Econ 101 for Docs: Tariffs and Why They Matter

Macroeconomics has a huge impact on physician financial wellness. Today, we’ll learn about tariffs from a high-yield and apolitical perspective that doctors need to know.

Key Points:

• Tariffs are taxes imposed on companies who import goods from abroad. The more goods companies import, the more they pay.
• Benefits: generate revenue for the government, incentivize domestic production, promote domestic job growth, and create less reliance on the global supply chain.
• Harms: economic chaos of ensuing trade wars, rising prices and increased short-term risk of recession.
• How to adapt: Protect your income sources. Ensure they outpace rising prices.

In a free trade economy, products made abroad compete freely with products made domestically to be purchased by consumers. Economists generally favor free trade because it increases consumer choice, pushes prices down, rewards efficiencies, and improves global prosperity. The downside is that if foreign-made products outcompete domestically produced products, domestic companies may close factories, lay off workers or go out of business. Increased reliance on globally sourced products can also lead to supply chain vulnerabilities.

Tariffs have long been an economic tool that countries have used to push global trade in a favorable direction for their own economies. Tariffs are taxes imposed on companies that import goods from abroad; the more they import, the more they pay. This essentially increases the price of imported goods, making it harder for them to out-compete domestic goods. Domestic companies who produce their own goods get a break from the competition, which leads to more stability for the jobs they provide. Over the long term, the increased costs of buying goods from abroad should theoretically incentivize companies to build factories and produce their own goods here, creating jobs and strengthening our economy.

The downsides are that tariffs don’t happen in a vacuum. They harm exporters in other countries, who may respond with retaliatory tariffs and start a trade war. Instability in both importing and exporting markets virtually guarantee that domestic business owners won’t immediately risk investing money on new factories or jobs, which may take decades to pay off. In the short-term, prices of goods will also likely rise since many companies will have to pass on the costs of tariffs to their customers to survive. If U.S. households tighten their spending as a result, that could lead to a recession as companies are forced to lay off workers in the face of decreased profits and increased costs.

What can you as an individual physician do to protect yourself? Two things: protect your income and ensure it outpaces rising prices.

First – protect your income. Think about the sources of your income and assess their vulnerabilities. If you are a hospital W2 employee, for example, consider how vulnerable your employer is to the effects of rising prices. For example, if the prices of pharmaceuticals and medical equipment rise, the cost of prescription drug benefits and the cost of doing business as a hospital will both rise. How will your employer stay afloat, and how vulnerable are you to a staff reduction, an increase in APP-physician ratio, or a private equity buyout? If you are a 1099 contractor or a business owner, similarly think about your clients’ vulnerability to rising prices – how sustainable is it for them to continue working with you from their standpoint?

If you don’t know the answers to those questions, ask those who do and learn what you don’t know (“What keeps you up at night about our practice/business?” is a great question to ask). Then find solutions you to help them face those challenges even if it’s not related to your day-to-day work. By creating as much value as you can for your employer/clients, you will make it far harder for them to cut your compensation/contracts and set the stage for future salary negotiations in your favor.

Second – ensure your income outpaces rising prices. If your income is relatively safe, make sure your compensation increases to outgrow your cost of living. This may mean negotiating a raise, renegotiating a contract, looking for other work in other settings, and ensuring that the value you create is well compensated. Make sure you have access to data on fair-market compensation for your specialty, practice setting and geographical location so you know where you stand. Showing the leadership of your employer or client that you understand and are striving toward reducing their pain points will also help in justifying your value.

If you have interests outside your main clinical job, creating new streams of income through side gigs can also help you overcome cost of living increases and diversify your income streams. Having more than one income stream will make it less likely that you will lose all your income at once. It can also open doors to other opportunities if you do lose your main source of income.

Being informed and proactive in uncertain economic times can help put you and your family in a strong position even in times of economic uncertainty. If you need help creating a comprehensive financial plan, DocEmpowered is here to help. Get started here.

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Photo credit: Wolfgang Weiser on Unsplash