For instance, the European Union has threatened to slap punitive tariffs on Harley Davidson motorbikes, Levi jeans and other iconic American products.
The loss of these markets will inevitably lead to even more job losses – possibly into the millions. If this trade war spins out of control, the world economy could plunge into a depression reminiscent of the 1930s.
Finally, the stock market will crash. Corporations on the S&P 500 generate a hefty 43% of their sales overseas. That makes them very vulnerable to punitive actions by angry foreign governments.
So, the stock market will take a dive if China, the European Union or other countries announce retaliatory tariffs. The best thing to do now is to start getting defensive before the fur starts to fly.