By Attorney Raven Beach
The word “tariff” has been this year’s buzzword. A hallmark of President Trump’s second term in office, tariffs in the United States have not been this high since 1906. According to some sources, we are undergoing the biggest tax raise in U.S. History, so let’s break down what tariffs are and how they impact our everyday lives.
What are tariffs?
A tariff is an import tax imposed by a national government, customs, or union on the import of goods. The importers (the business receiving) pay the tax, which affects both goods and services. The top three reasons governments implement tariffs: money, power, and respect. Tariffs raise a significant amount of revenue for the government; however, they often make imported goods more expensive, because the importer passes the higher prices on to you – the customer. Some people, including President Trump, argue that tariffs make locally produced goods more attractive and could cause a boost in domestic production. Tariffs can also be used to obtain political leverage over other countries. Oftentimes, the objective is to persuade other countries to reduce their tariffs or to negotiate trade practices.
Are there different types of tariffs?
Yes. Tariffs are imposed in two ways: as ad valorem tariffs or specific tariffs. Ad valorem taxes are calculated as a percentage of the good’s value. For example, a 10% ad valorem tariff on a product such as a pair of $100 shoes would increase the price to $110.
Specific tariffs are fixed fees paid regardless of the item’s value. An example of this would be to tax all shoes, regardless of their value, at a flat rate of $20. Compound tariffs combine ad valorem and specific tariffs. Real-life examples of taxes on goods imported to the United States include a 50% tariff on steel and aluminum imports, a 50% tariff on copper imports, and a 25% tariff on foreign-made cars, imported cars, and other car parts.
Effects of tariffs.
Unfortunately, the result of the taxes imposed is higher consumer prices. The companies impacted by tariffs can absorb the extra expense, increase their prices, or move production to another country. Tariffs also pose challenges for lower-income customers and small businesses. According to JP Morgan, the impact of tariffs is raising prices, slowing economic growth, cutting profits, and increasing unemployment.
Raven Perry-Beach, Esq.
107 Jefferson St.
Suite 14
Huntsville, AL 35801
(256) 799-0292
* Licensed in Alabama, Tennessee, Massachusetts, and DC
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