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In this issue: The current fixation on tariffs reminds me of Schoolhouse Rock’s Money Rock series, which explains how taxes, bartering, national debt, investments, expenses, and budgets work. This issue is my attempt at the grown-up version, with a few recommended reading stops that help to drive better economic understanding.
Get up-to-speed on the full Money Rock season here:
How Tariffs Work: Tariffs occur at either at a fixed fee attributed to the type of item (known as a special tariff) or a levied fee attributed to the item’s value (known as an ad valorem tariff). This, in turn, disincentivizes the consumer from purchasing the higher-priced import. How? By increasing consumer prices.
Why Do Tariffs Matter: Tariffs affect supply chains. Here’s an example: a car seat travels across international borders multiple times before it ends up in an American-made vehicle. If a 25% tariff were put into practice, the supply chain for the American automobile industry would be jolted by higher manufacturing costs, resulting in limited access to car seats and similar parts. This would weaken the overall safety and efficiency of American-made vehicles, increase consumer prices, and heighten economic disparities between urban and rural communities. Need more context? Read this:
What Do Tariffs Risk: Trade wars. This is an economic war that occurs when tariffs deployed by one country against another drive the other country to retaliate by issuing the same restrictions. One example: U.S.-China competition. In response to China’s Belt and Road Initiative, the U.S. made strategic infrastructure investments in the Global South with the International Development Finance Corporation (DFC). Seeking an extended investment cap of $120 billion as it pursues Congressional reauthorization, DFC performance is one indicator should a 10% tariff worsen geopolitical tensions between the U.S. and China.
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Stay the course,
Sam
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