A straightforward explanation of tariffs and how they impact the economy
The news has been buzzing with headlines about the recent tariffs and how they affect businesses around the country. The following list will help you better understand the tax, the overarching purpose of this political move, and its potential repercussions.
They Encourage Domestic Buying and Selling
A tariff is a customs tax calculated as a percentage of the cost of a product that the government adds to imported goods. As a way to protect domestic industries that are beaten out by foreign companies, a tariff increases the cost of that imported product, so the domestic product can be more attractive to buy.
More Jobs Are Available with a Tariff in Place
When profits are down in an industry, like manufacturing, because it’s cheaper to outsource, many companies are forced to lay off their employees. When fewer people are buying foreign materials or products because of the increased cost due to tariffs, those companies based in the United States have more income and therefore are able to maintain more jobs for the American people.
They Allow for the Country to Develop a Market Entry Strategy
When the United States has a free trade agreement with another country, they can accept goods from the U.S. tariff-free, which means it’s less expensive for them than if they were to buy the good from another country. The U.S. has an agreement with over 20 countries, so domestic businesses can target their sales to these countries.
They Can Lead To International Retaliation
As a foreign policy strategy, a country can impose tariffs on main exports from certain countries, which may cause tension. If a country decides to respond by imposing their own tariff in return, it could ultimately lead to an unhealthy economic cycle. For example, in the 1930s, other countries created their own protective measures after the U.S. incorporated a tariff on agriculture goods. As a result, world trade dropped by 65%, which was a leading cause of the Great Depression.
It’s a Fine Line Between Protecting the Worker or the Consumer
Less competition from cheaper international sources sometimes means that consumers are forced to spend more money on a domestic product they were used to getting at a much cheaper price before. Spending more money on basic goods can obviously have an effect on the average shopper, even though there may be more jobs available. Determining where to draw that line can create a problem.