By Akemi Kondo Dalvi, CPA/PFS, CFP
President-Elect Trump has vocalized plans to enact tariffs on imported goods into the U.S. in 2025. In particular Trump noted 60% tariffs on Chinese goods and 10% on all other foreign imported goods.
This is predicted to increase the cost of cars, cell phones, televisions, computers, household appliances, apparel, shoes, furniture, and toys, just to name a few. It is predicted that the tariff plan would be too large for retail companies to consume and thus, they would pass on the burden to consumers, reducing our spending power dramatically.
For example, under the current tariff plan, a basic mattress and box-spring set that currently costs $2,000 might cost $2,159 under the new Trump tariff plan.i
Such tariffs would have a significant impact on the Chinese economy as well. By some measures the Chinese economy is already in distress. Foreign direct investments have fallen dramatically from $350 billion in 2022, to just $50 billion in 2023. Chinese GDP is reportedly positive; however, real-time metrics on the ground note many young people are unemployed and large real estate developers are declaring bankruptcy.
Meanwhile, the Chinese economy is overwhelmingly dependent upon exports. They had a trade surplus of $1 trillion in the current year, even with the Trump tariffs in place from his last presidency.ii
An escalating trade war could have a dramatic impact on the Chinese economy. As such, some note the Chinese are already planning retaliatory action. Notably, the Chinese government may employ like-kind tariffs on exports from the U.S. such as agriculture. The last time this occurred, the U.S. farming industry was under significant duress, and the American farming sector was already shrinking from higher production costs, reduced government support and labor shortages, among other difficulties.
Brian Peck, adjunct assistant professor of international trade law at USC, noted the new administration could instead use tariffs chiefly as a tool for negotiating leverage in trade talks, but it is yet to be seen.iii
In addition to planned tariffs, Trump has noted he will deport millions of migrant workers who currently make up the U.S. labor workforce. On the campaign trail, this was spun as protecting American jobs, but economists have debunked the idea that foreign-born workers take jobs away from U.S.-born workers.
The Brookings Institute, a nonprofit organization based in Washington, D.C. dedicated to conducting in-depth, nonpartisan research to improve policy and governance at local, national, and global levels, noted, “It is clear that unauthorized immigrants take low-paying, dangerous and otherwise less attractive jobs more frequently than both U.S.-born workers and authorized immigrant workers. For example, almost 6% of unauthorized immigrants work as housekeepers, construction laborers, or cooks, compared to about 2% of authorized immigrant workers and 1% of U.S.-born workers.”iv
Non-partisan researchers at Evercore, Allianz, Oxford Economics, and the Peterson Institute, predict that if Trump successfully enacts his agendas, it will increase inflation. Sixteen Nobel Prize-winning economists signed a letter in June 2024, expressing fear that Trump’s proposals would “reignite’’ inflation, which has plummeted since peaking at 9.1% in 2022.v
While there are no easy solutions to fixing immigration, mass deportation appears to be the incorrect answer.
Elections and the subsequent related events tend to trigger strong emotional reactions that can bleed into the stock market. Since the November election, we have already seen enthusiasm and fear take turns at moving the indices. However, it is imperative that we avoid knee-jerk reactions that could negatively affect our long-term investment goals.
No one knows how the next four years of economic policy will unfold for certain. Further, there are a great deal of uncertainties such as geopolitical developments that will also inevitably impact our globalized world. Our current presidential election is simply the most recent variable to hold our attention in a headline-driven society.
When there is uncertainty, a properly diversified investment portfolio is often the best strategy to ride out short-term volatility, navigate shifting market cycles, and achieve long-term market rates of return. Please reach out to a Certified Financial Planner or CPA Personal Financial Specialist if you could benefit from a review of your investment strategy for the financial journey ahead.
i. https://www.kiplinger.com/taxes/tariffs-could-make-shopping-pricier
ii. Bob Veres Insider Information
iii. https://www.cbsnews.com/news/trump-tariffs-inflation-grocery-store-food-prices/
iv. https://www.brookings.edu/articles/the-labor-market-impact-of-deportations/
v. https://www.documentcloud.org/documents/24777566-nobel-letter-final
The opinions expressed above are solely those of Kondo Wealth Advisors, Inc. (626-449-7783, info@kondowealthadvisors.com), a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.