Trump’s Tariffs and What They Mean for Your Wallet
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Well, there has been a whole lot going on in financial news while I've been on kind of sort of maternity leave. It wasn't hard to pick the first stories to cover as my first episodes back because two of the biggest stories in financial news right now are undoubtedly all things Doge and tariffs. Yesterday, we covered all things Doge. Today is all about tariffs. But as always, I'm going to focus on why this matters to you and your microeconomy.

For starters, the way we talk about tariffs right now doesn't necessarily line up with how they actually work. So it's just worth reminding ourselves what tariffs are without any geopolitical frills. Here's the simple definition. A tariff is a tax on imports paid by the company bringing goods into the country. So...

For example, if you are listening to this on an iPhone, a lot of the components of the device that you're holding in your hand come from China. And iPhones themselves are assembled in China. When your brand new ready-for-sale iPhone arrives at a U.S. port, Apple, not the Chinese government, not the manufacturers in China who made the components, but Apple pays an import duty to the U.S. government before they can put the iPhone on shelves.

Tariff and duty are sometimes used interchangeably, and while they're very closely related, they're not exactly the same thing.

A tariff is a broader term for taxes on imports or exports usually set by a government to control trade. A duty is a specific amount of tax owed on a particular product. So in the case of your iPhone, the tariff is the trade policy that sets the tax and the duty is the actual bill Apple has to pay when those phones hit U.S. soil.

As we're seeing now, tariffs are bargaining chips countries play against each other in geopolitical negotiations and conflicts.

When he was campaigning, Trump said that he would introduce a lot of tariffs. And he sure has. The ones of most consequence are the tariffs on China, Mexico, Canada, and steel-producing countries. For a long time, the U.S. didn't have to think much about tariffs or duties on goods from two of our biggest trade partners, Mexico and Canada.

From 1994 to 2020, the U.S., Mexico, and Canada operated under NAFTA, the North American Free Trade Agreement. Under NAFTA, tariffs between the three countries were virtually non-existent.

And this wasn't just about tequila and maple syrup. Canada, for example, is a massive exporter of natural resources like gas, minerals and lumber. An estimated 24% of all U.S. steel imports and 60% of U.S. aluminum imports come from Canada. Remember that because it's going to come up later. NAFTA was sunset because critics, including President Trump, argued that it incentivized outsourcing, led to job losses in U.S. manufacturing and failed to protect American industries.

Trump renegotiated the deal and in 2020 replaced NAFTA with the United States-Mexico-Canada Agreement, USMCA. The USMCA introduced stronger labor protections, especially for Mexican workers, higher requirements for North American car production, and updated digital trade rules.

The goal was to create a more balanced trade relationship between the three countries while addressing some of NAFTA's shortcomings. Trump, like other pro-tariff politicians before him, sees economic reasons for instituting tariffs as well as political ones.

Trump views tariffs as an easy way to raise revenue without directly increasing taxes on individuals. He also sees them as a way to encourage American manufacturing by making foreign goods more expensive, theoretically pushing consumers toward U.S.-made alternatives.

Tariffs on Chinese goods, of course, have pros and cons, but generally politicians on both sides of the aisle support tariffs on Chinese goods to some extent. When Mexico and Canada enter the mix, things become a little bit more spicy. The difference here is that China and the U.S. are somewhat adversarial. Mexico and Canada are our homies.

Canada, in particular, is a close partner of the United States. We haven't had a real fight since 1812. So when Trump proposed a sweeping 25% tariffs on products from Canada and Mexico on February 1st, Mexican and Canadian politicians were shocked. When Canada and Mexico asked what they could do to avoid tariffs, Trump's demands were initially unclear, except for when he joked.

joked, question mark, that Canada could just become the 51st state, which is a little like joking about cheating on your spouse. It's just not funny. And eventually people are going to start asking some hard questions and maybe even go through your phone. Then Trump spoke with the leaders of both countries respectively and reached agreements to pause the implementation of tariffs until March 6th.

my birthday Eve, so long as Canada and Mexico promise to provide more security at the border. If a 25% tariff on Mexican products goes through, you can definitely expect to feel it at the grocery store. In 2021, Mexico provided almost two-thirds of U.S. vegetable imports and almost half of U.S. fruit and tree nut imports, according to NPR. If a 25% tariff on Canadian products goes through, we will also see higher car prices and construction costs.

