Photo from The White House
If you’ve heard even a little discussion about U.S. politics or economics in the past couple of years, you’ve probably heard the word “tariffs” mentioned a number of times. So what are they, and why are they relevant?
The literal definition, the one that is the first to come up when you google the word, is “a tax on imported goods.” But what does that actually mean? Just like the taxes you pay to the government, when somebody imports (brings in to sell) a good, such as a banana from Brazil or a car from Japan, they have to pay money to the U.S. government.
Tariffs have a variety of effects. Because it costs more to bring the product in, retailers (companies or people who sell goods) have to sell the imported product at a higher price to make sure they can still profit. Since goods manufactured domestically (in the country where they’re sold) don’t have to pay the tax, they can be sold at lower prices, making them more likely to be bought since the imported ones are less “competitive.”
This is one of the main reasons why Trump has employed tariffs since he took office. The U.S has had a “liberal trade policy” in the last few decades, meaning very few tariffs and thus more imported goods being sold in the U.S. This means a lot of things are now made overseas in places like China or Vietnam instead of the U.S. Think about how IPhones are designed in the U.S, but assembled in a factory overseas. By increasing tariffs, Trump seeks to encourage consumers to buy American-made goods rather than imported ones, so American manufacturers can grow, industrial jobs can be returned to the U.S, or foreign countries will build factories within the U.S and make their products here to avoid the tax.
This is especially useful with growing or emerging industries, such as EVs or semiconductors, where you can apply a tariff to protect growing domestic companies from having to compete with imported products from foreign companies.
However, critics of Trump cite the particularly “sweeping” nature of these tariffs, which are applied to many countries and many products at high rates, as extreme. Since consumers generally end up footing the increased prices of goods caused by tariffs, many people are concerned that it could cause Americans to struggle to afford necessities, as well as hurt the U.S’s relationships with other nations.
