As President-elect Donald Trump prepares to return to the Oval Office, there is much talk about tariffs as the foundation for his economic policy. Trump himself says he’s “a Tariff Man,” and in fact implemented tariffs on a number of countries in his first term. But what are tariffs exactly, and how do they work? What are the pros and cons?
There’s a lot at stake, and like many things “economic,” it’s kind of complicated. So let’s break it down.
First, what is a tariff?
A tariff is a tax on imports of products from other countries. Taxing imports makes the price of those imported products more expensive and makes the cost of U.S. products cheaper in comparison.
Second, why does Trump want new tariffs?
Trump says tariffs will do several good things for the U.S. economy, including:
- American consumers potentially will buy more U.S. products, which will benefit businesses and create more domestic jobs for Americans, especially higher-paying factory jobs.
- U.S. companies such as automakers Ford and GM that built factories and created jobs overseas in places like China and Mexico, because wages were cheaper and they could ship their products back to the U.S. market without penalty, now will have greater incentive to return their industries from overseas.
- With more of those businesses moving back to the U.S., tax revenue will increase, shrinking the trade and budget deficits, and those new tax revenues could be used to pay for services like child care and retirement, or…
