Tariffs on tech exports have been reduced by the US, yet consumers will continue to bear higher costs in imported products.
The United States has announced new tariff rates on several tech-producing nations, including India, Malaysia, Indonesia, Japan, South Korea, Taiwan, Thailand, and Vietnam. These changes, announced on April 2nd and dubbed "Liberation Day" by President Donald Trump, have been met with mixed reactions.
According to the Tax Foundation, these lighter tariffs are expected to improve upon the initial figures. The new tariff rates for India, Malaysia, Indonesia, Japan, South Korea, Taiwan, Thailand, and Vietnam have been reduced, as shown in the table below:
- India: 25% (a decrease of 2%)
- Malaysia: 19% (a decrease of 5%)
- Indonesia: 19% (a decrease of 13%)
- Japan: 15% (a decrease of 10%)
- South Korea: 15% (a decrease of 12%)
- Taiwan: 20% (a decrease of 12%)
- Thailand: 19% (a decrease of 13%)
- Vietnam: 20% (a decrease of 26%)
However, these changes have not come without controversy. Yale University's Budget Lab states that the new tariff rates represent a 16.0 percentage point increase in the US average effective tariff rate and will cause consumer prices to increase by 1.8 percent in the short-run.
The US Bureau of Labor Statistics data suggests a continued decline in manufacturing jobs. The US imposed tariffs of 36 percent on Thailand, 32 percent on Taiwan, 25 percent on South Korea, and 24 percent on Japan and Malaysia. Rising tech manufacturing powers Vietnam and India wore import duties of 46 percent and 27 percent respectively.
The new tariff rates have had a significant impact on consumer goods, with prices for shoes and apparel increasing by roughly 37-39% in the short term and remaining elevated in the long term by about 17-18%. This inflationary pressure comes alongside lower GDP growth, with the combined effect of tariffs and foreign retaliations lowering US real GDP growth by about 0.5 percentage points annually through 2026, and resulting in higher unemployment by up to 0.7 percentage points by the end of 2026.
The tariff policy has not yet been extended to China, as talks between Washington and Beijing continue. The administration's announcement did not include China, and the new tariff rates for China have not been announced.
The tariff policy has been met with criticism, with some economists predicting that it will shrink the US economy by 0.4 percent over time and cause other sectors to shrink while manufacturing output increases. However, Malaysia's Ministry of Investment, Trade and Industry has welcomed the tariff reduction, citing sustained engagement with the US and the tariffs reflecting those imposed on other regional countries.
The new tariff rates are estimated to reduce the global GDP by around 0.7% to 1%, with direct negative impacts on both the US economy and its trading partners, particularly China and countries in the European Union. The tariffs distort global trade by raising intermediate goods prices, which reduces production efficiency and overall GDP in affected countries. For trade partners like China, tariffs suppress demand for exports, forcing a shift to less productive sectors and further reducing GDP.
In summary, the impact of the new US tariffs is a contraction in GDP both domestically and globally by roughly 0.7% to 1%, with notable upward pressure on consumer prices, especially for consumer goods, thereby reducing real incomes and labor market outcomes in affected countries. The tariff policy has not yet been extended to China, and negotiations between the two countries continue.
The reduction in tariff rates for several tech-producing nations might contribute to advancements in the technology industry, particularly in countries like Vietnam, India, and Taiwan, given the decrease in import duties. However, the overall effect on the US economy could be detrimental, as some economists predict a shrinkage of 0.4% over time, accompanied by higher unemployment and lower GDP growth.
The implementation of these tariff rates might also impact the finance sector, as increasing consumer prices due to inflationary pressure could reduce real incomes, potentially influencing investment and overall economic stability.
