Understanding the Economic Impact of Tariffs

Trade policies—especially tariffs—have been a major topic of discussion recently. Regardless of political perspectives, these policies can significantly impact industries, markets, and investment strategies. The goal of this article is to explore how tariffs have shaped the U.S. Economy and what they mean for the future of American manufacturing and trade.

We all want the United States to have a thriving economy—one that fosters Innovation, creates opportunities, and leads the world in new inventions. We also want to ensure that future generations inherit a better life than we had. And, of course, none of us want our children or grandchildren to experience the devastation of war.

To better understand tariffs and their role in today’s economy, let’s look at how trade policies have shifted over the past few decades.

How U.S. Trade Policy Has Shifted Over Time

Over the past few decades, the structure of American manufacturing and trade has changed dramatically. In the 1970s, alongside the creation of the Environmental Protection Agency (EPA) under President Nixon, the U.S. began shifting certain industries overseas to reduce pollution and environmental impact.

Some key changes that followed:

• The steel and aluminum industries consolidated, relying more on imports from Canada and Japan.
• The U.S. granted “Most Favored Nation” status to China, allowing American companies to benefit from lower production costs overseas. However, China’s trade policies required these companies to share intellectual property, strengthening Chinese industry.
• Environmental regulations restricted the development of new energy production facilities, while the demand for energy continued to rise.

These shifts created long-term dependencies on imports, which have had both economic and strategic consequences.

The Current State of U.S. Manufacturing & Trade

Today, the U.S. relies on imports for many essential industries:

• A significant portion of our energy now comes from Canada.
• Much of our steel and aluminum is imported from foreign producers.
• Pharmaceutical production has largely moved offshore—meaning if trade with China were disrupted, access to critical medications like antibiotics could be affected.
• While the U.S. embraces electric vehicle Technology, domestic lithium mining is limited due to environmental concerns, making us reliant on imports.
• Rare-earth minerals, crucial for advanced technology, are primarily sourced from outside the U.S.
• The Big Three automakers no longer manufacture an entire car domestically.
• Wind turbines are primarily made in Europe.
• Solar panels are mostly produced in China, with only one remaining U.S. manufacturer.
• Foreign steel and aluminum are sold in the U.S. at lower prices, often subsidized by their home governments.
• The U.S. no longer produces enough raw materials to manufacture its own military tanks without foreign-supplied components.
• Large appliances are primarily made in Mexico.
• Finding an American-made flat-screen TV is nearly impossible.
• Apple sources most of its parts and assembly from outside the U.S.

The Role of Reciprocal Tariffs

Many countries use tariffs to protect their domestic industries, making it harder for U.S. businesses to compete in foreign markets. Some key examples:

• European and Canadian companies can sell their products in the U.S. at lower prices due to government subsidies.
• When American products are sold in Europe, they are subject to import duties and VAT taxes, while European exports to the U.S. often benefit from financial credits.
• The Canadian dairy industry imposes tariffs of up to 200% on U.S. cheese and milk, making it difficult for American dairy farmers to compete in Canada.

The reality is that many countries strategically use tariffs to protect their industries, jobs, and economic Growth—which is why the U.S. has started taking a stronger stance on trade policies.

Why the U.S. Is Re-Evaluating Tariffs

The purpose of the Trump administration’s tariff strategy is to increase domestic manufacturing, reduce reliance on imports, and counter China’s economic influence. Whether or not this approach will be successful in the long run is still up for debate, as trade wars often carry economic risks.

That said, the larger conversation about America’s reliance on foreign goods is an important one. The U.S. must weigh the benefits of global trade against the risks of losing control over critical industries.

The Outlook for the U.S. Economy

Despite these challenges, I remain optimistic about the U.S. economy, stock market, and long-term growth. American capitalism has always thrived when given the right environment, and I believe we have the innovation and resilience to lead in the 21st century.

Would love to hear your thoughts—feel free to reach out anytime at elliot@prosperityfinancialgroup.com.

— Elliot

The post Why Tariffs Matter: Trade, Manufacturing, and the U.S. Economy appeared first on Prosperity Financial Group | San Ramon, CA.

Elliot Kallen Wealth Manager | Registered Principal

For more than three decades, Elliot has provided customized wealth management solutions for entrepreneurs, business owners, retirees, and millennials.

Elliot and his wife, Tammy, are passionate about giving back to the community through their 501(c)(3) foundation, A Brighter Day. Through his partnership with A Brighter Day Charity, the Kallen family has helped local teens and young adults recognize and access resources to cope with the risks of stress and depression.

He enjoys spending his free time with his family. Some of his hobbies include cooking, wine, golf, travel, and studying history.

He lives in Lafayette, California with his wife, step-daughter, and grandson.