North Central College Economics professor Gwendolyn Tedeschi is sharing her insights over President Trump’s tariffs, the current trade war, and their impact locally.
“Nobody wins a trade war,” she said.
What are Trump’s tariffs?
The president has imposed reciprocal tariffs on dozens of other countries for all products imported into the United States, claiming a “declaration of economic independence.”
“For years, hardworking Americans were forced to sit on the sidelines as other nations got rich at our expense,” said President Trump.
Rates start with a baseline of 10% but many countries are being charged with a specific, higher import levy, varying country to country. Canada and Mexico for example both have a 25% tariff. China has been hit the hardest, with some products made there seeing tariffs as high as 145%.
“Trade is supposed to be a win-win opportunity. We get the benefit of cheaper goods from somewhere else and we get to sell our products to other countries, which brings money and jobs here. And with the tariffs and if this trade war goes on, the fear is that everybody will bear the brunt of the pain.”
Trickle-down trouble
Tedeschi says she’s concerned the trickle-down effects these recent tariffs imposed on other countries, especially China, will prove troubling for many Illinois small businesses, including those we have right in our own community.
According to the Illinois Department of Commerce, Illinois ranks second among U.S. states to import goods from China, totaling more than $42 billion last year.
“We know we’ve had drug shortages and higher prices of pharmaceutical drugs. Adding a 145% tariff on top of that, it’s going to be difficult,” said Tedeschi. “Things like Heparin, a vast majority of it comes from China, and it’s something that’s necessary to prevent blood clots. So it’s concerning.
Another big industry to suffer, Tedeschi says, is the automobile industry, also having a new 25% tax on all cars – and possibly soon car parts – made outside the U.S.
“The amount of trade that has just gone between U.S., Canada, and Mexico has increased tremendously, and you see that with our automobile industry,” said Tedeschi. “Parts go from one country to another. Something happens and they go on to the next place. So I’m a little concerned about those tariffs.”
And those concerns continue to snowball when it comes to the average American consumer.
“The economic research I’ve seen is that almost 100% of the tariff is passed on to consumers,” Tedeschi said.
The intention behind the tariffs
So why have the tariffs then? According to president Trump, they will bring trillions of dollars to the U.S. which will reduce our taxes and help pay down the national debt while also bringing production and jobs back to the United States.
“Ultimately more production at home will mean stronger competition and lower prices for consumers,” said President Trump.
“Those two are not able to happen at the same time,” said Tedeschi, however. “If we’re actually reshoring our production, we’re not then getting the tariffs because they won’t be subject to the tariff.”
Not to mention it could take years, she adds, for such production to move to the U.S.
“These are very large, very expensive, very technically difficult things to set up and so the idea of bringing everything back in such a short time span isn’t like to happen. So you have entrepreneurs that are stuck,” Tedeschi said. “They’ve got goods in China that now they can’t even afford to bring them here to the United States. It will take years and it will take hundreds and hundreds of millions of dollars, depending on the scale of your business.”
In the meantime, Tedeschi says if the trade war continues, it could prove challenging for businesses and consumers alike across Naperville and the nation. On the contrary, she’s discussing with students in class at North Central College about the importance of a global economy.
“We need to be interacting with these other countries, not being more protectionist,” she said.
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