With former President Donald Trump back in office, one major economic shift on the horizon is his proposed tariffs on imported goods. Trump’s goal is straightforward: use tariffs to protect American industries, keep jobs in the U.S., and raise tax revenue. But what does this mean for you, the average consumer? Let’s break down the basics and take a closer look at how these policies could impact your wallet, the job market, and the overall economy.
What Are Tariffs, and How Do They Work?
Tariffs are essentially taxes on goods as they enter the U.S. For instance, if a car imported from Japan costs $50,000 and there’s a 10% tariff, then the tariff adds $5,000 to its price. This charge is initially paid by the U.S. company importing the car, but the cost is often passed down to consumers in the form of higher retail prices.
In his campaign, Trump proposed tariffs of up to 20% on all imports and as high as 60% on goods from China, with the idea that these taxes would protect U.S. jobs by making foreign goods less competitive. However, economists widely agree that these costs are largely borne by U.S. consumers through higher prices. So, while tariffs may feel like they’re aimed at other countries, the reality is that consumers typically end up footing the bill.
Rising Prices for Everyday Goods
Many of the products we use daily, from electronics to cars to household goods, are imported. According to a recent survey by the University of Chicago, economists found that previous tariffs—like the 50% tax on washing machines imposed in 2018—led to higher prices for these goods. In that case, consumers paid around 12% more per washing machine, translating to an extra $86 per unit. Overall, American households paid roughly $1.5 billion more that year because of these price increases.
If tariffs are increased across the board, many experts believe this pattern will repeat. The non-partisan Peterson Institute for International Economics estimates that Trump’s new proposed tariffs could reduce household income by an average of $1,700 per year, with lower-income families feeling a more significant pinch.
Inflation and Economic Ripples
A significant side effect of widespread tariffs is their impact on inflation. By raising the cost of imported goods, tariffs make basic items more expensive, which drives up inflation. Economists estimate that if Trump’s proposed tariffs are implemented, inflation could jump by nearly a full percentage point, which would likely mean higher prices across the board.
On the flip side, Trump argues that these tariffs would encourage companies to shift production back to the U.S., reducing reliance on foreign goods. However, economists are skeptical. For example, even with higher tariffs, U.S. labor costs remain higher than those in many other countries, so the cost of moving production domestically may still be prohibitive for many companies.
Will Tariffs Protect American Jobs?
Trump’s tariffs are also intended to protect American jobs by making it more expensive to import foreign goods. This was his goal with the 2018 steel tariffs, which imposed a 25% tax on imported steel to protect U.S. manufacturers. However, the data suggests that while steel prices rose, job numbers in the U.S. steel industry didn’t see a significant boost.
In fact, the higher cost of steel ended up hurting other industries that rely on it, like agriculture and machinery manufacturing. Companies like Deere & Co., which uses a lot of steel in its tractors, experienced a drop in employment. Essentially, while tariffs aim to shield specific industries, they can unintentionally harm others that rely on those materials as inputs.
The Trade Deficit Puzzle
Trump often criticizes the U.S. trade deficit—the difference between what the country imports and exports—arguing that it’s harmful to the economy. But despite previous tariffs, the trade deficit actually grew during his first term. Economists explain that tariffs can raise the value of the U.S. dollar, making U.S. exports more expensive and less competitive on the global market. There’s also the issue of tariff “workarounds”: when tariffs were placed on Chinese solar panels, for instance, some companies simply shifted production to other countries like Malaysia and Vietnam to avoid the extra cost.
So, What Does This Mean for U.S. Consumers?
In the end, Trump’s proposed tariffs could mean higher prices for everyday goods and a potential increase in inflation, impacting your purchasing power. While tariffs are intended to protect American jobs and industries, the benefits aren’t always clear-cut, and the costs are often borne by consumers. Higher prices on imported goods, combined with limited job growth in the industries that tariffs are meant to protect, suggest that these policies may have unintended consequences.
For now, consumers may need to brace themselves for higher prices on essentials and, if inflation rises, possibly higher interest rates. Whether Trump’s tariffs will accomplish their intended goals is uncertain, but for most U.S. households, the immediate effect will likely be felt in everyday purchases and overall cost of living.
