Implications of the Trade War on the U.S. Economy: The Smoot-Hawley Effect and the Planet Money Podcast
President Trump’s sweeping tariff announcement Wednesday triggered a sharp drop in U.S. stock markets, a flashing-red warning sign of the economic fallout that’s expected to result from the widening trade war.
Around midday Thursday, the Dow Jones Industrial Average had tumbled over 1,200 points, or 3%. The broader S&P 500 index sank 4% and the tech-heavy Nasdaq index dropped nearly 5%.
Take China for instance. Last year, Americans imported about $439 billion of products from China — chiefly electronics, clothing, and machinery — while exporting only $144 billion. According to the formula, there should be a 67% tax on Chinese products. (On Wednesday Trump announced that the actual tariff would only be half of that, or 34%.)
The economists say the new taxes will result in higher prices and slower growth in the U.S., as well as likely causing many other countries to go into recession.
On Wednesday night, the administration revealed how they calculated the new tariffs, which are the highest taxes on foreign products that America has seen in generations. Listen to the Planet Money episode on the Smoot-Hawley tariffs in a sense of that era.
“This is a game change, not only for the U.S. economy, but also the global economy, you can throw most forecasts out the door if thistariff rate stays on for an extended period of time,” wrote Olu Sonola in a research note.
Just as Trump tried to build a wall against illegal immigration during his first term in the White House, he’s now erecting an economic barrier against global trade, in an effort to restrict imports and encourage domestic manufacturing.
The cars, ships, chips, airplanes, minerals and medicines we need right here in America are going to be produced in the US by the Trump administration. “If they don’t return to our country, we have a big tax to pay.”
Many factories are bracing for higher costs and a decline in export markets because of the trade war. They have already said they will slap their own tariffs on U.S. exports.
“We are already seeing that when we conduct the monthly survey for the Institute for Supply Management,” said Tim Fiore, who conducts a monthly survey of factory managers. “The retaliatory tariffs are going to be really ugly. It is going to kill demand.
The United States launched a global trade war in the 1930s. It did not end well. The notorious Smoot-Hawley tariffs are widely thought to have worsened the Great Depression.
Larry Summers, the former Treasury Secretary, says that it was bad for consumers. “It was bad for producers, because it meant higher input costs. It was bad for peace because it undermined comity among nations.
It’s not clear that Trump’s calculations arrive at the right answer. For one, these are very rough, back-of-the-envelope calculations. As laid out, this formula treats every trading partner, every good and every industry the same. Bananas, oil, clothing, computers or cars — it doesn’t matter what a country sends to the U.S.
By coincidence, the administration also assumes that for every 10% increase in the price of foreign products, there will be a 40% decrease in how much Americans buy. (This is on the higher but still reasonable end of what mainstream economists believe.) Trump expects Americans to decrease their purchases by four times more than is currently the case. We went back to 67%.
This is not the same story as Trump’s previous statements where he said he ” couldn’t care less”, or that he denied that tariffs would raise prices.
There is a blunt approach behind these Greek letters. Essentially, the equation is trying to answer the question: How high should we set tariffs in order to get Americans to buy fewer foreign products, and close the trade deficit? The higher the trade deficit is between the U.S. and another country, the bigger the tariffs are going to be on their products.
These new tariffs are not made up of reciprocal tariffs. There is no mathematics that is completely invented or nonsensical, as some online have claimed.
When President Trump announced his latest tariffs on Wednesday, he also ignited an economic mystery. Did those numbers come from somewhere in the world?
Will the trade deficit be closed by Trump’s new tariffs? Maybe, maybe not. But finally, at least, the administration has shown its work. The tariffs are meant to raise prices and close the trade deficit.
The recent stock market upheavals may have made people less enthusiastic to spend their money. The S&P 500 index has fallen more than 5% since Trump took office in January.
The Commerce Department reported that personal spending was weaker than expected in the month of February.
And people across the political spectrum say they’re worried about their personal finances, unemployment and inflation, suggesting the president’s policies on tariffs and government job cuts are partly to blame. A survey by the University of Michigan found consumer sentiment fell in March for the third month in a row.
“I don’t see things moving in a positive direction. I really don’t,” says Dan Fitch, a nurse who works for the Veterans Administration in Portland, Ore. “The cost of living has already been elevated for a while. So adding on tariffs — I don’t see how that positively affects anybody.”
Why are Americans so lousy about the economy? A family of stylists’ feelings on cutting their hair and the cost of a new car
The family isn’t traveling as much as they usually do. He has stopped paying for haircuts for his sons.
“I bought a pair of clippers and I’m cutting both my kids’ hair now. “I might start doing my own, too.” It can get pretty ugly. For a little more peace of mind where your money is concerned, it is worth it.
