Tariffs were a significant talking point during the 2024 presidential election. This month President Trump started imposing tariffs broadly, and concerns have reached a fever pitch about the impact on the U.S. consumer and economy. It makes sense to review what exactly a tariff is and what to expect.
A tariff is a tax on goods that come into the country. The importing- or shipping- business typically pays the tariff, which is a certain percentage of the value of the good. However, many companies will just pass the tariff onto consumers through the medium of taxes.
Countries enact tariffs for several reasons: protecting domestic industries from foreign competition, reducing trade deficit, and in conjunction with the first reason, encouraging citizens to buy local goods rather than foreign ones. The importance of favoring local goods over foreign-made ones is a principle of self-sufficiency, an important facet of American history. It started when in 1815 Secretary of State Henry Clay proposed the “American system”, where the American government would sponsor activities for internal improvements and enact a protective tariff for industry. The goal of this plan was to make America a nation which does not need to rely on the power of other countries.
President Trump seems to be following this “American system” of wanting to bolster our country’s economic might. But, the issue now causing concern among Americans is the realization that many countries depend on America and vice versa. The American System approach might work for a while, but the tariffs limiting economic growth of other countries will in turn hurt America, as in the present there is a global economy, not made up of individual ones like in the far past. For example, the value of washing machines increased by 12% for US consumers as a result of tariffs issued in 2018 by the Trump administration. Moreover, from the past term, the trade deficit increased, instead of the expected decrease outlined by the plan.
Currently, Trump has paused multiple tariffs against Mexico and China, due to the heavy falls of the stock market in the past week. Here, the negative consequences of enacting tariffs were realized by investment companies: J.P. Morgan investors issued a notice, pulling out of many foreign businesses and focusing on American companies, which led to multiple stocks crashing due to collective fear. Here, crashes in the market are illustrative of why tariffs might not be an ideal solution for mitigating economic lows in the country.
