To protect domestic industries and discourage illegal activities on the U.S. borders, President Donald Trump signed an executive order on February 4 raising tariffs on Canada, China and Mexico.
A tariff is a tax on imported goods.
With the additional tax, goods from overseas are comparable in pricing to similar products made in the USA.
Tariffs have been used throughout history with the goal of protecting domestic industries.
Tariffs function in the world market, which may lead to the concept being misinterpreted.
According to wealth manager Ken Keith, there are several misconceptions about tariffs, one being that the country with tariffs covers the cost.
An importer pays the government to import their goods, which is a cost that is passed on to the company, and ultimately, consumers.
Though focusing on domestic industry does create jobs, there are also jobs lost, such as those in the business of importing.
“People think that we are going to create a lot of jobs in the U.S. doing this,” Keith said. “You can point and say, look, we built a factory, we hired 5,000 people there, but you’re not pointing at all the people who lost their jobs because of how the supply chain changed.”
On February 1, Trump signed an executive order and China received an additional 10% tariff, while the 25% tariffs on Canada and Mexico were postponed to March 4.
On February 11, an executive order was put in place to impose 25% tariffs on steel and aluminum imports, most of which are from Canada.
Tariffs may also increase tensions between the U.S. and its allies.
“We trade a tremendous amount with Canada and Mexico,” social studies teacher David Klein said.
According to the Office of the United States Trade Representative, since July of 2020, the United States-Mexico-Canada Agreement substituted the North America Free Trade Agreement as a mutually beneficial trade agreement.
Placing 25% tariffs on all goods would violate agreements included in the USMCA.
When the tariffs went into effect on March 4, Canada and Mexico both announced they would place tariffs on U.S. goods in response.
As China receives the largest amount of U.S. farm exports, Beijing placed a 15% tariff on such goods.
“Other countries might be nervous that we would institute tariffs,” social studies teacher Jessica Muller said.
According to Muller, as other countries respond to the threat, tariffs “can have unintended consequences,” Muller said.
Two days after the tariffs on Mexico and Canada went into effect on March 4, Trump paused all which did not comply with USMCA.
These tariffs will go into effect on April 2, when Trump also plans to enact reciprocal tariffs on all countries that tariff U.S.-made goods.