How are tariffs impacting our daily life?

   Tariffs have been the main topic of everyone since the beginning of the new Administration. Tariffs are great economic and political tools. They have the power to reshape a country's economy for the better or the worst in a short or longterm. Every country in the world relies on trades with other countries to help in the adjustment of its economy. The United States of America, as powerful as it is, has to rely on international trades to either acquire manufacturing supplies, sell them or acquire Goods ready for consumption or sell them. Trades help balance the world's economy and is necessary for the planet's population.

   The Impact of tariffs could be observed on multiple levels of the country's economy. The aggregation of these levels constitute its overall impact on the economy. The first level of impact, could be observed in Manufacturing supplies and Industrial goods, Industries could be crippled if they are not receiving the necessary supplies to keep production at float which could result in that manufacturing company being totally out of business. The acquisition of certain goods are essential for the country, these goods are usually products that are not the speciality of the country or are cheaper to be produced in another country. Importing these goods become essential as the population still rely on them. Applying tariffs to either of these two cases can have chain impact on the country.

           As a Data Scientist to observe and study this hypothesis I will be using the CRISP - DM approach. We will follow the following 6 steps to clearly answer the hypothesis.

 

     Section 1: Business Understanding

Tariffs being the main subject of any economic discussion since th begining of the year, let's look at the impact it has had on the U.S. econmy from 2000 to 2024. Also determine the potencial impact of tariffs will have on the economy going forward.

Question 1: Do tariffs affect direstly GDP per capita growth?

Answer

Tarrifs display a negative correlation with inflation and unemployment rate. We can understand that these metrics are inversely impacted by the rise and lowering of Tariffs on imported goods The relation of Tariffs and GDP per Capita growth could be indirectly related as the effect of tariffs on metric such as Inflation rate and Unemployment rate could impact the GDP per capita growth tremendously

 

Question 2: What is the impact of tariffs on the labor market?

Answer:

Tariffs does not seem to have a significantly direct high impact on Labor force market. Although, looking at its impact on the unemployment rate we could depict that tariffs could derive a negative impact on the labor force market.

 

Question 3: What is the relation between Inflation and GDP per capita growth?

Answer:

Inflation rate has a relatively considerable relation to GDP per capita. As this impact could not be as impactful in number (0.42 Correlation), it could have a decision impact on it, because it influences the consumption rate which will have an impactful stain on the economy.

 

Section 2: Data Understanding

  We have viewed and understand a data set from the world bank website on the U.S economic data from 2000 to 2024, with futures such as: Inflation rates, Unemployment rate, tariffs on imported goods, GDP per capita growth rate, and Labor force. We have describe and analyzed this data appropriately.

 

Section 3: Data Preparation

  As we have planned to build models to properly predict and answer the hypothesis, through this preparation we have transformed the data to fit the modeling we have planned. We have transformed the target data to categorical data, because we are planing to use decision tree Algorithm, which natively performs better on categorical data. I have also treated missing values. First I have dropped them to see if that will help our analysis as the algorithm does not work well with missing values; then I realized this will reduce our data points which might not be helpful to our analysis. I have decided to replace missing values with means, Replacing the missing values with the means is a better option. This will help us maintain the totality of our data points. This method is best for us as it does not account for uncertainty, it treats the imputed values as if they were actually observed.

 

Section 4: Data Visualization

I have visualized the data distribution, this helped us understand the data correlation (which is under the correlation section below).

 

Section 5: Modeling & Evaluation

 We have initially trained the a Decision tree model, which returned a score of 88% on the training data and 71% on the test data. As this felt as an overfitted model, I have pruned the model by using the Kfold to cross validate the data. this pruning gave us a score of 88% on training set and 71% on the test set as well. The recall score gave us a 44% which seemed not significantly performant. I have then use another Algorithm, XGBoost to train the data, this model also returned 88% on training, 71% on test and a slight better recall score of 45%. 

 

Section 6: Results & Conclusion

 

  Results:

        After continuous tunning and the use of different algorithm, the research aim to determine the impact of tariffs on GPD per capita growth. A final recall score of 45% indicates that less than half of instances were found where tariffs have had a significant impact on GDP per capita Growth. This means the model is capturing only less than half instances where tariffs significantly impact GDP per Capita growth. The model may not be ideal, after tunings and the use of multiple algorithms, the suitable next step could be gathering more data on the economy to clearly respond.

  Conclusion:

       Shortage in manufacturing supplies resulting in manufacturing companies going out of business, this result in a rise on the Unemployment rate. The Unemployment rising puts not only the population on a tied budget but it also put the country's economy on a difficult spot. Unemployment rate shortens consumption, the U.S. economy being heavily based on consumption would experience a recession. Tariffs negatively impacting import of goods, would create shortage which would result in an Inflation. Inflation would create a rise in the price of everything which would also shortens consumption.

 

      Tariffs negatively impacting Unemployment rate as well as inflation in prices which would heavily impact the GDP per capita Growth rate. The use of tariffs could have both positive and negative impacts on an economy. The negative Impact could be felt immediately, where the positive impacts are usually played on a down the road result. Tariffs have quite a great impact on the country GDP per capita Growth, it could totally shortens the country economic abilities.

 

      Tariffs do have a significant impact on GDP per capita growth. The impact could either direct or indirect, short term or long term, positive or negative. The true direction of the impact of tariffs on GDP per capita can be determine by the politics behind the specific tariffs but we can safely conclude tariffs have a significant impact on GDP per capita growth.