From My Mind to....

Tariffs Anyone?

Anyone who’s listened to the news has heard talk about tariffs. There’s so much conflicting buzz about tariffs, you’re probably confused, like me. I thought I’d try and dumb down the subject of tariffs. So, what is a tariff?

Strictly speaking, tariffs are taxes that a government imposes on goods and services imported from other countries. When a product crosses a border, the receiving country collects the tax. There are two main types of tariffs:

Specific: a fixed fee on specific goods, such as $1.00 per item.

Ad Valorum: a percentage of the imported good’s value, such as 10% of an items cost. This is the type used most often by President Trump.

The main purposes of tariffs are to protect domestic businesses and industries, generate income, and control trade imbalances. Making imported goods more expensive helps domestic businesses compete with foreign companies by encouraging consumers to buy locally produced products, which ostensibly will be cheaper. The income collected by the government can be used for any number of things, such as paying down the deficit, upgrading infrastructure, and public services. Finally, tariffs address trade imbalances by discouraging imports and promoting exports.

Let’s get to the bottom line. President Trump tells us that China, the European Union, Canada, yes, every country that he has imposed tariffs on will pay the taxes that the United States collects when the products cross the border. That is NOT correct. Instead, the domestic companies who receive the imported goods pay the tariff costs. These companies have two choices—absorb the additional costs, or pass them on to the consumer in the form of higher prices. Which do you think is the more likely option?

I wonder if anyone believes that the foreign companies are actually paying the tariff costs!

The tariffs serve their primary purpose: to make imported items more expensive, thereby encouraging the purchase of domestically produced items. And it’s true that the United States will collect income from the tariffs, though no one in the government is really telling us where this money is going. I dare say it’s not going toward reducing the deficit.

One can guess the eventual results of tariffs. Despite benefiting domestic businesses, they will result in higher prices to consumers, which can lead to inflation. Tariffs can also lead to decreased economic growth because the higher prices mean consumers will spend less.

Frankly, I wonder if the protections for domestic businesses against foreign companies out-weighs the turmoil consumers face with higher prices, inflation and less disposable income.

Thoughts, anyone?

Added Note: I just read an article that said any taxes taken in by the government goes into the General Fund, which is used to keep the government going. It's not earmarked for anything specific, like infrastructure or the deficit. And by the way, the amount of tax (tariff) revenue taken in during 2023 was about $77 billion, which was 1.5% of total income that year. Pretty small percentage. Back in the 1800's before income taxes, etc., tariff revenue was 80-100% of income for the government.