Click the image above to watch Danielle Shay discuss the impact of additional Chinese tariffs on American consumers, on Cavuto: Coast to Coast, on Fox Business.
President Trump has recently threatened new tariffs against China, which are set to go into effect on September 1st, 2019. This news has sent the stock market into a downwards spiral, getting rocked from the new, all-time highs it made in July 2019. Why?
First of all, the stock market doesn’t like uncertainty, particularly unexpected political tensions. Investors had largely expected a trade resolution with China, as it was reported at the end of May that we were nearing a resolution. Well, with this latest news, that has all changed.
Secondly, the reason why the stock market doesn’t like additional tariffs is because of their impact on the bottom line.
Thus far, tariffs have largely impacted industrial companies, such as Boeing, Catarpillar and John Deere. The tariffs were mostly focused on steel products, and the higher cost of goods has been absorbed by the companies themselves. That means that even though they have to pay more, they aren’t passing along that increase in price to consumers.
The next proposed round is set to hit consumer goods and products. This matters to the American consumer because companies can only absorb price increases so much, until they have to pass this price increase along to consumers.
When companies like Costco, Walmart, or Target, buy goods from China that they then turn around and sell in the US, and those goods begin to cost more than they used to, they have to pay a higher price.
Of course, they do their best to mitigate this, so that they do not have to increase their own prices. However, they can only do that to a point. Corporate executives have their jobs because they make money for the company. That is how businesses work. They aren’t non-profits. Particularly in the event that they are publicly traded companies, they have a duty to their shareholders.
Any business has a margin of profit. It’s these margins, which make them money. When their margins are squeezed, they must do something – and, the most obvious, is to pass that cost along to consumers, so they don’t eat it themselves.
If you think corporations will completely re-do their supply chain, or eat the cost themselves, before they will simply raise the prices so that their margins aren’t affected, you’re wrong. That’s just not how corporations work.
