This year, tariffs imposed by the Trump administration are impacting the markets as trade agreements are being negotiated with many nations around the globe. As agreements are finalized, the impact on the markets and potentially the economy can change from week to week. I don’t think it would be incorrect to say that there has been a great deal of angst on the possible effects of tariffs on the economy and the markets. I’ve already had to modify this article because of the most recent update in retail prices. June numbers are starting to show that inflation ticked up in June to 0.3% (2.7% this last year). Real earnings fell 0.4%-0.6% as hours of work declined because of a slowing economy – slowing being the operative word. The context for this is that the vast majority of economists and commentators predicted a quick onset of a recession, economic slowdown and unemployment as a result of the tariffs.¹

So far, we haven’t seen that end result. June is coming in beginning to show that some of these effects are starting to affect the economy – although at a slow rate. That said, unlike even three months ago, many economists are no longer predicting a recession. So, we are starting to see the possible negative effects of tariffs creeping into the economy. There have also been some surprisingly positive results. Including a healthier picture in the sense that a recession seems less probable at this point. Another positive is the U.S. Treasury Department reported a $26 billion budget surplus in June which is the exact opposite of the previous five years showing a deficit.²

While this is a dynamic environment as nations negotiate trade deals issues, the near-term effect on the markets and economy will continue to be in flux until more agreements are finalized. Some companies have prepared for this initial period by restocking products earlier on before they modify their prices that may occur with rising costs. Tariffs could have a long and variable lag according to economist Milton Friedman.

Personally, my views have varied a bit as both the reality and theory of these topics play out in everyday life. As a big proponent of free trade, admittedly tariffs have been a difficult pill to swallow. However, when we talk free trade, there are many questions that get debated. Have we been desensitized to what free trade is? What about the concept of “fair trade”? Are free and fair trade occurring when American products are tariffed more heavily than reciprocal trade coming into our country? These issues usually generate strong feelings in one direction or another. When foreign governments contribute resources to fund products produced by foreign companies – are these products putting domestic producers at a disadvantage when competing directly with American products?

I recall taking an economics class in college where the professor explained that Japanese cars at that time (1980s) were becoming the dominant automobile manufacturers in the industry. He said that was good for America. Somewhat surprised, I said to myself – how is that good for America? Doesn’t that threaten American jobs? His answer explained how Japanese cars revolutionized the auto industry. Japanese cars were produced with a quality that was superior to many American cars at a cost that was less expensive than American cars. American manufacturers were actually trying to mimic companies like Toyota and Honda. There were many books that were written about the “Toyota Way” of manufacturing excellence. Do you remember the Saturn car company? It was GM’s attempt to compete directly with Japanese cars in the late 1980s. It introduced innovative manufacturing and sales processes (no haggle sales). The key was that increasing quality and lower prices resulted in improving the quality of living for most Americans. We were seeing both direct and indirect benefits to “free trade”.

But there are many issues in play that make this topic complicated to say the least. In the end the manufacturing of less expensive and commodities went overseas with cheaper labor markets and material costs. It is still difficult to drive by old manufacturing facilities that no longer employs American labor to make American products which have moved overseas. Are we better off as a nation with the so-called free-trade agreements?

Let’s try to cover some basics about tariffs realizing that literally every week we see new developments on this issue. As you will see, there are many issues for consideration and this article will just broach a few of the main issues that can affect everything from the markets to the economy to the cost that you pay for the products that you buy.

Why do we have tariffs?

A more textbook definition would say that tariffs are intended to protect and expand domestic industries by making imports more expensive and encouraging U.S. companies to produce at home. This was a campaign promise that Donald Trump ran on in 2024 and actually he went down this path during his first term in 2016. The United States was once the global leader in manufacturing, but that dominance began to shift in the 1990s with the

globalization of supply chains. Many companies opted to move production overseas in pursuit of lower costs. Episodes like this contributed to U.S. manufacturing falling from 21 – 25 percent of gross domestic product in the 1950s to about 10 percent today. The trend worsened after China joined the World Trade Organization in 2001. Nearly 60,000 manufacturing facilities closed in the United States between 2001 and 2015, erasing 4.7 million jobs.

WHY ARE THERE TARIFFS?³

1. Revive Domestic Manufacturing – see graph
2. Boost Manufacturing Jobs – Manufacturing employment declined from 17 million (1990s) to 12.7 million today.
3. Reduce the Trade Deficit – The U.S. has a consistent trade deficit since the late 1970s. In 2024, the deficit reached a record $1.2 trillion. Imports totaled nearly $3.3 trillion while U.S. exports totaled about $2.1 trillion.
4. Reduce National Debt – The U.S. national debt has recently surpassed $36 trillion, exceeding the total size of the of the nations’ economy. There are theories which tie in trade deficits to fiscal shortfalls.
5. Offset Cost of Tax Cuts – White House trade advisor Peter Navarro projected that tariffs would generate about $600 billion to $700 billion per year in revenues ($6 trillion over a decade). That could offset the cost of potential tax cuts.
6. Raise Inflation – Simply stated because of tariffs, prices on products could rise. The question is if these possible price increases would diminish over time. Many would say that tariffs don’t cause inflation – more money for less products does.
7. Raise Input Costs – imported products such as raw materials will raise the price to manufacture products in the U.S.
8. Drive Changes in Stock Market – markets generally react negatively to tariffs. Global trade could be disrupted.
9. Affect the Dollar’s Strength – U.S. dollar typically depreciates during periods of trade deficits (some exceptions).
10. Enhance National Security – Protecting domestic producers, tariffs could reduce dependence on adversarial nations. Tariffs could increase the reliance on foreign debt – January, China held $761 billion (largest) in U.S. Treasury securities.
11. Facilitate Decoupling from China – In the wake of COVID-19 pandemic, supply chains were disrupted putting important raw materials and products at risk.
12. Protect US Exports – U.S. exports are sometimes at a disadvantage with tariffs from other countries.

These factors will affect various industries and sectors differently. In Part 2, we will look at the current status of tariffs and which countries and sectors will get hit the hardest.

References:

1. Wall Street Journal, Trump Tariffs Hit Consumer Prices, July 15, 2025, www.wsj.com/opinion/june-inflation-cpi-labor- department-prices-tariffs-donald-trump-economy-e09d0d7d?mod=Searchresults_pos2&page=1

• CNBC, Treasury Posts Unexpected Surplus in June as Tariff Receipts Surge, July 11, 2025, www.cnbc.com/2025/07/11/ treasury-posts-unexpected-surplus-in-june-as-tariff-receipts-surge.html

• Tariffs: The Big Picture, www.theepochtimes.com/article/tariffs-the-big-picture-5840034