Tariffs: The Current Hot Commodity

If you weren't aware of what tariffs were before, you certainly know what they are now.  President Donald Trump's administration has made tariffs its main bargaining chip with multiple other countries, most notably China, Canada, and the European Union countries.  The use of tariffs, or even the very threat of implementing tariffs, has caused the global market to fluctuate between highly negative and highly positive.  Certain economists have relayed concerns of a recession, with inflation and tariff policy being two major factors.  However, with the administration recently announcing its intentions to possibly slash tariffs on Chinese goods, the market soared.  But what is the point of implementing tariffs?  What are they?  What does this administration's trade policy mean for the economy and consumers?

Tariffs are a tax levied on imported goods to a given country.  Tariffs can be used for a multitude of reasons, such as attempting to promote domestically made goods and services, as a negotiating tool, and to generate revenue for the government.  Selectively used, tariffs can have benefits to a country's economy.  However, the widespread use of tariffs can have negative effects on the global economy.  It can trigger a trade war, where a country whose goods are tariffed retaliate by placing tariffs on the goods of the instigator country.  This has happened in real time, with China retaliating against U.S. tariffs on Chinese imports.  Trade wars are not good for the economy, and they are especially not good for consumers, who end up paying significantly more for those goods and services.

Perhaps the Trump Administration is attempting to persuade consumers to buy more American made products.  Donald Trump has also stated that tariffs can be used for the United States to negotiate trade deals with these countries.  This can be true in moderation, however, the tariffs Trump has levied against countries like Canada and China, some of them over 100%, does not encourage these countries to come to the negotiating table.  It simply gives them a motive to retaliate with tariffs on American goods.  In Canada's case, their government has stopped selling many American goods in stores altogether, such as American made alcohol, and have encouraged Canadians to buy Canadian products.

When used in this fashion, tariffs go from a wise negotiating tactic to harming the American economy, and at the same time eroding the United States' position as an economic powerhouse that countries would desire to trade with.  Ironically, more countries will likely turn to China for trade deals; the opposite of what Donald Trump, and the American government as a whole, wants.  Consumers will continue to pay more for goods that they rely on.  The threat of a recession is very real, and if history is our guide, a severe recession will cause hundreds of thousands, perhaps millions, of people to lose their jobs.  As long as these trade wars continue, the global economy will be in a constant state of limbo, and it will be consumers who pay the price, not any government.