Following his inauguration, President Donald Trump began to set various tariffs on foreign goods imported into the United States. A tariff is a tax on imported goods from one country to another, when the country exporting the goods is affected by the tax as people are less likely to purchase the product.
Trump stated that multiple countries would be subject to a minimum 10% tariff in a speech given at the White House on April 2. Separately, Trump had put in place specific tariffs for Canada, Mexico and China at the start of Feb. There was a 25% tariff set on products coming in from Canada and Mexico, and a 84% tariff on products imported from China. President Trump was able to establish this practice under the International Emergency Economic Powers Act.
Tariffs have been used throughout U.S. history, starting with the Tariff Act of 1798; other occasions include during the Great Depression and after World War II.
Michael DePaolo, Del Val economics and U.S. history teacher, explained that there are a few main causes for governments to apply tariffs.
“Traditionally, tariffs are used for four reasons,” DePaolo said. “Tariffs are created to raise revenue, protect domestic industries, increase the sales of domestic products and protect consumers who may disagree with how goods are produced in foreign countries.”
As other countries pay more for their goods to enter the U.S., the government is receiving that money. Businesses will then begin to sell those items at a higher price, ultimately affecting the buyers.
“As consumers, it hurts our wallets as well,” DePaolo said. “This is one of the many negative impacts that tariffs have on the community.”
Tariffs often result in a decrease in competition within domestic industries, which leads to inefficiency in production.
Relations between nations are also at risk with the rise of tariffs.
“If there are tensions between countries, it could result in a trade war,” DePaolo said.
The formal name for a trade war is an “unproductive economic cycle of retaliation,” which occurs when countries are continuously increasing tariffs and causing a reduction in global trade.
Other countries, including Canada, have begun to retaliate, placing their own tariffs on certain U.S. products, meaning that the prices of items like electronics, hygienic products, clothing and chocolate are expected to rise.
All of these impacts can factor into inflation and cause the economy to fluctuate. DePaolo encouraged everyone to stay informed about these expected economic changes.
“Follow what’s on the news, be a smart shopper,” DePaolo said. “Allsides.com and Investopedia are great resources to stay up to date. The more educated we are about the tariff system and what’s going on with the economy, the better decisions we will make as consumers.”
