Tariff Talk: What Trade Policies Could Mean for Your Budget
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What are tariffs and how do they affect your wallet?
And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic, then leave you with the latest money headlines. Today, we're taking a closer look at tariffs, what they are and how they ultimately affect you.
That's right. And we'll explain President-elect Donald Trump's big plans for enacting new tariffs once he steps back in the Oval Office in January. We touched on Trump's tariff plans during our election series in October and in our post-election episode on November 13th. So feel free to check those out. Sean, why don't you kick us off with an explanation of what tariffs are?
What are President Trump's proposed tariffs?
A tariff is, essentially, a tax on imported goods when they enter the country. It's usually a fixed amount or a percentage of the price of the import. Tariffs are used for a few different reasons. To raise revenue, to protect domestic interest from foreign competition, or as a foreign policy tool.
So here's why tariffs are in the discourse right now. Trump has promised to levy all kinds of new tariffs when he's president again, including 10% to 20% across the board tariffs on all imported goods, up to 60% tariffs on goods imported from China, and 100% to 200% tariffs on automobiles produced in Mexico. Then last week, Trump also said he would levy a 25% tariff on all imports from Canada and Mexico. Those are the top two exporters of goods to the United States. He also promised to levy a 10% tariff above any additional tariffs on China. They're the third biggest exporter of goods to the United States. He said on Truth Social that the reason for those threats are due to the rise in fentanyl smuggling.
Presidents have levied all kinds of tariffs over the years, either on a country or for a particular good. So it's not a new thing. But throughout the campaign, economists expressed concerns about the extent of Trump's tariff plans and the potential impact on the economy. Now, not all campaign promises bear fruit. However, Trump has been bullish before on tariffs, and it's likely he'll have a similar approach in his second term.
In 2018, Trump levied tariffs ranging from 10% to 50% on goods mostly imported from China. That includes solar panels, washing machines, steel, and aluminum. President Joe Biden also expanded some of those tariffs. Back in May, he increased tariffs on steel and aluminum, semiconductors, electric vehicles, batteries, medical equipment, and solar cells. One thing I want to note as well is that any new tariffs would be added to the tariffs that already exist. So as you said, Sean, tariffs are nothing new, but it's the scope of Trump's plans that have some economists concerned.
One concern that consumers might have is that tariffs tend to make the stuff you buy more expensive, right?
Yeah, they do. But I want to step back and consider how that stuff is made and distributed. In other words, the supply chain. The U.S. is not siloed, as in we don't make everything here that we consume and we don't consume everything that we make. The supply chain is global, and that means we have a network of companies across the world that supply not just completed goods that you buy, like a car, but the raw materials and components used to make that car, too.
So when the supply chain is disrupted through war, natural disasters, or say a global pandemic, there's not enough supply of a product to meet consumer demand. And as we know, when that happens, prices go up. So we have a better sense of the global supply chain and how it works. Let's bring it back to tariffs. How do tariffs affect the supply chain?
How do tariffs impact prices and inflation?
Ah, so now it's time for the washing machine example. In 2018, while Trump was first president, he enacted a 20% tariff on all imported washing machines, and that increased to 50% later in the year. Researchers and economists at the University of Chicago and the Federal Reserve analyzed the effects of those tariffs and found that, as a result, the price of washers rose by nearly 12%.
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Chapters
7 chapters
1
What are tariffs and how do they affect your wallet?
0:12–0:48
2
What are President Trump's proposed tariffs?
0:48–3:39
3
How do tariffs impact prices and inflation?
3:39–5:02
4
What is the effect of tariffs on the supply chain?
5:02–8:13
5
Do tariffs actually increase domestic manufacturing?
8:13
6
How do tariffs influence consumer prices?
6:25–8:48
7
What are the economic implications of Trump's tariff plans?
8:48–12:19
Speakers
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