Until recently, you probably hadn’t thought much about tariffs since you learned about them in high school history class. (Quick refresher in case you dozed off that day: It’s a special tax on imported goods and services, making them more expensive.)
According to the World Bank, tariffs are actually at their lowest levels ever globally, thanks to free trade agreements. But you’d never guess that if you’ve listened to the news over the past few months.
That’s because, back in March, President Donald Trump announced new plans to impose them on foreign-made steel and aluminum. Then, later that month, he proposed another $60 billion worth of tariffs, specifically on Chinese exports to the United States.
Our trade partners, like China, Mexico, Canada and the European Union, have since threatened tariffs of their own on U.S.-made products—which is why you’ve been hearing the words “trade war” a lot, too.
On Friday, June 15, the Trump administration upped the ante by moving forward with 25-percent tariffs on $50 billion worth of Chinese exports on more than 1,000 products. Unless something changes, we’ll begin collecting tariffs on the first $34 billion on July 6, with a second round of products worth $16 billion to be targeted later. In retaliation, China announced it would enact its own tariffs on U.S. exports, like cars, planes, meat, seafood and soybeans—also beginning on July 6.
But it didn't stop there. The following Monday, Trump asked a U.S. trade representative to help identify an additional $200 billion worth of Chinese exports to be taxed at 10 percent. The president warned that he'd find another $200 billion worth of goods—so, $400 billion in total—if China retaliated. China has since promised "comprehensive measures" in response.
And in a tweet on Friday, June 22, Trump threatened a 20-percent tariff on EU auto imports—likely a direct response to the EU imposing tariffs on $3.3 billion worth of American products hours prior. The EU tariffs target products like Harley-Davidsons, Levis and bourbon. (Harley-Davidson has since said it will move some production out of the U.S. to avoid the EU's tariffs, which could cost the company $100 million a year.)
Monday, the Dow Jones industrial average—an index that tracks 30 large U.S. stocks—closed 328 points, or 1.3 percent, down. (This was also, in large part, due to Trump's reported plans to restrict Chinese investment in U.S. technology, and block additional tech exports to Beijing.) By the next day, it'd started recovering.
So, what does this mean for us?
We’ll be shelling out more for items made with the taxed imported goods. For example, steel and aluminum tariffs make products like beer and soda cans, new homes, appliances and cars purchased manufactured with imported materials more expensive. Likewise, a tariff on EU auto imports also increases what we'll pay for cars.
Exactly how much more we'll pay will depend on how much companies decide to pass on to consumers, and whether they’re able to find affordable substitutes for costlier supplies.
Ready for some good news? The latest round of tariffs on Chinese imports announced on June 15 don’t affect commonly purchased consumer goods, like cell phones and TVs. Instead, they’re focused on industrial sectors like aerospace, robotics and machinery. (Although companies affected may eventually passed those costs on to consumers.)
How else could tariffs affect us?
Some American jobs could be at stake, as businesses begin to pay more for imported goods. Also, as our trade partners enact their own tariffs on U.S. exports, driving up prices in those countries, we could see a drop in our goods sold abroad. That, too, could ultimately cause some Americans to lose their jobs if businesses suffer enough.
Finally, as we've already seen, the stock market tends to not react well to threats of trade war and political conflicts in general. So we can expect some bumpiness in the coming months, as the details continue to be ironed out.
This post was updated on June 27.