The New York Fed said the import tariffs that Mr. Trump announced in 2018-2019 reduced stock prices and were associated with falling profits at many US companies.
The US Federal Reserve (Fed) in New York has just released a report showing that companies doing business with China, which currently accounts for half of all listed businesses in the US, recorded a sharp drop in stock prices in the past year. the days President-elect Donald Trump announced tax impositions in 2018 and 2019. In the following 2 years, their profits were also about 13% lower than other companies.
The main goal of import tariffs is to protect American businesses from foreign competition. At that time, domestic goods will be cheaper and Americans will switch to buying domestic goods. “However, most companies recorded a sharp drop in stock price on the day the import tax was announced. We also noticed a decline in profits, human resources, revenue and labor productivity afterward,” wrote analysts at the New York Fed.
Previously, many other studies also showed that import taxes drag down economic activity. These reports were published in the context of officials, businesses and economists trying to measure the impact of President-elect Donald Trump’s proposal to increase import taxes.
Former US President Donald Trump in West Palm Beach on January 6. Image: AP
In the past few months, he threatened to impose a 10% tax on all goods entering the US. For some countries, the tax rate will be much higher, such as 60-100% for China, 25% for Mexico and Canada, or 100% for BRICS countries.
Trump and his advisers assert that import taxes are a way to increase federal budget revenue. However, who should bear the increase in product prices due to taxes is still a difficult question.
The New York Fed believes that benefits from import taxes are unlikely to materialize “due to the complexity of global supply chains and the risk of retaliation by countries.” “Our research shows that businesses will record a sharp decrease in cash flow. The damage will be widespread, most severe for companies doing business with China,” the report wrote.
This report builds on an old study on import taxes during Trump’s first term. Accordingly, this policy has caused both American businesses and households to suffer losses. Before Trump takes office on January 20, economists are racing to assess the potential impact of the next round of tariffs.
Ben May – director of global macroeconomic research at Oxford Economics – said imposing tariffs on Mexico and Canada “could push all three economies in North America to the brink of recession”. US GDP may slow down, or decrease in the next 2 years. Global trade could decrease by 10%.
However, some analysts believe that Trump is unlikely to impose heavy tariffs as warned. “While Trump’s policies could cause an inflationary shock, causing prices to rise sharply and US GDP to slow significantly, we do not think he will do all of these things,” said Greg Daco – economist economics at EY forecasting.
At an event in New York on December 4, Fed Chairman Jerome Powell said they are “studying, evaluating, observing” what Trump will actually do and how other countries might respond. He affirmed that these things will not affect the Fed’s decisions until policy actually changes and begins to have an impact on the economy.