In all honesty I have probably forgotten most of what I learned about tariffs from when I was in my 8th grade civics class. I’m not sure how deep we went back then. I do know we didn’t really learn how tariffs would impact our wallets. It probably would’ve come handy since tariffs were such a hot topic all through the 2024 presidential campaign. And most recently you probably heard about new tariffs on imports from China, Mexico and Canada. Some people are concerned if these tariffs would raise the cost of imported goods, including the everyday things such as electronics, cars and trucks, and household appliances. Historically, companies selling these products often pass the increased costs onto consumers. This can lead to higher prices at the checkout.
So, what exactly are tariffs? How do they work? And what we really want to know is how could they affect your personal finances, spending habits, and investments? Let’s F’n Go
What Actually is a Tariff?
A tariff is basically a tax on imported goods. Governments impose a tariff on products and goods coming into the country to make those foreign goods more expensive. One of the main reasons for imposing tariffs is to protect American industries and the American people employed. When imported goods become more expensive due to these tariffs, domestic manufacturers become a lot more competitive. This can reduce the dependence on foreign goods and helps encourage companies to invest in U.S.-based factories. This can lead to more jobs and economic growth. For example, if steel and aluminum tariffs make foreign materials more expensive, the U.S. based steel mills may be able to ramp up production, creating more well-paying jobs for American workers. Because of this investment in domestic manufacturing it could also drive wage growth and increase tax revenues. This, then, benefits the broader economy. This is probably more than what I learned in 8th grade civics.
So, for a quick example, if the U.S. slaps a 25% tariff on imported steel, that means foreign steel now costs 25% more than it used to. That price hike can have a crazy ripple effect that impacts industries that rely on steel, like car manufacturers and construction companies.
Tariffs can come in different flavors:
- Ad Valorem Tariffs – this is a percentage-based tax (e.g., 10% of the product’s price).
- Specific Tariffs – This is a fixed fee per unit (e.g., $5 per barrel of imported oil).
- Retaliatory Tariffs – It’s now a pissing match! A tit-for-tat response when one country imposes tariffs, and the other country strikes back with their own tariffs (think of this as a trade war).
How Do Tariffs Actually Work?
When a tariff is placed on an imported goods or products, two things typically happen:
- The price of that product goes up. The companies importing the product must now pay extra to bring that product into the United States, and these companies usually pass that extra cost onto consumers (that’s me and you!).
- Consumers either pay more or switch to local alternatives. Ideally, these tariffs encourage people to buy domestic goods. That’s products that are made here in the USA. However, if no alternative products exist, consumers may just end up paying more.
Who Actually Pays the Tariff?
This is what really confused me at first, but despite what some politicians claim, tariffs aren’t actually paid by foreign countries or the manufacturers. They’re paid by the importer—usually a U.S. based company that is importing the products. This company can either:
- Eat the cost (this is unlikely, since these companies want to maintain their profits).
- Pass the cost onto you, the consumer (this is most likely).
- Find another supplier (It’s not always possible but these companies can find either a domestic supplier, or perhaps a alternative foreign supplier without a tariff in place).
How Do Tariffs Impact Your Personal Finances
Alright, Tariffs don’t only affect big corporations or companies that are importing goods, materials or products. Tariffs could also hit our personal finances in multiple ways:
1. Higher Prices on Everyday Goods
If tariffs are placed on those everyday items like electronics, food, cars, appliances, clothes, or raw materials (like aluminum or steel) we initially expect to see some sort of price hikes on those products.
Example:
Let’s say a $500 washing machine is hit with a 25% Ad Valorem tariff on its imported parts. The company now has to pay an extra $125 per machine. Instead of just absorbing, or eating that cost, the company may raise the price to $625. This would mean you’re now paying more.
2. Higher Prices on Gas & Energy
Tariffs on imported oil and natural gas mean higher costs for fuel, electricity, and heating. That extra cost can trickle down into your energy bill and gas prices.
Example:
If the U.S. imposes tariffs on oil from a major supplier, gas prices might rise from $3.50 to $4.00 per gallon. That can totally add up—especially if you commute long distances.
3. Impact on Jobs & Wages
Tariffs can help protect and boost some jobs in industries like steel, auto manufacturing, and agriculture. However they can hurt others types of industries.
- If your job relies on imports, such as retail, technology, auto sales tariffs could mean layoffs, pay cuts, or hiring freezes as businesses may struggle with some rising costs.
- If your job benefits from tariffs such as domestic manufacturing or farming for example, you might see job growth as well as wage increases as the local demand rises.
4. Stock Market Volatility
The stock market doesn’t like uncertainty. Tariffs can spark trade wars with those Retaliatory Tariffs with other countries. This can cause some market swings that could affect your 401(k), IRA, and other investments.
Example:
When new tariffs on steel and aluminum were announced, the S&P 500 actually rose 1.2% due to strong consumer spending but if tariffs become more widespread and hit the supply chains and decrease corporate profits, markets could drop. This may slash retirement accounts and investments.
5. Travel & Vacation Costs Go Up
If tariffs affect foreign airlines, hotels, or transportation industries, travel prices could jump up too! Just when I was looking to book my trip to the UK to see the Back to the Beginning Show with Black Sabbath, Metallica, Slayer, Anthrax and many more! That could mean more expensive flights, hotel stays, and even rental cars.
Example:
Think of a 10% tariff on imported airplane parts? Airlines then pass that cost onto passengers by raising ticket prices. Suddenly, your $400 flight to Florida may now costs $500.
How to Protect Yourself from Tariff-Induced Inflation
Since tariffs probably aren’t going away anytime soon, here are some ways to help protect your finances:
- Buy Local (When Possible) – If imported goods are seeing price hikes, try to check out domestic brands to compare costs.
- Delay Big Purchases – If tariffs are set to increase car or appliance prices, consider buying before costs rise further, or maintain this big ticket items to delay purchases.
- Diversify Your Investments – For those that are invested in the stock market, some stocks could be hit hard by tariffs, try and diversify into industries less affected (like healthcare or tech).
- Monitor Gas & Travel Costs – Try and plan your vacations and travel smartly, watch for deals, and use fuel-saving apps to cut costs.
- Look for Substitutes – If those tariffs make one product too expensive, try and explore alternative brands or even second-hand options.
Are Tariffs Good or Bad?
It can depend who you ask. I’d like to think, maybe, both? While tariffs can create some short-term pain in the form of higher prices, they can also drive more long-term gains in job creation, economic independence, and stronger trade agreements. Whether you’re for or against tariffs largely depends on whether you value short-term affordability versus long-term economic strength.
- Supporters continue to argue that tariffs can protect American jobs and industries by discouraging reliance on cheap foreign labor while investing in, and supporting American companies and jobs.
- Critics say tariffs tend to increase consumer prices and potentially hurt economic growth. This may lead to retaliatory trade wars.
Either way, we’ll continue to hear politicians, economists, or news pundits talk about tariffs and how it’ll impact your wallet. This can be by higher grocery bills, pricier appliances, or stock market volatility. By better understanding tariffs can help you make smarter financial decisions.
What do you think? Have tariffs affected your spending or investments? Keep those horns up and drop a comment below!