What are tariffs and how do they impact me?

You’ve likely heard the word “tariff” in the news or from friends, but what exactly does it mean? More importantly, how does it impact your daily life?

Buckle up, we've got the answers.

What are tariffs?

At their core, tariffsare taxes that governments impose on goods coming into the country. They are a tool used by governments to regulate trade and influence the economy.

When a country wants to buy something from another country—say, a car, electronics, or even food—the government can impose a tariff (or tax) on those items. This increases the cost of the imported products, making them more expensive for consumers.

Why do governments impose tariffs?

Governments use tariffs for several reasons:

1. Protecting domestic industries: One of the primary reasons for imposing tariffs is to protect local businesses. If foreign products are much cheaper than what’s made at home, local manufacturers might struggle to compete. By imposing a tariff, the government raises the price of the imported goods, making them less attractive and helping domestic companies sell more of their products.

2. Encouraging domestic manufacturing: Tariffs can be used as a way to boost local production. By making imported goods more expensive, governments may encourage consumers to buy home-made products, which in turn can support local jobs and industries.

3. Trade negotiations: Governments may also use tariffs as a bargaining tool in trade negotiations. By imposing tariffs on goods from another country, they can pressure that country to lower its own tariffs or improve trade terms.
   
   

How do tariffs impact consumers? Aka, you.

1. Higher prices for imported goods: The most immediate and noticeable effect of tariffs is higher prices. For example, a 25% tariff on a $30,000 car could make that car cost an additional $7,500. 

2. Reduced selection: Sometimes tariffs cause companies to reduce the selection of products they offer. When imported goods become too expensive, companies might choose not to bring certain products to the market at all. This can mean fewer choices for consumers, especially in sectors like electronics or vehicles.

3. Impact on domestic products: Even though tariffs are aimed at imported goods, they can indirectly impact domestically made products too. For example, many cars are built with parts from other countries, and when the price of those parts goes up due to tariffs, it can drive up the price of those cars, even if they are made domestically.

4. Job losses and economic disruptions: In some cases, tariffs can lead to job losses or disruptions in certain industries. If foreign countries retaliate by imposing tariffs of their own, U.S. businesses might find it harder to sell their goods abroad. This can hurt U.S. companies and their workers, leading to potential layoffs and factory closures.

While tariffs are intended to make foreign products pricier for foreign countries, the reality is that these costs are often passed on directly to the consumer.

Starting May 3, a 25% tariff will apply to all imported cars and auto parts—including engines, powertrains, electronics, and more. Even U.S.-assembled vehicles may be affected if they rely on these components.

If buying a car is already on your radar this year, it might be wise to act now—before the tariffs hit the sticker price.

Just spit it out, are tariffs good or bad?

The reality is that tariffs have both positive and negative effects for consumers, and the impact can vary depending on the situation:

Positive effects: In some cases, tariffs can encourage local production, leading to more jobs in domestic industries. For example, if more cars are built in the U.S. due to tariffs, it could create jobs for workers in car factories.

Negative effects: On the other hand, tariffs often increase costs for consumers, which can make it harder for people to afford goods they rely on. Higher prices on cars, electronics, or other imported items can squeeze family budgets, especially for products that are essential to daily life.

How can you prepare for the impact of tariffs?

1. Shop early. If you’re thinking about buying a big-ticket item, like a car or electronics, it’s worth making the purchase sooner rather than later before prices climb higher due to tariffs.
   
2. Consider alternatives. If certain imported goods are getting too expensive, it might make sense to look at domestic alternatives or consider used options to save money. For instance, buying a used car or product could help avoid some of the price hikes from tariffs.
3. Stay informed. Tariff policies can change frequently, especially during trade negotiations. Stay updated on new tariffs or price changes, so you can make the best purchasing decisions.

Tariffs are a complex tool used by governments to balance international trade and protect domestic industries. While they may seem like a distant economic issue, tariffs can have a real impact on your finances.

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