Indirect Effects of Tariffs and Tariff Uncertainty May Be Broader Than Immediately Apparent

The attached piece from the Wall Street Journal covers an interesting collateral effect of tariffs on the economy: secondary services (in this case advertising) that are not directly affected when, say, the price of steel rises.  Although this article was written after the administration “paused” 25% tariffs on Canada and Mexico, it specifically notes that the current “general sense of market volatility” can affect purchasing decisions.  That means consumers deferring big-ticket household items such as cars and household appliances.  In turn, this affects the advertising market for such goods.  Likewise, if import tariffs lead to increased costs to produce agricultural equipment, another sector identified in this article, it is reasonable to expect a potential impact on food prices and on the advertising markets for groceries and fast food.  

WHY IT MATTERS

Consumers are certainly not the only ones affected by market volatility or the imposition of tariffs.  Just like consumers, businesses may defer purchases pending better prices or greater consensus about market stability.  For example, the article notes that computer manufacture depends heavily on imports.  Rising computer prices could result in fewer enterprise purchases.  Just as with the consumer market, this may lead to adjustments in secondary markets.  Warehousing, for example, could be affected if goods or components increase in price and companies cut output.  So could consulting contracts that relate to installation or implementation of new IT systems.  These are hypotheticals, and at this point remain unknowable; but they are examples of how the value chain of a hard good could be affected if tariffs move forward in any meaningful way.  

Furthermore, tariffs implemented in the first Trump administration specifically did not apply to goods under a certain economic threshold.  So far, that would not be true under the new tariff rules.  This may mean that small businesses feel the effects of any new tariffs more quickly than they did in the past. 

For now, we encourage businesses to keep an eye on tariff issues and to consider adding protective language in new contracts that would allow renegotiation (or other relief) if prices rise due to actual or threatened tariffs.  We will continue to examine ways to do that via contract in our forthcoming posts.