Stocks Down in Asia and Europe Ahead of New Tariffs from the U.S.

What Happened?

Stocks in Asia and Europe were down on Friday ahead of a new round of tariffs imposed by the Trump Administration that were set to take effect next week. The White House announced Thursday night that modified versions of the tariffs Trump initially rolled out in April would kick in on Aug. 7, giving U.S. Customs and Border Protection officials time to prepare to collect the taxes.

While negotiations are still ongoing, there has been no new trade deal with several large U.S. trading partners including Canada, India, and Taiwan.

Why it Matters

The new tariffs set to kick in range from fifteen to forty percent depending on the country in question. Countries currently running a trade surplus with the United States will likely see the most increases. The Trump Administration has touted the new tariffs as a win for the U.S. due to increased revenue.

While it’s true the new tariffs, which is just another word for taxes, will likely bring in additional revenue for the federal government, it comes at a price. First, American consumers will be the ones paying those taxes, and an increase in the costs of goods has already begun in several sectors of the economy. For example, Proctor and Gamble recently announced a twenty-five percent price increase on a range of goods from cleaning supplies to personal care products to cover the additional costs of the new tariffs.

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Second, the relationship between the U.S. and its allies will likely be impacted by the new tariffs since that’s where most will be levied. The short-term gains in revenue by the federal government must be weighed against the potential long-term damage done to relationships with trusted allies and partners abroad. One Japanese official described the feeling in Japan towards U.S. tariffs as ‘Shock, frustration, and anger.’

There are also potential legal troubles ahead for the new tariffs. President Trump imposed many of the new tariffs by citing the International Emergency Economic Powers Act, or IEEPA, a 1977 statute that gives the president broad latitude to regulate international commerce during a declared emergency. That law, however, does not mention or include the word tariff, which means they could potentially be undone by court challenges. One federal trade court in May already ruled the Trump Administration exceeded its authority with several of the new tariffs.

How it Affects You

Market volatility is likely to increase next week due to the uncertainty of whether or not the threatened tariffs will all take effect or if President Trump will pull back as he has done in the past. Last minute trade deals could also avert the imposition of the next round of tariffs, but exactly where those might be struck and when remains uncertain.