What Even Are Tariffs? Everything You Need To Know And 30 Ways Tariffs Will Probably Affect You
Tariffs have been in the news, and for good reason — it seems apparent that the United States will soon impose significant tariffs on goods imported from some of its biggest trading partners.
While supporters hail the move as a means of safeguarding the U.S. economy, critics charge that it will hurt a country that's heavily reliant on imports. Here are 30 ways that tariffs are likely to affect you.
Consumers will pay more.
A tariff is effectively a tax applied to goods entering the country, and said tax is paid by the company doing the importing. This means that if a company imports a piece of equipment that's worth $1,000 with a 25% tariff, it comes with an additional $250 tax on top.
Needless to say, in most cases these extra costs will eventually be borne by the consumer. Even though the importing company is paying the tariff, they will generally increase the retail price to compensate for their loss.
Consumers will have less selection.
Importers will be less incentivized to buy foreign goods, which will have the knock-on effect of less selection and less competition in the wider market. This means that consumers will have fewer options, regardless of their purchasing power.
Industries like fashion are heavily reliant on imported materials and garments, so clothing selection will likely go down while prices will go up. Over time, this reduced competition can lead to stagnant innovation.
It could contribute to inflation.
As costs for imported goods go up for businesses, they're passed on to consumers as discussed earlier. This has been seen in the past when tariffs were increased on Chinese-made goods such as smartphones.
In time, this has a broad inflationary effect on the economy. It affects prices of all goods, not just imports, because the cost of components and raw materials has increased. As purchasing power goes down, everyday life becomes more expensive.
Trade-dependent jobs could be impacted.
Because many U.S. jobs are tied to industries that rely on imports of exports, job cuts could be the result if tariffs are imposed and imports/exports slow down.
The automotive and electronics industries are both heavily reliant on imported components. Tariffs could reduce competition, slow growth, and eventually lead to job cuts as companies are forced to make tough decisions in order to remain solvent.
There could be economic retaliation.
The global market can be particularly volatile in the event of a trade war — and this could certainly be the case if the United States imposes heavy tariffs.
Because the U.S. is an exporter as well as an importer, retaliatory tariffs could mean a reduced market for U.S. goods as foreign importers don't want to pay these retaliatory tariffs. This, in turn, would hurt U.S. industries that rely heavily on exporting, such as the agricultural sector.
The automotive industry could suffer.
The U.S. automotive industry relies heavily on imported goods such as steel, aluminum, and smaller components. Tariffs on foreign steel would increase production costs, and in turn increase the cost of cars for consumers.
If this were to happen, there would be a chill in the automotive industry as consumers delay making purchases or seek out used cars. Over time, this could threaten jobs not just at automotive factories, but also at dealerships.
The construction industry could take a hit.
Similarly to the automotive industry, construction also uses lots of foreign components and raw materials. Infrastructure projects are more important than ever in the 21st century, and increased steel costs could seriously hinder the construction of new public works.
This pain would be felt on a smaller scale as well, as homebuilders would face these same pressures and pass the increased costs on to home buyers.
They could threaten the U.S. agricultural industry.
We've already seen how retaliatory tariffs in recent years have harmed certain U.S. industries. As China imposed significant tariffs on U.S. soybeans in retaliation to U.S. tariffs on Chinese goods, there was a major decline in agricultural exports.
While this causes food prices to plummet, it's unsustainable in the long run as farmers are forced to operate at a loss. Federal subsidies can help somewhat, but this can lead to businesses and farmers going out of business.
Retailers could feel the pinch first.
Retailers, whether brick and mortar stores like Walmart or online giants like Amazon, rely largely on affordable imported goods. When these costs go up, retailers face a tough decision: Raise prices, cut jobs, or reduce profit margins. Generally, it's going to be one or both of the first two options.
While larger retailers can generally weather these storms, these uncertain economic conditions can easily force a small- or medium-sized business to close up shop.
