What are Tariffs, and What Effect Will They Have on us?
By Gus Lieb
17 December 2024
Since the US election of Donald Trump in November against Kamala Harris, one of the most consistent points of debate between the two sides has been his proposed tariff policy.
For those who know what they are (and we’ll explain in just a bit), it seems a bit extreme, 25% tariffs Canada and Mexico? These countries are allies. One side frames Trump’s tariffs as an extreme measure that will estrange the U.S’s allies and raise prices around the world. The other portrays them as a necessary step to ensure American jobs stay in America.
But what actually are tariffs, and what impact will they have on us?
What is a tariff?
According to Investopedia, a tariff is “a tax imposed by one country on the goods and services imported from another country to influence it, raise revenues, or protect competitive advantages.”
To put it more simply, a tariff is when a government taxes all imported goods and services from another country. The tax is imposed on the company that is importing the goods.
Here 's an example: if the U.S. has a 25% tariff on Chinese goods, and Company A wants to import $100,000 worth of coal from China, on top of that $100,000 they paid to the Chinese company, they would also need to pay an additional $25,000 to the U.S. government.
This policy is designed to discourage domestic companies from buying goods from foreign companies, and instead buy from other domestic companies.
The theory goes that if more companies are buying coal domestically, then there is more of a need for domestic coal production, and more jobs are created in the coal industry.
What 's the issue?
The main criticism of this aggressive tariff policy you hear is that price increases will be passed on to the consumers.
Stores like Walmart, which import many of their goods from cheap foreign markets, will see their prices increase on all of these imported goods as they are forced to switch to purchasing more expensive, domestic markets.
Anything else I need to know?
Tariffs can also be used as a defense against foreign aggression, and a weapon. Countries like China subsidize their own companies with billions of dollars with the intent of having them control bigger parts of markets in the U.S.
In order to promote the U.S. economy and combat these malicious practices, the U.S. government places tariffs on all Chinese goods to protect their own market.
A tariff can also be used as a way to pressure on other countries to change their behavior. For example, if the U.S. were to ask the Chinese government to cease their “longstanding unfair trade practices”, and China refuses, the U.S. could place aggressive tariffs on all Chinese goods, hurting the Chinese economy.
China would then have two options, they could either acquiesce to the U.S. demands, or they themselves could raise tariffs on all U.S. goods, thus initiating what is known as a trade war.
Trade wars are bad for everyone involved, but are sometimes necessary measures to protect the domestic economy.
But why does Trump want to raise tariffs on his allies, like Canada and Mexico?
Like usual, the answer to that question is complicated, convoluted, and a nuanced mix of everything I’ve talked about above.
Whether or not Trump is bluffing remains to be seen, as do the effects of his proposed aggressive tariff policy on domestic and international markets, but what we do know is that in the U.S, prices will probably go up, and unemployment will go down.
Only time will tell if the positives outweigh the negatives.
