Who Will Pay for Increased Tariffs? You, the American Consumer! It’s Another Form of Taxation

Trump went on the popular Joe Rogan show extolling the virtues of tariffs, as he has done frequently. He said, “To me, the most beautiful word – and I’ve said this for the last couple of weeks – in the dictionary today and any is the word tariff. It’s more beautiful than love, it’s more beautiful than anything. It’s the most beautiful word.”

Clearly, tariffs are not more beautiful than love. It’s not even beautiful. What tariffs will do is take money out of your pockets and make life more financially difficult than it already is for millions of Americans.

How do tariffs work?

Trump would like Americans to believe that other countries will pay for tariffs. But how does it really work? Tariffs are taxes on imported products. The importer or U.S. retailer of goods will pay the government a tariff-tax for the goods it imports. And when the U.S. importer-retailer must pay a higher tariff-tax as what Trump is proposing (and in some cases already implemented), that cost will be passed on to the consumers – to us. 

For example, in this hypothetical, if there is an increase of 60% tax on all Chinese goods (which Trump proposed but hasn’t done yet) that includes an electronics gadget from China that Best Buy or Walmart currently sells at $100, Best Buy and Walmart must now pay the government an additional $60 tariff-tax for that imported electronics gadget, bringing the total cost for that same product to $160.00. In turn, Best Buy and Walmart will not absorb all that extra cost without passing all or at least some of it onto consumers. 

It’s not just finished products that could be targeted like clothes, toys, tools, snacks, food, etc but also raw materials like lumber and steel that’s used for homes and infrastructure which could affect entire industries like real estate and construction. 

So, potentially consumers, businesses, industries and the entire U.S. economy could be harmed by increased tariffs, depending on how and to what extent Trump will use his executive power.

Targeted vs Across-the-board or broad Tariffs

The purpose of targeted tariffs is to protect certain domestic sectors in the U.S. economy that warrant strategic support. Targeted tariffs can help sustain and support the development of key industries and maintain them during periods when trading partners are engaged in market-distorting subsidization of their exports.

The idea behind targeted tariffs is also to boost domestic manufacturing of specific industries.  Previous administrations have used targeted tariffs on items like semiconductors, cars, solar panels and computer chips, coupled with massive investments in these industries’ products. The problem here is that U.S. manufacturers of these products – should some of them even return to the U.S. from their more profitable hubs abroad – would also need to import raw materials for many finished products which could also be subject to tariffs. 

In general, targeted tariffs can be effective and utilized properly. It could also work to boost certain manufacturing like high technology. Old, heavy manufacturing will likely never return.

But what Trump has proposed is not targeted tariffs, but across-the-board or broad tariffs on countries like China, and even allies like Canada, Mexico and perhaps as he suggested Europe, which experts say is bound to elicit a tariff retaliatory response and potentially explode to a full-blown trade war.

In a trade war, this hurts all those involved, and in the long-term will only push away the U.S.’ trusted trading partners like Canada and Mexico to seek other trading partners not in a trade war with them. And it will happen quickly, depending on how severe Trump’s tariffs are. Do we really want Canada and Mexico expanding their trade (which they already do extensively) with China or other countries? 

Tariffs are regressive

The Americans who will be most harmed by tariffs are lower and middle-income Americans because tariffs are regressive taxation like sales tax. Both the rich and everyone else will pay the same price for higher tariffs, which means the poorer you are, the more tariffs will hurt you.

This undercuts Trump’s campaign promises to help bring down the cost of living for struggling Americans, which is turning out to be more campaign rhetoric by the day.

Broad based tariffs should they go into effect could also raise the prices of select groceries which Americans are already furious about – that Trump’s campaign promise of lowering grocery prices is not working. Did he even attempt to do anything on this issue?

It’s not just American consumers who are worried about increased tariffs. Businesses, from large Fortune 500 companies to small businesses, are also concerned that Trump’s weaponization of tariffs will hurt their bottom line. 

So far, Trump’s tariffs implementation, pauses and threats have no rhyme or reason to them. He’s paused tariffs on Mexico because there has been some success in getting Mexico to cooperate fuller with border security. But then, he’s still threatening tariffs on Mexico. Soon enough, countries will catch on to Trump’s weaponization of tariffs and seek more trustworthy alternative trading partners.

In Trump’s first term his increased tariffs hurt U.S. farmers as China retaliated on them. Farm bankruptcies then spiked by 20% that even the government’s support of trying to keep farmers afloat did not work. Trump didn’t learn his lesson. Instead, he wants to expand tariffs.

Americans must understand how tariffs work and call out Trump on his weaponization of broad tariffs that would mostly hurt average Americans and American businesses.

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