International relations will likely suffer.
International diplomacy is important, and punishing tariffs are almost certain to erode relations with key international allies — in some cases destroying decades of goodwill.
Increased tariffs on Canadian aluminum and steel caused significant friction between the U.S. and Canada, one of its closest allies. This can lead not only to retaliatory tariffs, but also international trade alliances that exclude the United States. It also makes it harder to do business with these countries in the future.
Healthcare costs could go up.
Healthcare is expensive enough already, and many of the components used in healthcare rely on imported goods, materials, and ingredients. Like any other sector, the consumers will pay the price for this in the end.
Potential tariffs on foreign-made surgical instruments or hospital equipment, or tariffs on ingredients used in medications, will increase the cost to Americans — particularly if no local alternatives can be sourced.
Consumers won't be happy.
American consumers have been spoiled for choice for decades now, as favorable trade relationships have led to an abundance of selection at low prices. But if tariffs reduce the import of foreign goods, these effects will eventually be seen on store shelves.
As consumers feel the pinch and find that they're paying more money and have less selection, they'll eventually reduce their spending. This means that not only are consumers unhappy, but their reduced spending will slow economic growth.
It could be a boon to the black market.
One form of importing/exporting is completely free of government-imposed tariffs: Smuggling. As tariffs make goods more expensive, this will naturally encourage the growth of black markets as a means of bypassing these added fees.
As consumers and businesses potentially turn to illegal imports, legitimate businesses will be undermined and overall tariff revenue for the government will suffer. Also, because black markets are unregulated, this could lead to a surge in counterfeit, low-quality, or even unsafe products.
Other countries might exclude the U.S.
The U.S. is a major importer and exporter on the global market, but it's hardly the only one of significance. As countries sour on heavy U.S. tariffs, they'll naturally be spurred to create trade alliances of their own — trade alliances that will almost certainly exclude the U.S.
During earlier tariff wars, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which included Canada, Japan, Australia, and nine other countries, emerged as a significant and lucrative trade bloc with no U.S. participation.
We could see a recession.
Trade wars create volatile circumstances, and the end results aren't always positive. The uncertainty has a destabilizing effect on the economy, which raises the risk of a recession.
The ingredients of a recession — scaled-back operations, job cuts, deferred investments, and reduced consumer spending — can all be created by a tariff war. If GDP growth slows, it will be that much harder to create the infrastructure to source goods locally.
Small businesses will likely suffer.
Smaller manufacturers, like larger manufacturers, often depend on imported raw materials. Unlike larger companies, these smaller companies are not only ill-equipped to weather an economic storm, but also have less bargaining and negotiating power.
For instance, if a small furniture manufacturer sees an increased cost for upholstery fabric or imported wood, it won't be in a good position to advocate for change, and will face the risk of going out of business.
Energy projects will get more expensive.
Energy production is always a top-of-mind issue, as regulators have to deal with not only a growing population and increased demand, but also calls to make energy cleaner.
Large energy infrastructure projects like pipelines, wind turbines, and solar panels, all rely on imported raw materials like steel and aluminum. If tariffs increase costs, it'll make it that much harder to get these necessary projects off the ground.
Businesses will become less competitive internationally.
Large American manufacturers have a presence on the global stage, and this presence could be threatened if tariffs increase their costs. This is because they'll be at a major disadvantage if their foreign competition is able to import the same goods for a lower cost.
Over time, the erosion of this competitiveness can lead to declining exports, a reduced market share, and slower economic growth overall.
Consumers may opt for quality over quantity.
Many goods valued by consumers in the U.S. are inherently disposable — cheap, mass-produced goods that are manufactured overseas. But when these prices increase, it could lead to a shift in consciousness as people value higher-quality goods that last.
While this shift could benefit small-scale local producers and reduce waste, it would also create issues as consumers aren't spending as much as they used to. This could, of course, contribute to a recession.
It could incentivize automation.
