Former President Donald Trump announced significant new tariffs just last week. This monumental move is poised to dramatically change the global economic order and impact patterns of international trade for decades to come. These tariffs are already much higher, starting with a 10% baseline on most goods coming into the United States. Any potential costs incurred by businesses importing these products will be eaten by the businesses themselves, not American consumers. As businesses adjust to this new reality, the long-term consequences for where trade flows go and where things are made could be significant.
Combined, these tariffs represent the largest change in global trade dynamics in over two decades. A country such as China or Vietnam, probably a country that is more vulnerable, will suffer the consequences of this change. As U.S. tech giant Apple has substantial manufacturing bases in these nations, it faces a staggering 54% tariff on goods imported from China and a 46% tariff on those from Vietnam. Such high tariffs would be disastrous for Apple’s pricing strategy and bottom line.
As research from Citi opines, the fallout for Apple could be massive.
“If Apple cannot get exempted this time and assuming Apple gets hit by the accumulative 54% China tariffs and does not pass it through, we estimate about 9% negative impact to the company’s total gross margin.” – Citi
The ramifications extend beyond just Apple. The tariffs are projected to make a significant indentation in the volume of anything Americans buy from overseas. This dramatic drop off in imports would have ripple effects on the broader global economy, that depends — as we’ve seen — on strong trade flows. Additionally, American businesses—including many small businesses—are hurting due to rising costs for imported goods. Most of these individuals will just stop buying or seek a local option, thus directly hitting worldwide suppliers.
The good news is that in the middle of all this represents some unprecedented opportunities for UK businesses. The EU has responded with its own 20% tariff on these goods. The UK has just a 10 percent tariff. This gap may make UK exporters more attractive to American importers. By changing their table suppliers to British companies, importers will pay less tax than if they sourced from EU firms. The UK would get a significant competitive advantage from this which would help UK businesses to establish a bigger footprint in the American market.
This possible boon has its own set of hurdles. If foreign producers are unable to absorb the higher costs associated with tariffs, they may flood the UK market. As a consequence, cheaper goods could quickly come in. Consumer savings could be a major benefit. This threatens homegrown industries who have a hard time competing with products of lower standards. The dramatic increase in these goods has the potential to trigger greater scrutiny along the UK market. As a consequence, people will expect a much higher quality standard.
The tariffs more importantly represent a bigger question of how will trade dynamics change going forward. Firms are changing their supply chain management and pricing policies. This transition will likely not only reshape global trade maps but alter how consumers shop. Businesses from every sector are re-thinking how they procure their materials and how they produce their products based on these new economic realities.
Additionally, the lasting impact of these tariffs is still unknown. Those who do will thrive, experts say—but only some businesses will make the transition. For many, they will face increasing costs and changing tastes from consumers that will cause true pain. Soaring prices on store shelves remain consumers’ top concern in the U.S. In the meantime, businesses are scrambling to understand how to react to these tariffs.