Steep cost of tariffs is finally coming into focus

Some six months after the Trump administration announced first tariffs on goods from China, Canada and Mexico, it’s starting to feel that policy may be starting to stabilise now that higher rates for most of the rest of America’s trading partners went into effect Aug. 7. Although it’s still too early to confidently predict what the economic impacts of tariffs will be, some are becoming clearer.

- Ernie Tedeschi, Tribune News Service

For example, the new levies have boosted government revenue by about $65 billion but overall prices on goods are accelerating. And what about the original motivation for implementing tariffs, which was to reduce trade deficits? The only sure way they might durably do so is if they increase savings or, more likely, reduce growth and investment.

America's shortfall in trade has swung wildly in recent months, though the volatility is not surprising. Tariff policy has been highly uncertain, and Americans have been timing purchases to get ahead of any extra costs before they take effect. The monthly trade deficit expanded to 5.5% of gross domestic product ($138 billion on a non-annualized basis) in March before recovering to 2.4% of GDP ($60 billion) in June.

That 2.4% is not much different from the deficits that prevailed in 2023 or in the later stages of the recovery from the global financial crisis between 2014 to 2019.