After months of verbal threats between the EU, China and the US, tariffs, and counter-tariffs started in July 2018, leaving American consumers and investors wondering how much of an impact it will have on them. Already three months into the trade war, consumers are not swaying from buying imports despite the increasing costs. In July, the US Trade Deficit increased to $50.1 billion, a 9.6 percent increase from the previous month while imports increased .9% to a record $261.2 billion, proving that Americans’ demand for imports remains strong. August’s data is expected to be out the first week of October and indications are it will be higher than the July’s. It’s notable that the EU and China exported the most goods into the US of any of the trade partners during this time.
What will the impact be as the tariffs continue? Increased costs of goods (including food, clothing and other necessities) may cause households to have the less discretionary cash to spend on other items considered non-essential, such as electronics, entertainment, automobiles or even events. If costs continue to rise, Americans may eventually choose to not spend on goods produced in the United States either.
The counter-tariffs imposed to hurt foreign buyers will impact American companies, farmers and workers, and eventually overall company profits as countries impose their tariffs on US goods. Many retirement savings accounts invest in US-based companies which may see decreased earnings and share values as tariffs apply to their products. Eventually, this could reflect in the account values of American investors. Retaliation has started from other countries by the US being left out of new trade agreements as the current administration considers pulling out of the World Trade Organization.
Despite the tariffs and trade war, it is positive that the American economy has remained strong throughout the latest quarter. Because we are in the early stages of the trade war economists are unable to predict how prices and portfolios will fare in the future. The trade war landscape is changing day-by-day which is why now may be a good time to review your portfolio if you have concerns.