A tariff is a tax on a specific class of imported or exported goods. Sovereign nations implement tariffs for a variety of reasons. For one, tariffs are a method of raising revenue for the government. This is because the tax on the given import, or export, will be paid to the government.
Another reason for tariffs is for protectionary measures. Placing a tax on foreign goods effectively makes the specific product more expensive. As a result, domestic goods become more attractive to consumers because they do not have an extra tax. In the past, America has used tariffs to protect local industries from foreign competition as well exercising economic power over another country.
Why are people talking about this?
You may have heard about tariffs in the news lately. President Trump has placed $60 billion of tariffs a year on a range of goods imported from China. The tax is a response to China’s disputed trade practices that require American companies to provide intellectual property to access China’s markets.
Potential Impact on Paychecks
Tariffs are paid to the government by whoever imports the products into the country. This means American companies are faced with higher costs. Because of these higher costs, companies have two options: they could pass the burden onto consumers through higher prices or try to absorb the costs. Both options have an impact on paychecks and the American economy.
Higher prices for consumers means their paychecks have less purchasing power. Consumer’s paychecks will not go as far as they typically do. If companies try to absorb the higher costs, it will reduce their profits, which would inhibit reinvestment, hiring new employees, and raising wages.
Tariffs have a widespread impact on an economy. While they can protect a domestic industry from foreign competition, they can hurt consumers by increasing the price of goods. Tariffs can also spur a trade war and create political tension between nations. Whatever the result, the tax of $60 billion will have an impact on American consumers, and the economy.