A war is never good
The word war brings up gory images of blood, loss of limb and life.
A tariff war is not much different
When there is a war there are casualties. It is not the general that gets hurt, it is the foot soldier and the first line men and women in action that take the brunt of the battle field.
In a trade war the swords cut 2 ways
While USA may impose a tariff on its trading partners, the big question is who pays the price.
If there is a tariff of any order that is being implemented then it is the importer that pays the bills to import the goods on which the tariff is imposed. This means that things on the shelf for the average citizen get more expensive.
This means things either go out of the reach of people or cause a hole in the pocket of the average spender.
Not all front line soldiers are equal
Now look at the businesses that are involved in import of the goods upon which the tariff is being imposed.
The smaller businesses have limited inventory and they have to bear the impact of the tariff implementation and pass it on to the consumers.
As compared to the small businesses the larger importers who have deeper pockets and can afford to stockpile the imported inventories before the tariffs come into effect.
This can help them cushion their position in the market and make them more competitive as compared to the smaller businesses that have to immediately pass on the increased cost to the consumers.
This creates a price disparity in the markets.
Small businesses which cannot stockpile the goods for very long would see their businesses become non competitive as compared to larger businesses.
The big fish would eat the small fish
As a result of the price disparity the small businesses would become unviable and many may fold up due as failed businesses.
Only the bigger businesses would be able to survive and this could create a monopoly like situation in the markets.
What do small businesses do?
They may have to fire staff and fold up. This could lead to more unemployment and as such since the prices are expected to go up as a result of the tariffs the domestic economy of a large number of households would suffer.
It is the middle class that bears the brunt
The middle class is the large tier of the population that has limited finances and limited budgets. Post the covid pandemic they are already fighting a failing battle against inflation.
If prices go up then people have to borrow to pay the bills and there would be less and less disposable income in the hands of the average citizen.
This may cause both the discretionary as well as the essential spendings to take a hit.
The big businesses too would feel the heat
Big businesses are good at forecasting the sales and profits and the way people are being laid off by the big enterprises things do not look too rosy on the job or the business front.
Image created with Bing Image creator
Posted Using INLEO
