Economist: Higher Tariffs Create More Uncertainty

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Kyle Anderson is an economist at IUPUI. Kyle Anderson is an economist at IUPUI.

An economist at the Kelley School of Business at IUPUI says the decision to raise tariffs on goods from China will create more uncertainty for businesses and consumers in Indiana and nationwide. The move, which went into effect overnight, is an increase of trade tension between the two countries. Kyle Anderson says it is part of an effort by the Trump administration to open up China to more goods from the United States, since the U.S. imports more Chinese goods than the other way around.

In an interview with Inside INdiana Business, Anderson said there are a number of effects the decision by the Trump administration will have.

"There are the effects on, for example, raw materials. One of the impacts of this has been to cause steel and aluminum prices to be higher and that impacts manufacturers in Indiana, just their ability to compete as goods get more expensive," said Anderson. "Another impact you might have is on exported goods. Along with this, there are certain to be retaliatory tariffs from China so to the extent that we export from Indiana to China directly, those goods will likely have an impact in terms of higher prices and lesser demand there."

Anderson says, for businesses, there isn't much that can be done about the situation. He says companies could begin looking at different ways to source their goods or the materials they need to produce their goods, but that is a difficult process.

"These supply chains are complex," said Anderson. "There's a lot of cost associated with changing the supply chain, so these are not shifts that can just happen overnight even as prices change and it can really squeeze margins for the companies."

Anderson adds the agriculture sector could also continue to see a major impact, especially if there is an increase in retaliatory tariffs.

Earlier this week, Purdue University announced the Purdue/CME Group Ag Economy Barometer fell 18 points in April, marking the fourth largest one-month drop since data collection began in 2015. The barometer measures agriculture producer sentiment and is based on a monthly survey of 400 ag producers throughout the country.

James Mintert, director of Purdue's Center for Commercial Agriculture and principal investigator for the barometer, says, "Farmers are becoming increasingly anxious over their future financial performance. Producers have taken stock of their financial position and prospects for 2019 as they head into planting season and are concerned about the uncertainty arising from the on-going trade disputes with key ag trading partners."

In the April survey, only 28 percent of respondents said they believed the ongoing soybean trade dispute with China would be resolved before July 1.

Anderson says there are a number of effects the decision by the Trump administration will have.
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