How tariffs could impact your everyday life

If you watch the news, chances are you’ve heard a lot of discussion about tariffs lately. But what are tariffs, and how do they work? Simply put, tariffs are taxes imposed by a government on goods and services imported from other countries. The primary purpose of these taxes is to make imported goods more expensive, thereby encouraging consumers and businesses to choose domestically produced alternatives. Historically, tariffs were a significant source of revenue for governments, especially before the modern income tax era. 

When a country imposes a tariff, it adds a specific cost to the imported goods from certain countries or sectors. For instance, if a tariff of 20% is imposed on all imported electronics, a smartphone costing $500 from abroad would now cost $600 to a domestic consumer. This price increase aims to make the imported smartphone less attractive compared to a similar, possibly cheaper model made domestically. 

With this basic premise in mind, let’s take a closer look at the rationale behind tariffs, how tariffs could affect your day-to-day life, and why tariffs have been a topic of increased discussion lately. 

The why behind tariffs

There are a number of reasons why a government may choose to implement tariffs. Here are a few of the biggest drivers: 

• Protecting domestic industries: By making imported goods more expensive, tariffs can help protect domestic industries from foreign competition. This protection can be crucial for developing industries or sectors vital for national security. 
• Generating revenue: Tariffs provide a source of income for governments. This revenue can be used to fund public services and infrastructure projects. 
• Political leverage: Tariffs can also be used as a tool in international negotiations. By imposing tariffs, a country can put pressure on another country to change its trade policies or practices.

Impact on average consumers

While the intention behind tariffs might be to protect domestic jobs and industries, the effects on the average person’s day-to-day life can be complex and sometimes adverse: 

• Increased prices: Tariffs lead to higher prices for imported goods, and these costs are often passed down to consumers. For instance, if tariffs are imposed on raw materials like steel or electronics, the cost of goods ranging from cars to smartphones can rise significantly. 
• Retaliatory tariffs and trade wars: When one country imposes tariffs, affected countries might retaliate with their own tariffs, leading to a trade war. Scenarios like this can potentially harm global economic relations and further increase prices for consumers. 
• Impact on domestic businesses: Businesses that rely on imported materials might suffer due to increased costs, potentially leading to higher prices for consumers or even job losses if companies need to cut costs elsewhere. 
• Domestic job protection: On the positive side, tariffs can help protect jobs in domestic industries by reducing competition from foreign companies. This can be particularly important in industries that are vital to a country’s economy.

Why are tariffs a hot topic? 

The debate around tariffs has been reignited recently during the 2024 election cycle, with some politicians suggesting replacing income taxes with tariffs, a concept that has sparked lively discussions among analysts and policymakers. While some experts see potential benefits, others note that such a move might generate less revenue than current income taxes and could lead to an average increase in household taxes by nearly $3,000, impacting after-tax incomes by around 2.9%.

High tariffs, such as a proposed 20% general tariff and a 60% tariff on goods from specific countries like China, could lead to increased prices across a wide range of products, affecting the cost of living for Americans while also potentially stoking inflation. However, tariffs can also serve important economic and political purposes, such as protecting domestic industries and jobs.

The discussion around tariffs is complex and multifaceted. There are potential upsides and downsides impacting both businesses and individuals, and it falls on our elected officials to weigh the pros and cons carefully to determine the best approach for ensuring our country’s economic health and well-being.