What word did we all learn this election season?
It’s a word you’re going to be hearing a lot of in the coming weeks, months, and maybe years: Tariff. Let’s be clear, in most cases, tariffs are anything but “teriff” for consumers. Before we get into that, though, let’s talk about what, exactly, tariffs are.
In a nutshell, a tariff is a tax imposed on an imported good, levied by the importing country. So, if you bought a car from China, for example, and the government was levying a 20% tariff on goods from China, you’d be paying whatever price you paid for the car, plus 20%. The price of the car would go to the company selling it to you, the 20% would go to the United States government.
In effect, tariffs make things more expensive to bring into the country. The reason that you’re hearing about tariffs now is because president-elect Donald Trump has made tariffs a key point in his economic plans when he takes office in January. We don’t know exactly what he plans to do yet, but he has voiced support for putting tariffs on goods from all over the world. That would, again, make a whole lot of things that are made outside of the USA, more expensive.
So, why would he do that? What is the goal of tariffs? To keep it simple, it’s an attempt to try and lure manufacturers and producers back to the United States. Many companies make things — toys, clothes, all sorts of stuff — in other countries. They generally do that because it’s cheaper than making it in the U.S.
For example, if you operated a clothing factory in Ohio, you would need to abide by safety and environmental rules and regulations, and pay workers at least the prevailing minimum wage. If you operate your factory in another country that may not have those rules, regulations, and a minimum wage, you can produce clothes cheaper.
But if you put tariffs on the clothing as it’s being imported, that clothing becomes more expensive. Perhaps as expensive, or nearly as expensive, as clothing that would be made in the U.S. so, it may be beneficial or make financial sense for companies to produce clothes here, rather than abroad.Yes, this plays into the ‘Make America Great Again’ concept.
Again, that’s the primary logic. It doesn’t always work out that way, and there are a lot of other factors that can be involved, too. We have all started to understand the domino effect of the economy. There is very little if any economic changes that do not impact all the other dominos behind it. The concern some have when it comes to tariffs, though, is that it could slow the economy significantly, and drive prices higher. That means inflation becomes a big problem once again — even though we just went through a significant bout of inflation — and it all has experts and economists questioning how to implement this new tariff concept.
It’s important to keep in mind, though, that we don’t really know what’s going to happen yet. We already levy tariffs on some countries and for some goods. They’re a form of “protectionism” for certain industries. But tariffs are a sort of old-school tool that aren’t often used or talked about on a broad scale. That could change. Which is why it’s important that you know what they are, how they’re used, and now it is up to you to decipher why they will be used.
There is no tariff on knowledge, so enjoy this inflation free education. Keep driving…
