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Tariffs: Who Pays the Price?
This Takes Me Back to My First Year of College…
I remember sitting in my first-year economics class, struggling to wrap my head around tariffs. The professor used a simple example: “If the U.S. places a tariff on foreign cars, those cars become more expensive. That’s good for U.S. carmakers, but what about consumers?” That question stuck with me. Now, decades later, the same debate rages on—most recently with Trump’s tariffs on steel, aluminum, and Chinese goods. History tells us that while tariffs can protect domestic industries in the short term, they almost always come with unintended costs—higher prices, strained supply chains, and trade wars.
📰 Key Highlights
🔹 Tariffs Are a Tax on Imports – Governments impose tariffs to make foreign goods more expensive, encouraging people to buy domestic products.
🔹 Trump’s Tariffs on Steel, Aluminum, and China – Between 2018 and 2020, the U.S. levied tariffs on $360 billion worth of goods, aiming to protect American jobs and industries.
🔹 Lessons from History: Chicken and Washing Machines – The 1963 Chicken Tax raised truck prices for decades, and the 2018 Washing Machine Tariff cost U.S. consumers $1.5 billion in just two years.
🚀What Are Tariffs and How Do They Work?
A tariff is a tax on imported goods. When a country imposes a tariff, it raises the price of foreign products, making them less competitive.
Example: If the U.S. places a 20% tariff on imported washing machines, a washer that once cost $500 might now cost $600 due to the extra tax.
Businesses pass these costs to consumers, so households ultimately pay more.
Governments use tariffs to protect local industries, but history shows that they often lead to higher prices and retaliation from other countries.
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Trump’s Tariffs: A Bold Gamble
Between 2018 and 2020, the Trump administration imposed major tariffs to address trade imbalances and protect American jobs.
🔹 Steel and Aluminum Tariffs (2018): A 25% tariff on steel and a 10% tariff on aluminum, impacting imports from Canada, Mexico, and China.
🔹 China Tariffs (2018–2020): A phased approach, eventually covering $360 billion worth of Chinese goods, including electronics and industrial components.
🔹 USMCA-Related Tariffs: Temporary tariffs on Canadian and Mexican imports, lifted in 2019 after renegotiating NAFTA into the U.S.-Mexico-Canada Agreement (USMCA).
Who Paid the Price?
While some U.S. industries benefited, tariffs raised costs for manufacturers and consumers:
✔ Higher prices for U.S. manufacturers – Automakers, appliance makers, and construction firms paid more for raw materials, cutting into profits.
✔ Higher costs for consumers – Tariffs acted like a hidden tax, increasing the price of everyday goods, from washing machines to cars.
✔ Retaliation from trade partners – China responded with tariffs on U.S. agricultural exports, forcing the U.S. government to bail out farmers with billions in subsidies.
Lessons from the Past: Chicken and Washing Machines
🔹 The 1963 Chicken Tax:
In retaliation for European restrictions on U.S. chicken exports, President Lyndon B. Johnson imposed a 25% tariff on imported light trucks.
Though meant to be temporary, the tariff still exists today, keeping pickup truck prices artificially high and reducing competition.
🔹 The 2018 Washing Machine Tariff:
A 20–50% tariff on imported washing machines led to an average price hike of 12%.
Consumers paid an estimated $1.5 billion more for washers and dryers in just two years.
While Whirlpool benefited initially, the long-term effect was higher costs for consumers.
📢 Insight: History shows that while tariffs may offer short-term relief for certain industries, they often lead to long-term price increases and market inefficiencies.
📊 Quick Stats/Charts
📌 Steel Tariffs Increased Car Prices – U.S. automakers paid $1 billion more for steel in 2018 alone.
📌 Washing Machine Prices Jumped – The 2018 tariff added $86 per unit to consumer costs.
📌 Farmers Lost Big – Retaliatory tariffs on U.S. soybeans resulted in a 30% drop in exports to China, leading to $28 billion in government bailouts.
🌐 Links & Resources
💬 Final Thoughts
This discussion takes me back to my first year of college, when I first learned about the hidden costs of tariffs. While they may protect industries in the short term, history shows they lead to higher prices, strained supply chains, and retaliation from trade partners.
The Chicken Tax still inflates truck prices 60 years later, and the Washing Machine Tariff cost Americans billions. Trump’s trade war raised costs across multiple industries, leaving many wondering—was it worth it?
xoxo,
Maximillian Diez
GP, Twenty Five Ventures
P.S. Stay with me on this journey.
If nothing else, thanks for reading.
