What Are Tariffs, How They Work, and How They Impact Your Wallet

What Actually is a Tariff?

A tariff is basically a tax on imported goods. Governments impose a tariff on products and goods coming into the country to make those foreign goods more expensive. One of the main reasons for imposing tariffs is to protect American industries and the American people employed. When imported goods become more expensive due to these tariffs, domestic manufacturers become a lot more competitive. This can reduce the dependence on foreign goods and helps encourage companies to invest in U.S.-based factories. This can lead to more jobs and economic growth. For example, if steel and aluminum tariffs make foreign materials more expensive, the U.S. based steel mills may be able to ramp up production, creating more well-paying jobs for American workers. Because of this investment in domestic manufacturing it could also drive wage growth and increase tax revenues. This, then, benefits the broader economy. This is probably more than what I learned in 8th grade civics.

So, for a quick example, if the U.S. slaps a 25% tariff on imported steel, that means foreign steel now costs 25% more than it used to. That price hike can have a crazy ripple effect that impacts industries that rely on steel, like car manufacturers and construction companies.

Tariffs can come in different flavors:

• Ad Valorem Tariffs – this is a percentage-based tax (e.g., 10% of the product’s price).

• Specific Tariffs – This is a fixed fee per unit (e.g., $5 per barrel of imported oil).

• Retaliatory Tariffs – It’s now a pissing match! A tit-for-tat response when one country imposes tariffs, and the other country strikes back with their own tariffs (think of this as a trade war).

How Do Tariffs Actually Work?

When a tariff is placed on an imported goods or products, two things typically happen:

1. The price of that product goes up. The companies importing the product must now pay extra to bring that product into the United States, and these companies usually pass that extra cost onto consumers (that’s me and you!).

2. Consumers either pay more or switch to local alternatives. Ideally, these tariffs encourage people to buy domestic goods. That’s products that are made here in the USA. However, if no alternative products exist, consumers may just end up paying more.

Who Actually Pays the Tariff?

This is what really confused me at first, but despite what some politicians claim, tariffs aren’t actually paid by foreign countries or the manufacturers. They’re paid by the importer—usually a U.S. based company that is importing the products. This company can either:

• Eat the cost (this is unlikely, since these companies want to maintain their profits).

• Pass the cost onto you, the consumer (this is most likely).

• Find another supplier (It’s not always possible but these companies can find either a domestic supplier, or perhaps a alternative foreign supplier without a tariff in place).

Continue reading at Heavy Metal Money!

Other Stories

Thanks again for following along! Keep those Horns Up, my friend 🤘 🤘 And please share this newsletter with those you think would find value!