Tariffs are usually bad for the economy. So the stock market shot up by 10% today when President Trump lowered most of the tariffs he imposed on the nations of the world, while increasing tariffs on one country (China). The stock markets all jumped: the S&P 500 Index rose 9.52%, the Dow rose 7.87%, and the NASDAQ rose 12.16%. American manufacturers like Boeing saw their stock price rise a lot.
Yahoo News reports:
President Trump said Wednesday that he was unilaterally raising the US tariff rate on China to 125% and instituted a 90-day pause on steep “reciprocal” tariffs on other countries.
“I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately,” Trump posted on Truth Social. “Conversely, and based on the fact that more than 75 Countries have called Representatives of the United States, … and that these Countries have not, at my strong suggestion, retaliated in any way, shape, or form against the United States, I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately.”
The US stock market soared on the news.
Supporters of tariffs claim they are needed to help American manufacturers. But manufacturers can be harmed by tariffs if they use imported inputs or raw materials to make things, as most manufacturers do to a significant extent. As the Federal Reserve explains, “Just under 30% of intermediate inputs in the manufacturing sector are imported, and indirect imports account for about 10% of total intermediate inputs. In contrast, only about 10% of inputs in the services sector are imported, with direct and indirect imports contributing equally.” Industries such as “pharmaceuticals, aerospace, heavy trucks, automobiles, and light trucks… all import over 30% of inputs.”
So it is not surprising that the stocks of manufacturers soared when Trump paused the tariffs. For example, Boeing’s stock price rose 15.32%, Ford Motor Company’s stock price rose 9.32%, and Microchip Technology’s stock price rose 27.05%, and Caterpillar’s stock price rose 9.88%.
By contrast, service sector businesses rose less. McDonald’s saw its stock price rise by only 1.38%. Yum Brands, which owns Taco Bell and KFC, saw its stock price rise by only 2.88%.
When Trump’s tariffs apply to raw materials and inputs manufacturers need, they will wipe out jobs even if they don’t trigger retaliation from foreign nations. In the first Trump administration, tariffs on steel and aluminum “resulted in 75,000 fewer manufacturing jobs in firms where steel or aluminum are an input into production,” by increasing their “costs of inputs” that made their products less competitive. That big job loss was much larger than the 1,000 jobs gained in the U.S. steel industry due to the tariffs.
The so-called “reciprocal” tariffs that Trump temporarily reduced today were actually not reciprocal, they were actually bigger than other countries’ tariffs in almost all cases.
President Trump increased tariffs today on China. His frustration with China is quite understandable. China systematically steals American intellectual property and cheats on its obligations under international trade agreements.
Trump’s tariffs have already triggered retaliatory tariffs from China — 84% tariffs that will wipe out some jobs in America’s export sector. China is also telling Chinese people to think twice about traveling to the U.S., which could result in less tourism and tourism-related jobs:
China issued a travel advisory Wednesday for citizens visiting the U.S. The warning comes as a trade war has escalated between the nations, and as more scrutiny is being put on foreign nationals holding visas in the U.S. “Recently, due to the deterioration of China-US economic and trade relations and the domestic security situation in the United States, the Ministry of Culture and Tourism reminds Chinese tourists to fully assess the risks of traveling to the United States and be cautious,” China’s Ministry of Culture and Tourism Government released in a statement.
1.6 million Chinese people visited the U.S. last year.
Similarly, some Canadians have dropped plans to travel to the U.S. after Trump imposed tariffs on Canada and talked about how Canada should become the 51st state. “Trips from Canada to the U.S. are dropping, threatening to widen the United States’ $50 billion travel and tourism deficit,” reported CNBC. “Canada is the top source of international visitors to the United States. The White House said” that “Canadians ‘will no longer have to endure the inconveniences of international travel when Canada becomes our 51st state.’”
The Detroit Free Press reported that “Michigan and other U.S. states are seeing fewer Canadian visitors as international tourism declines. The downturn unfolds alongside President Donald Trump’s remarks about Canada becoming the 51st state,” and “escalating tariffs….Future flight booking data for passenger trips from Canada to U.S. has plummeted by nearly three-quarters compared with the same time period last year.” That would wipe out thousands of jobs in America’s tourism industry. Even a modest 10% drop in tourists from Canada would “result in 14,000 job losses” in the U.S., according to the U.S. Travel Association.”
