With this most recent election, there’s been a lot of tariff talk. But a lot of people actually don’t know what tariffs are or what they do for us.
In order to test this theory, I went around Knoch and asked students what a tariff was.
Freshman Victoria Rachwal said, “A what? I don’t know what that is.”
Sophomore Gabriella Lang said, “It’s like a tax!”
And she’s right! But it’s a little more complicated.
Junior Hallie Avon said “Is it an expense on exported goods?”
Just barely missed it, but we will assume she just mixed up her words by accident.
Sophomore Grady Robb said “I wish I knew the answer to that question.”
Well, he is in luck, because I’m about to break it down for you. By no means is this meant to shame anyone for their answer; it’s a tough thing to understand.
A tariff is a tax on imported goods. Everyone seems to understand that, but here is where it starts to get confusing. We, the importers, are the ones that pay the tariffs.
Why do we do this, though? What is the purpose of Tariffs, and why does President-Elect Trump want to put so many into effect?
Tariffs are supposed to promote manufacturing in America for large companies. Tariffs make it seem cheaper for companies to manufacture their products at home.
In theory, it sounds pretty unimportant. Why do we care so much about manufacturing things in America?
To understand this, you have to understand that we, as a country, are about $36.17 trillion in debt. Gross domestic product (GDP) represents how much money we make from production yearly, (as a country) or the value of these goods produced. The United States has the highest GDP in the world. But, how much does that really matter when we are in crippling debt?
What does all this debt mean, though? The debt in America is a key factor when we file our taxes every year. Our taxes are slowly (VERY SLOWLY) in charge of paying off this debt. So the less debt we have as a country, the less we have to pay in taxes.
Now circling back to tariffs. By encouraging companies to produce their goods in America, we boost our GDP. Our GDP chips away at our debt. The less debt we have, the less YOU pay in taxes.
You should also know that we are the ones that will pay these tariffs. Companies will hike up prices in order to cover the tariff, causing inflation.
During Trump’s first term, we had many tariffs in place. But it truly wasn’t so bad. Companies such as Apple were given more than 120 billion dollars in tariff exemption with a promise to slowly start manufacturing in the United States.
Companies would receive an exemption within 30 days of filing to receive one, as long as you met all of the thorough requirements. Over 75% of requests were granted. This did a good job at controlling the amount of inflation that would have happened rapidly, but Trump has not yet released any true tariff plan that signals possible exemptions. But, we should expect one to come in the near future.
Seems amazing, right? Well you only know half of it yet.
Outsourcing (Manufacturing goods overseas) is a lot cheaper than producing them at home. Is it ethical? No, not at all actually. But, that’s an article for another day. A lot of small businesses fall victim to this, whether they want to or not. It’s just hard to manufacture in America when you’re barely turning a profit. That’s where tariffs come in. It could end hundreds upon thousands of small businesses, putting them in an impossible scenario of choosing between paying much more than is usual to manufacture in America, or manufacturing for cheap, but payings an incredible amount of tax to import the products into America.
This poses the question, how much GDP growth will we really see if small businesses are forced to close? Well, an Analysis by the Federal Reserve Bank of New York thinks it’ll do more harm than good when it comes to stock trade as well. This is based on how we struggled when other tariffs were announced in 2018 and 2019. Read about that here.
Tariffs also could lead to an economic crash believe it or not. When there is not a perfect supply:demand ratio, we crash. And we crash HARD. If there is a large demand for American Manufacturers to produce for multiple companies, and not enough supply, we can just completely collapse.
