The new 10% tariffs on China will quickly increase the CPI in the US, leading the Fed to increase interest rates more quickly. As a result the rise in the value of the US Dollar is just getting started.
For many items, say silicon carbide abrasive, the Chinese price with the 10% tariff added is still the lowest price and will simply increase the price of abrasives and sandpaper in the US, leading to higher prices in American for the construction of homes, furniture and other goods. As input costs rise, US exports will become less competitive.
As we know the production of many items have already moved from China to Vietnam and other lower cost locations. This will add the the exodus, but most businesses will probably wait a year or two to see if the import tariffs are going to be permanent.
The prior model for these tariffs is Argentina during the Juan and Eva Peron era.
The good news was Import Taxes took in so much money that they eliminated most other taxes.
The bad news was over time Argentine businesses, protected by import tariffs became less and less competitive over time and Argentina's exports collapsed, leading to a collapse of their currency value.
This is a very interesting experiment which will play out in unexpected ways over time. The rise in the value of the US Dollar will reduce US exports, as will increased costs for exporters.
China is responding with hefty new tariffs on virtually all US goods for a total of $110 billion.
We've run out of other people's Social Security taxes needed to subsidize our low income tax rates.
