Headlines from today state that the new Trump administration will put a 25% tariff on imports from Mexico, and Canada. Additionally, a 10% tariff on goods imported from China.
A tariff is a fee charged by the Federal government on
goods coming into the country. That fee is paid by the importer, not the
exporter.
For example, Target wants to sell PlayStation in their
stores, so they purchase them from Sony, who builds these in China. Target
receives the shipment of PlayStations, where they will be charged the tariff.
Target pays the tariff to the Government to receive these goods.
Target then must decide how to recoup the additional fees.
They can either choose to eat the cost and reduce their revenue, or they can
increase the selling cost. The outcome is a combination of the two.
As a result, consumer prices, specifically for food and
cars are going to go up. And businesses lose money by having to pay tariffs and
selling few items.
For the party that touts itself a "Pro Business"
and promotes "Free Market" tariffs are oppositional. Tariffs
artificially increase prices for certain goods, which is more akin to cost
controls for centralized economies.
Finally, the reason the stock market goes up when Trump
says "tariff"? It's because domestic companies that will benefit from
the artificially high prices. When imported goods are more expensive, price
pressure from competing goods eases, which means all prices go up.
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