Odd Lots The Tariff Announcement That Shocked Financial Markets
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Feb 3, 2025 Paul Donovan, chief economist at UBS Global Wealth Management, shares insights on the recent shockwaves in financial markets caused by aggressive tariffs on imports from Canada, Mexico, and China. He explains the financial burden these tariffs impose on U.S. consumers and their potential inflationary effects. Donovan also delves into how tariffs impact international trade dynamics, the complexities of modern supply chains, and the potential reactions from central banks. His expert analysis helps untangle the ongoing implications of these economic moves.
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Who Pays Tariffs?
- US consumers ultimately bear the cost of tariffs, not foreign countries.
- Tariffs are collected at the point of entry, meaning the 25% tariff doesn't translate to a full 25% consumer price increase.
Tariff Inflation?
- Tariffs act like a sales tax, initially increasing inflation.
- Job losses due to trade disruptions could cause future disinflation, but with lower growth.
Absorbing Tariff Costs
- The idea of foreign producers absorbing tariff costs doesn't hold up.
- US markets are competitive, with exporters operating on thin margins and little room to lower prices.