I’m sure you’ve all heard about the tariffs Trump has been putting out lately, but what are they exactly? What are tariffs and how are they affecting the current state of the United States economy? Here is a simplified response to these questions.
According to the Council on Foreign Relations, tariffs are a form of tax applied on imports from other countries. This means that a country has the right to tell another country to pay up a tax if they want their item to appear in that country.
History of Tariffs
In the U.S., tariffs started within The Tariff Act of 1789. It was signed by president George Washington on July 4, which put a 5% tax on all imported goods. The Tariff Act aimed to promote trade and raise revenue for the federal government.
Tariffs are usually enacted by Congress, but, over the years, more trade authority has been given to U.S executives. Tariffs soon fell into a President’s decision, when the Trade Expansion Act of 1962 gave access for the President to decide 80% of tariff reductions.
Trade Wars
Canada and Mexico:
Donald Trump’s history with tariffs is not unknown. On the first day of office, Trump planned to put 25% tariffs on Canadian and Mexican goods. On February 10, he introduced a 25% min tariff on steel and 25% tariff on aluminum. On April 5, Trump initiated a 10% tariff on all goods sent to the US on all countries. On April 9, Canada, unhappy with Trump’s announcement on the 25% tariff, retaliated through a 25% tax on vehicle imports from the US. On the same day, Trump increased the range of tariffs on about 60 countries, later announcing a “90-day pause.” This pause is self explanatory: it pressed pause on all reciprocal tariffs (tariff rates needed to balance bilateral trade deficits, or to put it simply, trades where a country is buying more goods than it is selling them, and differing it with every of the U.S’ trading buddies). This change of events became applied to every country affecting it except China.
China:
On February 1, the White House announced a 19% tariff on imports from China. Then, on February 4, 15% tariffs on coal and natural gas products, along with 10% on crude oil was announced. Soon thereafter, on April 9, Trump’s exception of Chinese products continued as he raised levies (a fancy way of saying, imposement on tariffs) up to 104%. By April 10, tariff’s went up to 145%, and China retaliated with a 125% tariff on U.S goods. This was a major change since for the past few years, the tariffs between the two countries were kept at a minimum of 10-20%. Then, on April 12, luckily, Trump announced an exemption of tariffs on all technology such as computers and cell phones, but did not guarantee this change would be permanent.
Another area affected by tariffs is the automobile industry. Along with Canada and Mexico, the U.S gets its automobile parts from China. There’s been talk of raising tariffs on automobile parts, though this is considered a sensitive topic due to Trump’s plan to relax his 25% tariff for vehicles made with imported parts but are assembled in the U.S. The aim for this plan is to get more automakers to become less dependent on other countries.
If two or more countries battle each other via raising prices on each other’s tariffs, that increases the possibility of a trade war. As of May 12, the U.S and China agreed to back off the tariffs initially made on each other’s goods, at least for a 90-day period. The two sides are also willing to discuss further trade relations, so for the time being, it is unpredictable to say what’s officially being imposed.
Impact on the U.S
Consumers:
People are no stranger to the fact that tariffs increase the prices of basic consumer goods. The reason prices see an increase is because the higher tax is usually being passed down to the average consumer.
For example, according to UChicago News, 60% of U.S vegetables come from Mexico, 25% of crude oil comes from Canada, and 80% of toys come from China.
Businesses:
Tariffs are very delicate when it comes to whether or not they’ll affect jobs, as some companies take advantage of tariffs while some depend on imported items. Some companies import many products and a higher tariff means they’ll have to spend more money to get their resources.
Stock Market:
According to TheStreet, stocks receive growth through sales and earnings. They’re at their peak when policies suggest corporate revenue (amount of money brought to a company that is measured on a fixed time). The problem with tariffs is that they do the opposite. Tariffs cause inflation therefore decreasing the growth in sales.
The U.S has countless products being imported from other countries, and it seems each product will have a different tariff. Many of the tariffs mentioned are only a scratch of the surface on what goes behind closed doors.
Many argue that tariffs are great to make companies less dependent on foreign resources, while some view it as a way to make an economic crash.
It is important to know that, currently, tariffs are constantly changing, even if it’s for the better or for the worse. It all comes down to what president Trump and those in power decide, and the citizens of the U.S will adapt accordingly.
