No doubt you have seen the word “tariff” plastered on every headline as President Trump announced a slew of tariffs on over 100 different countries. When economics, politics, and media bias intersect in a collision equivalent to three semi-trucks ramming into each other, things can get messy and confusing. Fear not! I, your resident economics girl, am here to sort through the wreckage and break down the tariffs before we all have a breakdown. Let’s get into the questions that are on everyone’s minds.
What is a Tariff?
First things first, a tariff is a tax on a good being imported into a country that can either be percentage based (aka an ad-valorem tariff) or a fixed fee such as a $200 tax on any foreign car. For example, if the United States places a 10% tariff on Italian wine, then all wine being sold in the US from Italy will have a 10% increase on its price; if it originally costs $20, the tariff tax is $2, and total cost has now increased to $22 for that bottle of Pinot that gets you through the week. The tariff must be paid by the company that is exporting the foreign goods.
A tariff can be used for multiple reasons such as raising revenues, supporting domestic industries and businesses, protecting domestic consumers, and assuring national interests. Countries may also utilize tariffs as a political chess move to intimidate and attack other nations by causing their exported goods to increase in cost.
What is Trump’s Plan?
This onslaught of tariffs may have come as a shock to many Americans, however, Trump has been trumpeting that the US should impose tariffs for decades. His argument rests on the idea that tariffs will cause American consumers to turn to domestic goods, increase tax revenue, and lead to more investment in American business.
During his first day in office this term, he announced his expectation to establish 25% tariffs on Canada and Mexico beginning on February 1st and emphasized his goal to create the External Revenue Service, an agency which still has not come to fruition. Trump is not one to back down and on February 1st, he imposed 10% on all imports from China and 25% from Mexico and Canada; he was able to levy such high tariffs by invoking a national emergency and according to The White House, “The extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl, constitutes a national emergency under the International Emergency Economic Powers Act (IEEPA).” He has continually stated that he wants to hold countries that have attacked the United States, in one way or another, accountable.
Since this first round of tax punches, a new headline crops up every hour about how American leaders, citizens, and the affected countries are responding. On February 3rd, Trump agreed to a 30-day pause on tariff threats for Mexico and Canada as each agreed to implement plans to combat drug trafficking and concerns about border security. However, China decided to hit back with their own tariffs on imported American coal, liquified natural gas products, oil, agricultural machinery, and large cars amongst other demands such as an anti-monopoly investigation into Google. Does this remind anyone else of Rocky vs. Drago?
Trump did not take this kindly and slapped back at all the countries who challenged his tariffs. On February 13th, he announced his plan for “reciprocal” tariffs where he ensured he would match the tax rates that other countries charge on American imports “for purposes of fairness.” Since then, a stockpile of actions, press conferences, and documents have been signed and it’s almost too much to keep up with. Although I would love to explain every maneuver, I simply do not have space, so you can find a comprehensive timeline about Trump’s tariff actions here, outlined by PBS.
What are the latest updates?
As of April 10th, Trump has projected 145% tariffs against China including a 20% fentanyl tariff. The EU has placed its steel and aluminum tariff retaliation on hold for 90 days in an effort to not be steamrolled by the US and open the floor to negotiations. Kevin Hassett, Trump’s top economic advisor, has stated that deals are close with more than 10 trading partners. On April 14th, The White House reported that it is moving towards implementing tariffs on semiconductors and pharmaceuticals, two goods that were previously believed to be protected from tariffs.
Furthermore, world powers are not the only people pushing back against the tariffs as some small American businesses have filed a lawsuit against Trump’s actions calling it an “unprecedented power grab.” Five businesses from New York, Utah, Virginia, Pennsylvania, and Vermont filed in the Court of International Trade in New York arguing that the International Emergency Economic Powers Act–which was used to invoke the tariffs–does not hold water for Trump to impose tariffs on his own desires because the nation’s trade deficits with its partners is not an “unusual and extraordinary threat” to garner an emergency. Calling back to “this country’s core founding principle: there shall be no taxation without representation,” this marks the second case against Trump’s tariffs.
Look to ABC News for hourly updates about this ongoing tariff boxing match between the United States and literally everyone else.
What is going to happen?
Economists are quarrelling over how these tax increases will shake out in the world and national economies. Hasset is confident that a recession–Gross Domestic Product (GDP) declines for two consecutive quarters–is not on the horizon, but everyone else is not so sure. According to Forbes, JPMorgan Chase forecasted 60% odds of a recession within this year with Goldman Sachs predicting 45% odds and Morgan Stanley following behind at 40%. After Trump paused several tariffs, the odds for recession did roll back; however, former Treasury Secretary for Clinton, Lawrence Summers, stated that “anybody who thinks the genie is back in the bottle and that it’s all now OK should reconsider their position.”
Do not panic! Do not go selling all your stock and emptying the bank to purely keep cash on you as you become a tin-foil wearing hermit! A recession can be of varying degrees and have several unpredictable effects such as job loss, reduced income, and decreased consumer spending which leads to a downturn in business revenue. My word most likely does not mean much to you, but as a fairly optimistic person, I am confident that the world will continue to turn and we will not enter another Great Depression; we always find a way to pull ourselves out of the darkest times, we always find the light and this will be no different.
According to Wells Fargo, Trump’s measures will “likely slow the economy by more than what we previously expected, but we also see several mitigating factors that should allow the economy to escape a recession.” These mitigating factors encompass the fact that not all tariffs are created equal and some may have smaller effects or be reversed; tariffs generate tax revenue that will later be returned to the economy; and several industries such as the Industrials sector, Aerospace & Defense, and Commercial and Professional Services are somewhat insulated from tariffs.
How will this affect me?
Time for the most important question that everyone is asking: how will this affect me?! Who knows how the cookie will crumble, we can only wait and see but just to be safe, you might want to buy that Lululemon set you’ve been eyeing before the price rises. I’d like to introduce a new formula for girl math: I have to buy it before the tariffs.
These tariffs are changing each day as deals are negotiated and offers rescinded, however, several companies are already preparing for a cost increase. For example, since 80% of iPhones are produced in China, Apple has steeled themselves by looking for alternative production and even gone so far as to ship more than 600 tons of iPhones from India to the United States. Can I get on that flight?
I wish I had a better answer than “I don’t know,” but this uncertainty has the most educated people in the world scratching their heads. Who knows, maybe Trump is a master of game theory and we will get out of this not just unscathed but with a reward? One can dream. The best thing you can do at this point is to stay up to date with reliable news sources and savor each sip of your favorite imported rosé, because who knows, it could be the last one.