Tariffs have consistently been in the news since early March, when President Donald Trump slapped imported steel and aluminum with 25% and 10% taxes, respectively. The situation has only intensified in the following weeks: The U.S. imposed tariffs on numerous imported Chinese goods, which China answered with tariffs on 128 U.S. products, including everything from fruit to meat to nuts. More tariffs are potentially on the way, too.
But some people may be wondering — what is a tariff and what does all this mean for everyday Americans?
Here’s what you need to know about tariffs, including why Trump is issuing the taxes against China and if the ongoing escalation over tariffs could lead to a trade war.
What is a tariff?
Put simply, a tariff is a tax typically imposed on imported goods. The idea is that the tariff will make foreign-made products more expensive, driving consumers to turn to alternatives from domestic manufacturers who are not subject to the tax, and thus can charge less. In theory, this boosts the economy of the country imposing tariffs.
Why is Trump issuing tariffs on China?
Trump imposed the first set of tariffs on Chinese goods to punish the country for intellectual property theft that he says has caused the U.S. economic damage.
“Tomorrow the president will announce the actions he has decided to take based on USTR’s 301 investigation into China’s state-led, market-distorting efforts to force, pressure, and steal U.S. technologies and intellectual property,” White House official Raj Shah said in an emailed statement ahead of the announcement.
As of February, the U.S. also had a record-high $375.2 billion trade deficit with China, meaning it spends considerably more on Chinese imports than it makes on exports sent to China. Trump has been vocal in his desire to erase that deficit, calling it unsustainable. Tariffs are one strategy for leveling that playing field.
China, which is a great economic power, is considered a Developing Nation within the World Trade Organization. They therefore get tremendous perks and advantages, especially over the U.S. Does anybody think this is fair. We were badly represented. The WTO is unfair to U.S.
— Donald J. Trump (@realDonaldTrump) April 6, 2018
What do tariffs have to do with trade wars?
When Trump announced the first round of tariffs on China, it was seen as a declaration of a trade war — a progressive effort by the two nations to damage each other economically, mainly through taxes and trade restrictions. That’s why China answered Trump’s tariffs with a slew of its own taxes, and why Trump subsequently threatened to impose an additional $100 billion in tariffs on Chinese goods.
We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!
— Donald J. Trump (@realDonaldTrump) April 4, 2018
A well known example of this strategy is the Tariff Act of 1816, which imposed 25% taxes on British goods shipped to America in an effort to protect domestic manufacturing.
How will tariffs affect me?
While it’s too soon to say exactly how tariffs will affect U.S. consumers, it’s likely they will cause some price instability domestically. The North American CEO of Toyota, for example, said steel and aluminum tariffs could make vehicles more expensive to manufacture, which would in turn force automakers to drive up costs for buyers. Prices on food, such as pork (and, in turn, bacon), may also fluctuate, since a drop in Chinese purchasing power would likely force U.S. farmers to produce less, potentially driving up costs at home. California’s wine industry may suffer too, since U.S. wines will be hit with a 15% tax in China, likely making them less attractive to shoppers.
