If anyone was under any delusion that Donald Trump was not going to be as bonkers as he said he would be, then his announcement on Tuesday that he would slap a 25% tariff on all imports from Canada and Mexico (and deeper tariffs on China) should remove all doubt.
“Tariff” has become the economic word of the year thanks to the incoming US president.
It is no surprise that there has been a spike in Americans searching “What is a tariff?” on Google (sadly more people are asking that now, rather than before the election).
The answer is this: a tariff is essentially an import tax.
And despite what Trump might tell you, it is not paid by the country or the company that is exporting things to your country.
A 25% tariff means anyone importing things from – in this instance Canada or Mexico – to the US will now have to pay a 25% tax on the good. So, something that cost $100, now costs you $125.
If you are then selling that item or using it to build something that is then sold, that cost is of course going to be passed on to your customers.
Tariffs raise prices much like the GST raised the prices of things – and like the GST it hurts people on low and middle incomes the most.
Canadians and Mexicans will lose out as well because American importers will look to get goods from elsewhere because now those products are more expensive to buy. Maybe they will buy American-made items; more likely they’ll just import them from another country.
But the world economy is complex. A lot of what Americans import are things used by American........