To tariff, or not to tariff, that is the question: If Adam Smith and David Ricardo could hear us… #chartoftheweek This week’s talks on tariffs—targeting China, Mexico, and Canada— are already sending far-reaching effects through the markets. With the aim of protecting U.S. industries and enhancing negotiation leverage, it seems externalities of these tariffs will likely lead to higher costs for businesses reliant on imports and rising prices for consumers. Adam Smith and David Ricardo, who set the foundation for modern philosophy on tariffs, would argue against the use of tariffs as a negotiating tool. Economically, tariffs shift the supply-demand balance by raising prices, boosting domestic production, and curbing demand. While tariffs generate government revenue and support certain industries, they also introduce inefficiencies—leading to deadweight losses that weigh on broader economic activity. Today, sectors such as basic materials might benefit from tariffs, while other sectors such as manufacturing or automotive will likely face mounting costs due to imported components. Meanwhile, technology and business services may initially appear more insulated, though prolonged disruptions could eventually impact client demand. With Core CPI at 3.2% (December 2024), additional price pressures from tariffs could complicate the interest rate outlook. History reminds us: trade exists because it’s mutually beneficial. Disruptions rarely come without consequence. The U.S. economy faces a delicate balancing act between stimulating domestic growth, protecting key industries, and fulfilling campaign promises—all while avoiding market disruption, inflationary pressure, and heightened uncertainty for consumers. Let us know what you think! How are you considering the impact of tariffs on the economy? Is your view translating to any changes in your portfolio? Source: Brian Albrecht, 'Econ 101 is wrong about tariffs', Economic Forces. This chart is an illustration of supply and demand shifts resulting from trade and tariffs in a given market. Disclaimer: vsqm.com/disclaimer?u=12
