President Donald Trump has recently placed tariffs on a multitude of the United States trading partners with the incentive of boosting the economy, raising tax revenue and protecting the country from the flow of illegal drugs.
Trump has placed a 25% tariff on steel and aluminum imports in order to prevent foreign competition in that market. He also has placed a 10% tax on all imports from China due to his belief that they are practicing unfair trade policies. He is enacting this tax to pressure the country to pull back and fix the issue.
The term tariff refers to a tax on imported goods. One of the most common reasons that countries incentivize tariffs is to push consumers to buy domestic, rather than foreign products. More revenue can then be generated within the country through the support of homegrown businesses.
Though they have their benefits, tariffs can also have highly negative effects. They lead to reduced trade, drive up prices for consumers and cause conflict with the exporting countries.
“The overall economy for the U.S. is negatively impacted,” said Brooke Conaway, a professor of economics. “Tariffs have both benefits and costs, but who gets the benefits and who pays the costs are different people.”
An increased cost for consumers can be expected through the current tariffs in place, as well as the potential tariffs being placed on Canada and Mexico. Projected price increases include steel and aluminum parts and products from China.
For example, with the 10% tax on China’s exports, a $10 product can be expected to cost an additional $1. Firms often choose to allocate this upcharge on consumers to maintain their profit margin. In other words, they want to be able to continue to stay financially healthy.
The tariffs Trump is threatening Mexico and Canada with are intended to pressure them into taking stronger actions against illegal immigration and the flow of drugs. The economic impact of these tariffs is said to be significant, with potential increases in consumer prices and disruptions to global supply chains.
According to the U.S. International Trade Commission, the tariffs have caused steel prices to rise 2.4% and aluminum prices to rise 1.4%.
Aside from the economic impacts of tariffs, they can also create political impacts all around the world. The possibility of a country retaliating against the tariff is not uncommon. This is known as a trade war.
A current example of this would be how China and the U.S. have been going back and forth placing taxes on one another’s goods. At a certain point, trade conflicts can escalate and impact foreign relations and international supply.
The most outstanding benefit of this is the positive impact on domestic industries. With imported goods being more expensive, it encourages citizens to buy products from inside the country. Additionally, tariffs can generate revenue for the country. These funds can be allocated towards necessities to benefit the country as a whole.
“Any tax will always make any consumer worse off, there is no avoiding that, but the point of a tariff is to collect government revenue to provide public goods or fund government programs, which is necessary,” said Leah Smith, a junior economics major.
Tariff revenue is believed as being highly significant by most people, but it is only a relatively small portion of the federal budget.
“One thing that does worry me, though, is that President Trump seems to mention the revenue a lot,” said JJ Arias, a professor of economics. “That leads me to think he may be counting on it as being a permanent source of revenue.”
Tariffs can also be used to address unfair trading policies. Trump is placing tariffs on China to address their trading policies in the U.S. which are said to be unfair.
Over time the tax can encourage foreign companies to invest in domestic production to avoid paying higher prices, which could boost the economy of the country.