“I try to stick to a budget and it’s been very hard to stick to a budget,” says Kathy Merkler, a research laboratory coordinator in Tampa, Fla. “I’m paying the same amount of money for fewer bags of groceries.”
There’s a concern about the scientific job market with the federal cutbacks at the National Institutes of Health and Centers for Disease Control and Prevention. The couple have pondered if it is a good time to buy a new car.
Consumer spending may be sputtering after the first four years of tariff wars: An economic economist’s perspective on the U.S. economy
Consumer spending remains the biggest driver of the U.S. economy even after the Pandemic and high inflation that followed. But now that consumer engine may be sputtering a bit.
“I think if you’re a consumer, you’re sitting there and saying, ‘Ugh, I’m not so sure about these tariffs here,’ ” says Dan North, a senior economist at Allianz Trade North America. “My income is kind of dwindling a little bit. Oh, and by the way, I just opened up my credit card bill and there’s still items I need to pay off from Christmas. I’m going to put my horns on a little bit.
Spending has not been negatively affected by the threat of tariffs. Some shoppers were ready to purchase large items in February before most of the import taxes took effect. The Spending on durable goods jumped during the month. It’s not likely to last, according to forecasters.
Dawn Woodward, a librarian in Michigan, bought her son a new television weeks before his birthday, in an effort to avoid an expected tariff. When it comes to other shopping, though, Woodward is trying to cut back.
Source: Tariffs are another reason why Americans feel so lousy about the economy
The impact of the US tariffs on consumer technology: How important is it to be able to establish a manufacturing hub in the US?
The share of income that people put away went from 4.6% to 4.6% last month. It’s another sign of how wary Americans are feeling as President Trump doubles down on tariffs.
is a reviewer with 10 years of experience writing about consumer tech. She has a special interest in mobile photography and telecom. She used to work at a review site.
He points out that Apple’s margins (historically about 38 percent) give it more wiggle room to absorb the costs of the tariffs, at least in the short term. “But I think if this sticks, then probably with the 17 we could see a price hike,” he said, referring to the iPhone 17 expected in the fall.
A real path to a meaningful US smartphone industry production hub is not something that we see at the moment, says Schneemann. Apple does some manufacturing in the US, but is largely limited to small-scale production. The iPhone and its network of specialized component suppliers are a different beast. The costs would be prohibitive even if Apple did establish supply chains and manufacturing facilities in the US, as the effects of the tariffs wouldn’t be as noticeable. The president can change these tariffs in 4 years if he so chooses, since they are being carried out via executive order.
And yet there’s still plenty of uncertainty around these tariffs, including whether they might get pushed back yet again. Like I said, it’s complicated.
Up First: Briefing Trump about New Tariffs, Black Dressing, and Other Things to Do Before You Wake – Introducing Are We All Angels
Thank you for a good morning. The newsletter is called Up First. You can get it delivered to your inbox and listen to the Up First show for all the news you need to start your day.
Scowl releases an album, Are We All Angels, today. The singles are different from hardcore because they use ’90s alt-rock, emo, and pop-punk elements.
Kiese Laymon wrote a book about three black boys who form a connection during a summer in the South. Listen to Laymon talk about the book on Morning Edition.
TV: Comedian Michelle Buteau is starring in a comedy about a break-up that leaves an assistant stylist on the verge of a big break. She has to rebuild her life in the series Survival of the Thickest.
🍿 Movies: A Minecraft Movie starring Jack Black and Jason Momoa is a goofy adventure full of blocky animals and magical macguffins. It hits theaters today alongside two other films: a gay rom-com and an anthology flick.
Source: How new tariffs will impact small retailers. And, key takeaways from Trump’s 7th week
Driving in Windy Conditions: Warnings and Warnings for Non-Radical Drivers During High-Velocity Winds
When you’re behind the wheel, windy weather can come out of nowhere, leaving little time to react. Winds can be powerful enough to jostle cars, topple power lines and litter debris on the ground. Wind phenomena like dust storms can also impact your visibility. Here’s some expert advice on how drivers can stay safe when it is windy and what to do if caught in dangerous conditions.
It’s the seventh week of Trump’s second term in office, and he continues to make big headlines with his ongoing overhaul of foreign and domestic policy. From Donald Trump floating the idea of running for a third term to the fact that Musk is important in the judicial race, here are four things that happened this week.
The head of U.S. Cyber Command and the director of the National Security Agency have been fired, according to Democrats on congressional intelligence committees. The staff members of the National Security Council were fired. The Washington Post and New York Times reported that a far-right activist influenced the firings. NPR hasn’t independently verified this information.