President-elect Donald Trump has many plans for when he is welcomed back into the White House, but one specific policy will likely change the economic state of the U.S. According to Ohio University associate professor of economics Roberto Duncan, Trump has proposed “significantly higher tariffs.”
Duncan said a tariff is a tax a government imposes on imported goods or services that is passed on to consumers or firms.
“While importers pay the tariff upfront, this cost is usually passed on to consumers, raising the price of the affected goods,” Duncan wrote in an email. “For example, if a tariff is placed on a final good like a washing machine, it makes imported washing machines more expensive.”
Tariffs can also be placed on intermediate goods, such as steel for cars. According to Duncan, intermediate goods will increase costs for businesses dependent on that imported material.
“These higher costs often result in higher prices for the final product—in this case, cars,” Duncan wrote in an email. “Consequently, consumers end up paying more for either the imported goods or the products made with imported materials.”
Duncan said Trump raised tariffs in his first term, but in his second term, he speculated that he would raise them higher than in his first term and President Joe Biden’s term.
“(Trump) has mentioned several reasons, including protecting factory jobs, increasing government revenues to reduce the fiscal deficit, addressing the trade deficit – particularly with countries like China – and lowering prices, among others,” Duncan wrote in an email.
If tariffs increase, businesses will spend more on imported goods, and consumers, such as OU students, will pay more to those businesses.
“Some experts estimate that these policies could cost U.S. households between $1,700 and $4,300 per year,” Duncan wrote in an email. “Higher tariffs can also slow economic activity by raising costs for businesses and prices for consumers, which may result in fewer jobs.”
According to AP News, many of Trump’s voters voted for him in November believing that he would improve the economy. However, Duncan highlighted potential negative impacts he could have on the economic state of the U.S., like increased costs for businesses.
“The proposed tariffs won’t help with inflation, but it will have some impact,” Duncan wrote in an email. “Higher tariffs typically have small and temporary effects on the inflation rate.”
Economic experts have said that Trump’s agenda, including deportations and tariffs, is expected to worsen inflation. Over a dozen Nobel economists signed a letter stating there are risks in the U.S. economy when Trump is signed into office.
“When a tariff is imposed or increased, it causes a one-time rise in the prices of some goods,” Duncan wrote in an email. “This means, first, the overall price level will rise but not as much as the tariff since the price level is an average. Second, the rate of change in the price level (inflation) will increase temporarily, but the effect will not be substantial.”
Canada and Mexico are Trump’s main countries where imported goods will have 25% higher tariffs, the AP News said. Trump said that the tariffs will be increased “until those countries satisfactorily stop illegal immigration and the flow of illegal drugs such as fentanyl into the United States.”
“This is expected to trigger retaliatory tariffs from U.S. trade partners, signaling a significant shift in the global trade environment,” Duncan wrote in an email. “For our students, understanding these changes is key to dealing with the economic challenges and opportunities in today’s changing world.”
Duncan also suggested that recent shifts in global trade policy may indicate a transition from the low-tariff environments from previous decades. Duncan said the turning point may have been when the U.K. left the European Union, known as Brexit.
“It will likely be difficult to return to the low-tariff environment that existed before 2018,” Duncan wrote in an email. “While the Biden administration reduced a few tariffs, most were kept in place, citing concerns about China’s unfair trade practices.”
