Tariffs Fixing Trade or Fumbling It?

Todd Federman, economics instructor at the Feliciano School of Business at Montclair State University, breaks down the real-world consequences of sweeping tariffs imposed by President Trump on April 2nd. From a staggering $10 trillion market loss to the inflationary impact on everyday consumers, Federman outlines how tariffs function, who pays them, and why they may do more harm than good.

Episode Transcript

Speaker 1 (00:06):
The American Pronunciation Guide Presents
''How to Pronounce ToddFederman''.
Hello, my name is Todd Federman.
I teach economics here at theFeliciana School of Business at
Montclair State University.
On April 2nd, president Trumpimposed sweeping tariffs on
dozens of countries.
The reaction of the markets wasswift.

(00:28):
On April 2nd, the value of theS&P 500, the index of the
largest 500 listed companies, isdown approximately 12%, in
excess of $7 trillion.
Add on smaller companies andthe total decline is in the
ballpark of $10 trillion.
The market has been very clear.
The markets do not like acrossthe board tariffs.

(00:50):
Tariffs have destroyed $10trillion worth of wealth.
So what exactly is a tariff andwho pays it?
A tariff is a tax imposed by agovernment on imported goods and
services.
The company that has orderedthe goods from overseas has to
pay the tariff to the US CustomsService to get possession of
those goods.

(01:10):
Say, a sneaker store ordered$10,000 worth of Nike sneakers
which are currently on a boat ontheir way to a warehouse in Los
Angeles.
The sneaker store has to pay anadditional 46% tariff because
those sneakers were made inVietnam and the president
imposed a 46% tariff on Vietnam.
They have to come up with anadditional $4,600.

(01:33):
Most small businesses don'thave that money, but they're
gonna have to come up with itsomehow.
They're gonna have no choicebut to pass on these higher
expenses to consumers, whichwill cause inflation.
Now imagine tens of thousandsof businesses with goods on

(01:53):
boats that have to come up with25 to 50 percent more money to
get their items.
The president has stated hewants to bring manufacturing
back to the United States andtry to eliminate the trade
deficit with other countries.
A trade deficit means we buymore from other countries than
they buy from us.
In 2024, we imported $4.2trillion worth of goods and
exported about $3.2 trillion,creating a trade deficit of

(02:16):
approximately $1 trillion.
This simply is not true.
In exchange for that money, weget inexpensive clothing and
electronics like cell phones andlaptops.
We have the ability to makeproducts like that here in the
US, but they're verylabor-intensive and would cost
much more to make here.

(02:36):
Who wants to pay $2,500 for acell phone?
The whole point of free tradeis to take advantage of
countries' abilities to makethings efficiently.
The United States currentlyexports $175 billion worth of
food to countries all over theworld because we're very
efficient at making food.
On January 30th, right beforewhat the president called

(03:01):
Liberation Day liberation fromreliance on foreign products.
Retired Senator Phil Graham, anultra-conservative from Texas,
and Lawrence Summers, theliberal former Treasury
Secretary under Bill Clinton,came together to write a letter
to the Wall Street Journallaying out the case against
tariffs.
Let's focus on one productsteel.

(03:23):
In 2018, trump imposed tariffson imported steel tariffs, which
Biden left untouched.
On March 2nd, president Trumpadded a new tariff of 25% on all
steel and aluminum.
In a recent Wall Street Journalby reporter Andy Kessler, he
stated there are approximately278,000 workers in the steel

(03:45):
industry in the United States,but there are an estimated 12
million workers in jobs that usesteel.
By making the steel moreexpensive, it reduces the
ability of companies that usesteel to buy it.
Almost certainly, this willdestroy way more jobs than the
tariff created, because thecompanies don't have as much
money to hire people.

(04:05):
In addition, by making productsthat use steel more expensive,
people need to spend extra moneyfor those products, like cars
or washing machines.
Therefore, they have less moneyavailable to spend on other
goods, and when fewer goods arepurchased, that means less jobs.
On April 4th, the NonpartisanTax Foundation in Washington DC

(04:29):
released a statement thatreflects how newly announced
tariffs would impact trade andemployment.
They estimated that tariffs onimports would rise to an overall
average level of 16.5%, thehighest rate since 1937.
By making imports moreexpensive, it will cause imports
to fall by about 25%, or $800billion.

(04:50):
Adding the tariffs announced onApril 2 to the tariffs from
2018 and the tax foundationestimates that the GDP, the
value of gross domestic product,all goods and services produced
in this country, would bereduced by 0.7% over the next
decade, not increased.
Speaking of the 1930s, the timeof the Great Depression, brings

(05:14):
us to the Smoot-Hawley Act of1930, perhaps one of the dumbest
laws ever passed by Congressand signed by the President.
It was written in response tothe market crash in 1929.
It placed high tariffs on20,000 imported goods.
The goal was to make goods madein the US more competitive.
However, almost every analysisby economists agrees.

(05:35):
Smoot-hawley turned the deeprecession into a worldwide
depression by making importsmore expensive, causing millions
of people involved in trade tolose their jobs.
Another consequence of Trumpinitiating tariffs is the
retaliation of foreigngovernments.
For example, china hasannounced increase in the

(05:56):
tariffs on US soybeans to 44% In2024,.
The US exported $12 billionworth of soybeans to China.
With a 44% tariff, most of thatbusiness will disappear,
replaced by soybeans, probablyfrom South America, most likely
Brazil.
This will leave Midwest farmerswith nowhere to sell their

(06:16):
soybeans, causing extremeeconomic hardship and loss of
jobs.
All over Canada, liquor storesare boycotting selling American
wine and hard liquor, like JackDaniels.
Canadian shoppers in grocerystores across the country.
When they see an American labelon a product, they're turning
the product upside down, sendinga clear message to other
shoppers avoid thisAmerican-made product.

(06:37):
Countries are now desperatelytrying to negotiate with the US
to try to reduce and eliminatethe new tariffs.
We can only hope that they willbe successful, but as I'm
recording this, the market hasclearly spoken.
Tariffs are a wealth and jobsdestroyer.
This is Todd Federman from theFeliciano School of Business at

(06:58):
Montclair State.
See you in the next podcast.