Trump has already imposed 25% tariffs on imports from Mexico and Canada. This is mainly aimed at reducing drug trafficking and illegal immigration. An economic slap on both of the neighbors to comply with the terms of the US. Although tariffs on China are still vacillating. China might find itself in a similar situation unless Chinese authorities crack down on fentanyl smuggling.
A 10% tariff is considered additional tariffs for the drug smuggling crackdown. Trump has indicated he might impose up to 60% rate and more on imports of cars from China. An additional 200% tax on car imports just to boost domestic car manufacturing in the US. This seems counterintuitive and might backfire as the consumers have to pay more for those cars.
Tariffs are implemented with keeping economic visions in mind. They will boost the economy, create more jobs and protect existing ones while filling up tax revenues. Basically tariffs are taxes imposed on products based on its price tag when it enters a country. So, a $100 product having a 10% tariff will face a charge of $10. So, the ultimate value of the product will be $110. The extra tariffs will make it easier for Trump to cut taxes on citizens and lessen the tax burden on Americans. But the ultimate result might not be as fruitful as the tariffs might increase the cost of goods.
Back in 2018, Trump imposed a 50% tariff on imported washing machines. As a result, the overall washing machine market increased by 12%, and the US consumers had to pay an additional $1.5 billion per year. So, imposed tariffs on various goods might follow the same pattern in the near future. In 2023, the US imported around $3.1 trillion worth of goods, which is almost 11% of the GDP of the US. Among those, cars alone contributed $159 billion. The US earned around 2% of its total taxes from tariffs bringing in $80 billion that year.
Increasing tariffs has three repercussions. The US consumers will suffer if the importing companies charge extra for the tariffs. But if the companies don’t burden the consumers then they have to absorb the additional cost by reducing their profit margin. Alternatively, importers might make a deal to make their exporters lower their prices. If the exporters lower their prices, they might be able to retain their customer base, but their profit margin will also shrink. So, it remains to be seen. The long-term effect will be prominent after a year or two, but in the near future, it won’t be as noticeable.