American workers have been getting put out of work by automation for decades, whether it's mechanized mining putting West Virginia miners out of work, or artificial intelligence destroying writing jobs.
This trend could accelerate with increased tariffs. As labor and production costs rise and companies feel the pinch, they'll be looking to cut costs in any way that they can — and automation is a prime way to do this.
It could lead to an academic brain drain.
Educational supplies, like so much else, often come from other countries. As schools and universities struggle with rising costs in specialized machinery or learning tools, they could become less attractive to prospective students and researchers.
If this happens, it will hinder innovation and slow progress in the STEM fields, all of which are critical when it comes to maintaining U.S. global leadership in research and development.
Pollution could be on the upswing.
While proponents of tariffs argue that they'll spur domestic manufacturing and production, this could come at a cost. As an example, if U.S. steel saw an upswing in production, it would raise the demand for coal — and more coal would cause pollution and conflict with environmental goals.
Another area where this could happen would be in the extraction of rare earth minerals that are used in electronics and renewable energy technologies.
Different parts of the country could have different experiences.
The United States is a large country with many distinct regions, so it should come as no surprise that tariffs would bring different impacts to different areas.
For instance, coastal states with robust ports of entry could see job losses as imports slow down, while areas in the heartland may see a shift in their local economy. Retaliatory tariffs may shut down farms and cause these areas to focus on building factories.
Investments will likely change.
The U.S. has long been seen as a good place to invest for multinational companies, but increased tariffs could influence this. This could be in a positive sense, as international companies move production to the U.S. to avoid tariffs.
However, the downside of this possibility is that these companies see greener pastures elsewhere, bypass the U.S. entirely, and choose to invest more in other countries.
Brand loyalties might shift.
Virtually every major brand in the U.S. depends to at least some degree on foreign goods. If tariffs shift the U.S. economy, it will likely lead to more awareness of which goods are produced in the U.S. and which are not.
This could have the knock-on effect of making certain brands more attractive than others, as smaller domestic companies are better able to compete with their larger rivals.
It could encourage domestic manufacturing
One potential positive of a drastic increase in tariffs is that it could spur domestic production of products that were previously imported. When raw materials are expensive to import, it incentivizes companies to source locally.
This, in turn, could lead to more domestic jobs, particularly in the manufacturing industry — an area where jobs have been on the decline for decades. An increased demand for domestic products could revitalize old factories and rust belt cities and towns.
It could improve national security.
Because a likely impact of tariffs is a reduced reliance on foreign suppliers, national security could be bolstered at the same time. An example of this is that military and infrastructure contractors might source goods and materials locally, reducing dependence on imports.
This provides some protections against international market fluctuations, geopolitical issues, and supply chain disruptions. It should be noted that this scenario relies on a robust in-house manufacturing and sourcing sector.
Trade deals may improve.
Tariffs aren't always enacted — they're often merely threatened, so they can be used as a bargaining chip or negotiation tactic. A U.S. tariff on Chinese goods was used as part of a larger strategy to address trade imbalances between the two countries, and China did indeed agree to certain concessions.
Another example is the renegotiation of the North American Free Trade Agreement (NAFTA), which was heavily influenced by tariff threats.
It could generate revenue for the federal government.
Because importers pay taxes on foreign goods, this generates revenue for the tax collector — in this case, the federal government. While it remains to be seen how this extra money might be spent, in theory it could be used for much-needed public projects.
Tariffs are not a long-term fiscal solution, but can provide a shot in the arm for government coffers, increasing revenue for a period of time when deployed strategically.
Certain industries could be protected.
Tariffs are not necessarily a blanket policy, as laws can be written to reduce or waive entirely the tariffs imposed on certain items. One example is semiconductors, which are largely produced outside of the United States.
Tariffs could be eased on semiconductors imported into the country to ensure a steady supply. Conversely, a reduced reliance on foreign-made semiconductors might spur increased production in the United States, given how critical these components are to modern electronics.
