Costs will be going up

Let me start with this – this is NOT a political website.  It is not a policy discussion website.  I strive to teach budgeting and prudence in spending money for families and individuals.  Nothing I am about to say is up for debate on this site and I don’t want to engage in a tit for tat about which president did what and why one is wrong, and one is right.  I don’t care to discuss real or imagined wrongs which are supposedly being righted with whatever action a reader agrees or disagrees with. 

Let's deal with economic reality here because that is what we have to look at on a daily basis.  Reality is not an interpretation – it is what it is.  Reality is having to buy groceries for a week with $100 or $50 that is in the bank account.  Reality is the price of goods we must face.  Reality is not up for a point of view other than the point of view derived from various levels of financial security available to a person.  Someone who has a monthly budget of $1500 looks at the world very differently than someone who has a disposable weekly income of $5000. 

So, let's dive in because lots of changes are coming when it comes to our family budgets as Americans.  By we, I mean people who work for a living and have to contend with a limited amount of funds available to pay for everything every month. 

On February 1st, it was announced that US President Donald Trump, will use his executive privilege in invoking emergency powers to put a 25% tariff on Canadian and Mexican imports and an additional 10% tariff on Chinese imports.  Whatever reason he sees fit to do so is immaterial for this discussion.  What is entirely material is the fact that tariffs, with their inherent working structure, punish the end consumers with a higher cost for products they rely on.  Bottom line.  Full stop.  No contest. 

Tariffs by design accomplish 4 things in general – raising revenue for the government, protecting domestic industries, exerting political pressure on another government and increasing the prices of imports. 

Let’s focus on the last one – increasing prices of imports.  In the entire history of capitalism, socialism or any other ism you can think of, no company has ever willingly stated that they are willing to absorb a 25% higher cost of doing business just to placate their consumer base and not pass along the rising prices to the end consumers.  The reason you never hear about companies like that is because they go out of business.  Very quickly. In order for a company to stay competitive and to continue operations, they have to pass along either the full cost of the increase or a significant portion of it to their consumers. 

So, what do we import from Canada and Mexico that accounts for about 1 trillion dollars a year that we are about to bay a lot more for?  What do we buy as Americans from these two countries that will impact our pocketbooks as budget conscious consumers?

Here is a breakdown from the website US Most Valuable Imports & Exports with Canada

1             Crude oil           $97,187,166,000        -17.5%

2             Cars     $34,871,102,000        +32.2%

3             Petroleum gases         $14,754,873,000        -34.5%

4             Processed petroleum oils     $13,129,797,000        -16.7%

5             Automobile parts/accessories           $11,629,715,000        +5.8%

6             Aluminum (unwrought)           $7,569,199,000           -15.8%

7             Trucks $6,591,532,000           +77.2%

8             Turbo-jets         $6,327,506,000           +32.9%

9             Gold (unwrought)       $6,319,637,000           +220.5%

10          Sawn wood      $5,520,759,000           -40.6%

11          Aircraft, spacecraft    $5,307,902,000           +31.8%

12          Bread, biscuits, cakes, pastries        $5,034,448,000           +11.3%

13          Rape/colza/mustard oil          $4,832,181,000           +27.2%

14          Medication mixes in dosage $4,759,341,000           -1.7%

15          Potassic fertilizers      $3,661,793,000           -27.3%

16          Electrical energy          $3,446,973,000           -18.8%

17          Other precious metal items $3,403,077,000           +87.9%

18          Ethylene polymers      $3,333,899,000           -22.5%

19          Miscellaneous furniture          $3,038,050,000           +1.3%

20          Piston engines               $2,908,241,000           +29.8%

21          Fresh or chilled beef  $2,657,773,000           +15.9%

22          Petroleum oil residues             $2,199,419,000           -19.2%

23          Plastic packing goods, lids, caps      $2,155,399,000           -8.3%

24          Particle board, other ligneous materials      $2,069,868,000           -37.7%

25          Aircraft or spacecraft parts   $1,998,994,000           +16.6%

26          Chocolate, other cocoa preparations            $1,989,422,000           +5.1%

27          Copper wire    $1,758,097,000           +1.4%

28          Machinery parts           $1,738,578,000           +8.2%

29          Other prepared/preserved vegetables (frozen)        $1,718,564,000           +16.6%

30          Rubber tires (new)      $1,691,974,000           +7.1%

And from Mexico... https://www.cbsnews.com/news/what-does-the-us-import-from-mexico-a-whole-lot/

The U.S. imported $372 billion worth of products from Mexico in 2018, more than our trade total with Canada.

"U.S. trade with Mexico is basically all about cars," said one expert, with the U.S. importing $93 billion worth of cars or car parts last year, including $22 billion worth of car engines, $5 billion in car seats and $5 billion in chassis.

Second to cars is tech equipment, including $26 billion of computers and computer parts, semiconductors and software. 

Americans also imported $6.7 billion worth of vegetables and $5.3 billion of fruit and nuts from Mexico.

So, what does this mean to you and I?  Well, this is what economists are predicting.  A general jump in pricing for all products that we import from those two countries AND all products made in the US using products we import from those countries.  Things we buy on a daily basis that will more than likely increase in pricing are:

·         Cars and car parts

·         Electronics – smartphones, laptops, TVs computers, etc.

·         Software

·         Vegetables and food items – avocadoes, tomatoes, peppers, berries, bananas, cooking oil, nuts, tea etc

·         Clothes – jeans, t shirts, dresses – basically any clothing item you can buy

·         GASOLINE – Gas is projected to rise by as much as $1.00 per gallon on average across the country - and if someone says we will just simply use our own that we extract here in the US, that won’t’ exactly be possible.   Simply put, the oil we pull out of the ground here in the US does not match with the refining capacities we currently have, and it is simply easier and cheaper to export our oil and buy what we need from another country – like Canada.

Here is the bottom line – as a budgeter, you have to prepare now for leaner times.  The longer the tariffs stay in place, the longer the prices will continue to rise.  The longer policies are in place to restrict production, or neglect reality, the longer prices will rise.  There is no magic bullet that can be fired from a space gun that will make our financial lives better – in fact things were bad before January 20th and since then the policies implemented have made things financially exponentially worse and for years to come.  So.  As you look at your weekly, monthly and yearly budget, you must prepare for the eventuality that you will have to make sacrifices, a LOT of them and all financial, and you will have to change things in order to keep your head above water. 

Keep sticking to the budget that you set up.  Don’t be frivolous with your money.  Don’t spend money on things you can’t budget for with the idea that you will somehow make that money in the future.  In other words, based on the policies we see being implemented, it feels like the 1970s will be coming back all over again with possible shortages of products, products costing more than ever before and a much higher inflation. 

Again – this is not a political statement – this is an economic reality check for those of us who rely on a weekly budget to pay our bills.