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  • Jeffrey Goldfarb

Early Thoughts on the Trade War

Tariffs | Trade War | Economy | Tesla | Jobs

Can There Ever Be A Winner?

While the Trump administration implemented tariff policies to protect domestic producers, a minor familiarity with the topic would reveal to even the most casual of readers that historically protectionist policies are harmful to the economy as a whole. As the world connects more, new markets open to businesses, and while tariffs can capture a larger producer surplus for those lucky enough to be protected, the consumers, and the producers outside the realm of protection shoulder the consequences.

One of the first targets in this “escalating trade war between the world’s two largest economies” is the American car manufacturer Tesla.[1] Due to the latest round of tariffs, the price of Tesla’s vehicles has risen 20%. To put that in perspective “The lowest-priced configuration of the Model S, for example, was hiked to about 840,000 yuan ($127,000) from 710,000 yuan ($107,000).”[2]

Owning a Tesla has become a status symbol. It’s difficult to argue that driving a Model S doesn’t highlight an individual’s wealth and while Tesla customers most likely have the means to spend an extra twenty thousand dollars on a car, a 20% price hike in such a short amount of time will hurt; it will especially hurt since China is Tesla’s second largest market and responsible for 20% of its revenue, earning the company around $2 billion in 2017.[3]

What makes this unfortunate situation so ironic is Tesla is being punished more severely than other car manufacturers because its exclusively made in the United States.[4] In other words, these tariffs were put in place to protect American companies, but the one auto manufacturer working exclusively in the United States is at risk of losing its second largest market unless it moves a part of its operation to a foreign country. This is an example of tariffs not only raising prices of goods but also possibly costing Americans their jobs.

Any opinions are those of the author and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. There is no assurance any trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

[1] https://asia.nikkei.com/Business/Companies/Tesla-raises-prices-by-20-in-China-as-tariffs-take-effect

[2] https://money.cnn.com/2018/07/10/news/companies/tesla-prices-china-tariffs/index.html

[3] https://money.cnn.com/2018/07/10/news/companies/tesla-prices-china-tariffs/index.html

[4] http://time.com/4677817/american-cars-brands-manufacturing/

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