During a White House signing ceremony on Thursday, March 8, President Donald Trump announced that he was imposing import tariffs of 25% on steel, and 10% on aluminum. To many Americans, this statement can seem confusing, and not worth trying to understand, but the concept is quite simple. A tariff is a tax put on imports of specific goods. The goal of tariffs is to make foreign goods more expensive, thus boosting domestic production of those goods. Their effectiveness is the source of much controversy in economics, and America has been busy debating, researching, and investigating the results of this shift in our trade policy. While it seems insignificant to many, the imposed tariffs have the potential of unintended consequences for American business, and the average citizen.
For those who either run a small, local business, or are the CEO of a major company, the news from President Trump is unnerving. For many businesses that use steel and aluminum, the cost to produce these items will increase. For instance, the Beer Institute (a trade group that represents beer manufacturers) said that a 10% aluminum tariff will add an additional $347.7 million in costs for American brewers. Other industries are also expected to take a hit from the new tariffs. Robert Moskow and Neel Kulkarni, analysts at Credit Suisse, estimated the new tariffs could substantially increase the price of packaging for the Campbell’s Soup company. “Any new broad based tariffs on imported tin plate steel – an insufficient amount of which is produced in the United States – will result in higher prices on one of the safest and more affordable parts of the foods supply,” a spokesperson for Campbell’s Soup explains. This increase in production price could raise the consumer price; which can have both positive and negative impacts on businesses. On one hand, if demand is great enough, their profits increases; on the other, demand could decrease, making regular business slow, and encourage competition.
You may be asking: What does this mean for the average American? Well, businesses that see the cost of goods rise have three options to make up their losses: cuts in other areas, absorb the cost and accept lower profit margins, or pass the costs onto consumers. The latter option is concerning to many economists as it could lead to a slowdown in consumer spending and an uptick in inflation. “So, for consumers, tariffs are like sales taxes in that they increase prices,” says Erica York, economist.
Within the political community there has been a lot of heated debate over the impacts of these tariffs. Some are explaining that they will not have a large impact on the American economy, and others are express that they could be inimical. Commerce Secretary Wilbur Ross said in a CNBC appearance that the increased cost for a car would amount to be about $175, which he referred to as, “no big deal.” Though, Bob Bryan, of Business Insider, disagrees. He explains that, “If 17.2 million Americans bought cars in 2017, Americans would pay about $3 billion more for vehicles under the new tariffs. This number simply is a big deal.”
Trump has now made statements bringing up NAFTA (North American Free Trade Agreement), existing trade relations, and security alliances. No matter your stance on the issue, this announcement is far from the end of the story.
– Maggie Di Sanza
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