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How consumers and business might be impacted by potentially sweeping tariffs

by December 15, 2024
written by December 15, 2024

Investing.com — The introduction of potentially sweeping tariffs could significantly reshape the economic landscape for both consumers and businesses, as flagged by analysts at Yardeni Research. 

These measures, often presented as a way to protect domestic industries, carry a complex set of implications that could ripple across markets and households.

For consumers, one of the immediate concerns is inflation. Tariffs generally lead to higher costs for imported goods, which can result in increased prices on store shelves. 

This could squeeze purchasing power, particularly for lower- and middle-income households, which are more vulnerable to price hikes on essentials like food and everyday goods. 

Yardeni Research notes that while real wage growth has recently turned positive after years of stagnation, any policy-induced rise in consumer prices could erode these gains, dampening household confidence and spending.

From a business perspective, tariffs can raise input costs, potentially squeezing profit margins. However, Yardeni Research suggests that companies might find some relief through other economic dynamics. 

For instance, a stronger U.S. dollar—often a byproduct of tariffs—can mitigate some of the price increases by making imports relatively cheaper in dollar terms. 

Moreover, the analysts highlight that productivity gains could continue to offset rising costs, keeping production expenses in check. 

During the first term of the Trump administration, a combination of deregulation and favorable trade deals helped sustain corporate profit margins, even amid similar tariff regimes.

Nevertheless, the broader impact on global supply chains could pose risks. Tariffs disrupt established trade flows, forcing businesses to reevaluate sourcing and manufacturing strategies. 

For some firms, this could mean relocating production domestically, which might involve higher labor costs, or finding alternative suppliers, which could affect quality and consistency. 

Yardeni Research points out that sectors relying heavily on imported components, such as technology and automotive, could be hit particularly hard.

Geopolitically, the imposition of tariffs often leads to retaliatory measures from trade partners. This tit-for-tat dynamic can escalate tensions, reduce global trade volumes, and impact emerging markets disproportionately. 

Countries like Mexico, which are tightly integrated into the U.S. supply chain, could face economic headwinds if tariffs disrupt cross-border commerce.

The full scope of the tariffs’ impact will depend on how they are implemented and whether complementary policies, such as tax cuts or deregulation, are introduced to cushion the blow. 

Yardeni Research remains cautiously optimistic, suggesting that while tariffs are unlikely to trigger a major inflationary wave—thanks to factors like the strong dollar and productivity improvements—they could still alter consumer behavior and business strategies in ways that reverberate across the economy.

This post appeared first on investing.com
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