President Trump has begun the process of rebalancing U.S. trade by imposing tariffs. Now, we’ve discussed the long-term goals and the long-term benefits we may see. Here’s why a higher cost of living is a small price to pay…
By Peter Reagan
One of the primary reasons that Donald Trump gave during the 2024 presidential campaign for why he planned to impose tariffs was to increase government revenue without raising taxes. The other reason, of course, was to bring manufacturing back to the U.S.
Now, tariffs may seem to be a rather indirect route to that outcome, but the logic goes like this:
- Impose tariffs
- Tariffs make products manufactured overseas more expensive compared to products made in the U.S.
- Companies move their supply chains and factories back to the U.S. (and hire American workers)
- American families, who are smart shoppers, now buy competitively-priced American-made products
- New manufacturing and production in the U.S. means more jobs and faster economic growth
- …and everybody wins! (Well, everyone in the U.S. wins.)
While some people have been critical of Trump’s plans, those plans have already started to show some results with companies like Apple announcing that they plan to invest large amounts of money into manufacturing in the U.S.
That’s great news, right?
Yes, in the long run, that is great news for jobs and the economy here in America.
The challenge is that it’s going to hurt in the short term while those jobs are still transitioning from overseas to the U.S., and a recent announcement by Trump makes it clear that he wasn’t kidding about his plans.
What’s the latest on tariffs?
Trump announced what may be the single biggest tariff that he’ll implement in an effort to bring jobs back to the U.S. What is that tariff?
It’s a tariff on all vehicles imported to the U.S. Courtenay Brown with Axios writes,
Trump on Wednesday signed an executive order from the Oval Office that would impose tariffs on automakers that do not manufacture cars or car parts in the U.S.
Now, you may have noticed that Trump has used many of his tariff threats over the past two months as leverage for negotiating political goals, not economic goals.
Think, for example, of the tariff spat with Colombia back in January 2025 to get Colombia to agree to their citizens who’d been deported from the U.S.
That’s not the case with the auto tariffs, though. There doesn’t seem to be any political motivation or goal to them, simply economic effects. Again from Brown:
He said that the tariffs would be “permanent,” saying there is nothing that would prompt the removal of the import taxes.
That’s right, the auto tariffs aren’t going away. It looks like they’re here to stay (at least until the next administration).
Now, you may not be shopping for a new BMW or pricing an Acura (made by Honda)… So do these tariffs really matter?
The economic impact of tariffs
And my answer is that the person who asks that particular question hasn’t looked into the details of this tariff.
Want to know which vehicles will be most impacted by the tariffs? I thought that you would, so, Nathan Bomey with Axios gives us this chart:
Look at those numbers! About ⅓ of Hondas would be affected. Over half of Toyotas would be affected. About ⅔ of Hyundais and Kias will be affected by this tariff.
And those are all vehicles bought and driven primarily by lower-income Americans. Who would be the ones primarily paying the tariffs (or choosing an American car instead).
Your average middle class or poorer American isn’t buying a new Tesla or Rivian. It’s just not happening.
And that means that the auto tariffs are likely to going to, at least in the short term, disproportionately affect the very people who’d be working at new American factories! See, in the long run, the tariffs are intended to create greater economic growth.
It’s just weathering the storm in the meantime, until those new job openings hit the market, that we have to worry about…
Now, to be fair to Trump about these higher costs on vehicles, Trump does want to use other methods to offset the higher prices that will be caused by tariffs.
Offsetting tariff-based price hikes
What is Trump’s plan for offsetting those higher prices? Jeff Cox with CNBC writes,
After largely staying out of the Federal Reserve’s business during his first two months in office, President Donald Trump is pushing the central bank to cut interest rates as a backstop for his tariff plans.
That’s right, Trump’s preferred plan to offset price increases from tariffs would be to reduce interest rates to encourage spending, punish savers and stimulate the economy.
It’s the “tried and true” method that the Fed has used for decades.
Does it work? Usually, yes, it seems to work. Notably, during and in the 17-year aftermath of the Great Financial Crisis, it didn’t work at all. That’s why interest rates have been barely above zero across the developed world for as long as you can remember.
The problem with making it work right now?
Getting cooperation from the Fed. Christopher Rugaber with the Associated Press writes,
The Federal Reserve kept its benchmark interest rate unchanged Wednesday and signaled that it still expects to cut rates twice this year even as it sees inflation staying stubbornly elevated.
First, lowering interest rates does not make prices go down. Instead, what lowering interest rates does is make debt less expensive! Lower interest rates generally make prices go up.
That’s why the Fed raises interest rates when prices are rising too quickly.
Now, I am not trying to say the President doesn’t understand economics. I know he does! You have to remember, though, he’s trying to manage two major economic problems:
- The inflationary hangover of the pandemic panic-era money-printing
- The inflationary pressure of the massively growing national debt – $36.2 trillion as of publication
Every new dollar – whether it’s printed by the Fed, or manifested by deficit spending – devalues every other dollar in existence.
I believe the White House realizes that, while the rising cost of living is a problem every American family faces, it’s a much more manageable problem than the national debt.
Lower interest rates will (or should) lower the financing costs of the national debt.
You can address these issues, but you have to tackle them one at a time. Because the cure for one makes the other worse…
We all have to do our part
I hope I’ve convinced you that the Trump administration is not unconcerned by the rising cost of living. Why Trump’s Liberation Day tariffs are very likely to move forward, even though they’ll make prices go up.
Some economic sectors will struggle. Some families, especially those already stretched to the breaking point, will be stretched further.
And while I firmly believe that this plan will be good for us in the long run…
… They will cause economic volatility. We cannot expect the situation to improve in the short term.
Anyone who tells you things will be easy or improve right away doesn’t understand economics.
Personally, I believe that we all have to do our part. We all have to do what’s best for our country – and we all have to make smart financial decisions for ourselves and our families.
Now is the time to diversify your savings with inflation-resistant assets like physical precious metals. You can get started by learning about the benefits of physical gold ownership.
