In today’s news cycle, one term has been discussed more than any other economic word: tariffs. With all of this information and discussion floating around, what is fact and fiction? With the endless debate on the impact of tariffs, there are questions about how they work, what they are supposed to do, and how they affect the general economy for producers and consumers.
First, what is a tariff? A tariff is a tax imposed on goods imported from a country. This can range from tea from England to machinery from China. This is normally achieved through a fixed percentage increase on goods when they are imported, such as steel and aluminum tariffs, which increased from 25% to 50% as of June 4th, 2025.
Now that we know what they are, what are they supposed to do? Tariffs can be applied to raise a country's revenue, promote domestic production of goods, protect domestic producers, and serve as a matter of national security. In a recent push to become more self-sufficient, the United States has been placing tariffs on countries and industries to help encourage domestic production and lessen the trade deficit. American companies can benefit from tariffs by providing them a level playing field compared to countries that may have an absolute advantage in production. Applications, like Temu, have given Americans access to cheap apparel produced by China. This price discrepancy is due to various factors, with the largest being the cost of labor for foreign companies being lower than the average cost of labor in America. This allows companies to charge less as the breakeven point on production is reached sooner.
What does it mean for your money? Due to raw materials being part of tariff agreements, it could raise the cost of goods that are produced in the U.S. These costs can be seen in price increases to help a company maintain its bottom line, offloading some of the cost onto the consumer. Producers may also keep prices stable for the consumer while cutting into their profit margins by absorbing the cost of tariffs. This can push producers to find new sources of raw goods, either depending on the tariff rates or if they have an advantage to provide raw goods at lower prices. The quality of goods could suffer if these raw materials have a larger impact on production. Due to changing prices, consumers may be forced to change their consumption behavior. This could be done through lower purchasing behavior or price sensitivity, where consumers will look for cheaper alternatives to their regular goods.
A recent example American should be wary of is the newly imposed tariffs on Brazil, the number one exporter of coffee beans to America. The Trump administration has imposed a 50% tariff on all Brazilian goods effective on August 1st. This could lead to an added cost on coffee in local grocery stores if these policies go into effect. Consumers may be forced to choose new brands that are cheaper or switch to a new drink in the morning. Businesses like Starbucks may also change their sources to help save money and keep prices stable for the consumer. As of now, it is too early to tell how these tariffs will impact the price of coffee at home and commercially, but changes could be on the way.
Tariffs becoming the new buzzword is nothing new for America. A famous example of the overleveraging of tariffs can be seen during the Smoot-Hawley era during the Great Depression. While not what triggered the depression, it was fuel added to a roaring economic fire, making prices hard to reach for the average consumer in the 1930s. While our economic situation is nothing like that historical example, it is important to keep in mind the potential ripple effect these policies can have on our economy.
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