Plus, Canadian Prime Minister Justin Trudeau said that he would pass retaliatory tariffs on things like whiskey, cosmetics and paper products. But we don't have to worry about price hikes until the beginning of March when these tariffs are reconsidered. On February 1st, Trump also announced an additional 10% on Chinese goods, which he did go through with.

China retaliated with its own tariffs on U.S. goods, launched an antitrust investigation into Google, which is banned in China but still does a lot of business there through partnerships. And let us not forget the TikTok ban is ticking down in the background.

This was all big tariff news, so I think we all thought we'd read our last tariff headline for a while. But then, on the 10th, Trump levied a 25% tariff on steel and aluminum globally. And remember, tariffs are taxes paid for by the importing company, not the foreign government. There are exceptions for some American companies that relied on foreign steel last time Trump did this. Not this time.

And remember how Trump paused tariffs on Canada? Well, they're not exempt from this tariff. And remember, Canada is responsible for a quarter of U.S. steel imports and more than half of aluminum imports. So this is a serious hit for them. So what does this mean for you? Well, luckily, we do have the benefit of hindsight and can look at the effect of the tariffs Trump implemented in his first term.

Most economists agree that Trump's tariffs had a mixed effect on the U.S. economy. However, it is worth noting that Biden did keep a lot of the Trump tariffs in place. The tariffs from Trump's first term increased costs for businesses that rely on imported materials. A lot of U.S. manufacturers depend on foreign steel and aluminum, and the tariffs meant that manufacturers had to pay higher prices for those materials.

Those higher costs were often passed down to the consumer. And as a result of retaliatory tariffs from China during Trump's first term, U.S. farmers were hard hit. In fact, the U.S. government had to bail out farmers to the tune of $28 billion in 2018 and 2019 to help offset their losses. In the face of higher costs for businesses, consumers felt the squeeze.

The tariffs caused price bumps in things like electronics, cars, and even everyday goods like clothing went up.

Studies showed that American households ended up paying about $1,300 more per year as a result of the tariffs, which definitely did not help inflation. And then there's jobs. One of Trump's key promises was to protect American jobs, especially in manufacturing. In the steel industry, there was a slight increase in jobs at first, but there wasn't nearly enough to offset the jobs lost in other industries affected by higher material costs.

One study from the Peterson Institute for International Economics found that for every job saved in steel production, about 16 jobs were lost in industries that use steel. That said, the tariffs did force a conversation about trade imbalances, especially with China.

And while the U.S.-Sino trade war didn't solve all of the problems Trump wanted it to, it did lead to new trade negotiations, including the phase one trade deal signed in 2020, where China basically agreed to buy more American products.

Just like we have the benefit of hindsight, so does the Trump administration. So they will try to implement changes to how they navigate tariffs in order to have more effective tariffs this time around. But even so, it is likely that in the short term, we will see higher prices day to day. That means it's more important now than ever to make sure the money you have sitting on the sidelines is working hard for you so you can keep pace with inflation.

This means at the very least opting into a high yield savings account instead of just a regular savings account. If you're not sure where to start, check out my favorite publics at public.com slash money rehab. For today's tip, you can take straight to the bank. Goldman Sachs analysts say that for every 5% tariff, the S&P 500 earnings per share could fall by roughly 1 to 2%.

In its simplest form, that means that the returns in the stock market will likely fall if the tariffs in limbo get passed in the beginning of March.

The stock market dips. We know that. And in fact, dips are oftentimes when stocks go on sale. So it could be a great time to buy. It's also a good time to make sure you're diversified. I just mentioned Publix high yield cash account. They also have a bond account where at the time I'm recording this, you can lock in a 6.9% yield, even if the Fed lowers rates. In times of uncertainty, personally, I jump at the opportunity to add a little more certainty into my portfolio.

Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes.

Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehabatmoneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.