Tariffs are back in the headlines now that Donald Trump is the president-elect. He's a vocal fan of them and made a big deal about employing them, especially against China, during his first administration. And the Biden Administration continued and even strengthened the policy, they just weren't so loud about it. Trump has repeatedly promised more of them in his second administration: just yesterday, he vowed 25% tariffs on goods coming from Canada and Mexico, and additional 10% tariffs on goods coming from China . So what are they?
A tariff is a tax that a country places on imports from another country. The official, stated purpose of the technique is to protect domestic industries, or to raise money, or as a negotiating tactic.
The tariff is paid by the company importing the goods from another country. That makes the imported product more expensive, and the domestic product comparatively more attractive. Here's a real-world example:
In 2018, the US imposed a tariff of 25% on imported steel. Companies in the US that used steel - car or appliance manufacturers, for instance - had to either pay the 25% tariff on imported steel, or use steel from US producers. The tariff was paid by the US companies to the Customs and Border Protection. That meant higher prices for the US consumers who ultimately bought the cars and appliances.
This new round of tariffs, if implemented, will likely impact the price of:
Automobile and automotive parts: Canada and Mexico are major suppliers, and both new cars and component or replacement parts will become more expensive
Agricultural products: everyday stables such as avocados, tomatoes, cheese and beef
Electronics: smartphones and most other consumer electronics are assembled or use parts imported from Mexico
Fuels and oils: much of the oil refined in the US comes from Canada; this means higher gas prices
Plastics
Heavy equipment
Aluminum and steel products
Tariffs are not paid by the other countries. The foreign companies exporting to the US lose a sale, so in that sense it is "costing" them. But we're collecting the tariffs from US companies, and regardless, ultimately US consumers pay higher prices.
Inflation was generally low in 2018, so the economy could absorb some higher prices without too much trouble. But since 2020, inflation has been much higher, so inflationary policies like tariffs will keep prices from coming down.
So do they even work? Eh. Not really. They don't seem to positively affect employment (in fact, the 2018 tariffs had a net negative effect on employment), and they generally lead to retaliation from the other countries, so the net effect is basically zero. They might be good politics, depending on your point of view, but they're ineffective policy.
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