What's going on?
We’ve been here before: the US government is gearing up to levy fresh import taxes – a.k.a. tariffs – on $3.1 billion worth of European and UK products, adding to its beef with Canadian aluminum.
What does this mean?
Tariffs increase the cost of getting products across international borders and therefore tend to reduce demand for them – likely leading to lower economic growth. Of course, those products that are imported with higher duties will net the importing government proportionally more cash, and local producers may also benefit from more business. One major reason tariffs are used, after all, is to tilt the balance of how much economies spend on each other’s stuff.
The products the US is planning to target starting late next month include handbags, leather, olives, and gin – while it may also hike existing tariffs on the likes of aircraft and dairy products. Europe’s response remains to be seen.
Why should I care?
For markets: Gin Lane, rum business.
Stocks fell everywhere on Wednesday. While the effects of any new tariffs may be negligible compared to the economic destruction done by coronavirus, investors in at-risk companies sold off shares in a bid to avoid additional financial damage (tweet this). Among the biggest fallers was French luxury conglomerate LVMH – which makes, er, bags, leather goods, and spirits – and British spirit magnate Diageo, owner of the globe’s best-selling gin. Their products stand to become more expensive in the world’s largest economy, which could lead to lower earnings.
For you personally: You’re the hard place.
Importers of potentially soon-to-be tariffed goods may be caught between a rock and a hard place. They’re faced with either absorbing higher costs and reducing their own profits – which, given the pandemic, many companies can’t afford to do – or else attempting to pass the buck to customers whose finances are unlikely to be much healthier. That risks would-be clients walking away – or worse, wandering into the arms of rivals that can afford to avoid immediately increasing prices.