How Will Trump’s Tariffs Affect Your Finances?

Tariffs. President-elect Donald Trump loves them.

Bullion.Directory precious metals analysis 06 December, 2024
By Peter Reagan
Financial Market Strategist at Birch Gold Group

Trump has made it clear that tariffs will be one of his primary tools in his new administration. One opinion piece observed (or complained?) that tariffs “are becoming Trump’s silver-bullet solution to everything.”

Of course, some people are critical of tariffs for political reasons, and some oppose them for economic reasons. Since it’s absolutely pointless to discuss politics, we’ll focus on the economic objections to tariffs as a “silver-bullet solution.”

The real effect of Trump’s tariffs

One of the biggest criticisms of Trump’s tariffs is that he wants to use them to generate revenue for the government. Well, the government has massive bills to pay – why not use tariffs to raise the necessary funds?

There’s historical precedence for using tariffs to generate government revenue. Just not in recent years. For example, the White House tells us:

Tariffs have not provided a meaningful share of revenue for the U.S. government since the early 1900s

It’s true. Tariffs raise very little income for the federal government now.

Existing imports duties on goods raised $80 billion last year, about 2 percent of the $4.44 trillion in total Federal tax revenue

That’s right, just 2%, and while, in the past, tariffs provided a greater percentage of the federal governments, that figure has changed quite a bit since the income tax was implemented.

By comparison, the individual income tax was responsible for 49 percent of total Federal tax revenue, and an additional 36 percent was raised via social insurance (payroll) taxes, which are closely tied to individual income. In other words: more than three-quarters of federal tax revenue is linked to individual wage and non-wage income.

Really, when it comes down to it, it’s unlikely that tariffs are going to raise giant amounts of additional money for the federal government which can, then, be used to pay down the federal deficit (as laudable as that goal is).

That’s not to say that tariffs can’t help the U.S. economy, though.

Here’s what tariffs can do to benefit the economy

Last time Trump sat in the Oval Office, you might remember, he implemented some pretty unpopular tariffs:

In January 2018, Trump imposed tariffs on solar panels and washing machines of 30–50%. In March 2018, he imposed tariffs on steel (25%) and aluminum (10%) from most countries, which, according to Morgan Stanley, covered an estimated 4.1% of U.S. imports. In June 2018, this was extended to the European Union, Canada, and Mexico. The Trump administration separately set and escalated tariffs on goods imported from China, leading to a trade war. 

I won’t get into the “trade war” angle, because I wrote about it at the time.

Well, as you’d expect, we started paying higher prices on washing machines… I saw an analysis at the time that claimed the tariff on aluminum raised the end-user price on every can of St. Croix sparkling water by a nickel. Sure, that’s a trivial example, but when you really think about it, steel and aluminum are two materials used to build just about everything. We paid for it. You, me, your friend and his family, all of us paid higher prices.

And it turns out those tariffs did have a long-term impact on the American economy!

As Wolf Richter writes:

Investments in the construction of manufacturing plants in the U.S. jumped to a record $21.1 billion in October, up by 4.0% from the prior month, up by 16.3% from a year ago, up by 177% from the beginning of 2022, and up by 242% since 2019..

Trump enacted tariffs – and the business world responded, launching massive factory construction projects across the U.S.

That means a big increase in domestic investment, and more construction and manufacturing jobs here at home.

Good news, right?

But why are we only now seeing the construction boom from tariffs implemented in 2018?

Because it can take years to go from blueprints to ribbon-cutting for a new factory… Depending on the size and complexity of the facility, we’re talking two to five years, even longer if the specialty machinery isn’t available.

As you can see, a return to the U.S. of manufacturing jobs is already underway. This is clearly beneficial to the U.S. economy… long term. The factory construction we’re seeing today developed from Trump’s 2018 tariffs.

In the meantime, though? Tariffs mean higher prices.

The short-term effects of Trump’s tariffs

Short-term what can you expect the effect to be of Trump’s tariffs?

Smart question to ask. You probably won’t like the answer, though.

Kimberly Clausing and Mary E. Lovely with the Peterson Institute for International Economics write,

We find that imposing a 20 percent across-the-board tariff combined with a 60 percent tariff on China would cost a typical U.S. household in the middle of the income distribution more than $2,600 a year.

To put that into perspective, how would it affect your budget if you lost $50 per week? Some people won’t be affected much by that. Others, though, will feel that pain deeply every time that they go to the store because their budgets are already so tight.

Remember, though: Trump’s tariffs may not be 20% across the board. He’s actually threatening 100% tariffs on certain countries once he gets into office.

I’m not kidding.

Ryan Morgan with The Epoch Times writes,

President-elect Donald Trump threatened to impose 100 percent tariffs on members of the BRICS economic bloc who move to adopt a new currency to compete with the U.S. dollar.

A 100% tariff is another way of saying, “Don’t even try selling that stuff here.”

For example, there’s currently a 100% tariff in place for electric vehicles imported from China. That’s why you’ve never seen a BYD Atto 3 SUV driving down the street, or noticed a Changan Niou in a parking lot. Even though China is the global leader in EV production, you will not see a Chinese electric vehicle in the U.S.

It’s not that they’re illegal. It’s just that Chinese brands can’t compete against Tesla and Rivian and other domestic EV manufacturers with a 100% tariff to pay on top of manufacturing costs.

So, what’s that all mean for you?

The bottom line is that, while Trump’s tariffs will have long-term positive effects for the US economy, that doesn’t change the fact that the tariffs are going to make goods that we buy everyday more expensive.

And not just a few things. Nearly everything we buy will be more expensive.

Remember, that’s on top of the last four years of Bidenomics with its punishing inflation:

Image via Bank of America

On top of all of that, the Wharton business school with the University of Pennsylvania says that there will be other fallout from increased tariffs. They write,

We estimate that the Trump Campaign tax and spending proposals would increase primary deficits by $5.8 trillion over the next 10 years on a conventional basis and by $4.1 trillion on a dynamic basis that includes economic feedback effects. Households across all income groups benefit on a conventional basis.

Now, remember government deficits and debt increase inflation, too, so Trump’s tariffs (which, again, will help the economy long-term) will cause price inflation both from the effect of the tariffs and the increased federal debt levels.

It’s a double package of the kind that none of us like.

The good news, though, is…

You can take steps now to weather the coming inflation storm.

What are those steps? Smart question to ask.

Remember, to hedge against inflation, one of the most important things (maybe the most important thing) is to have a way to store purchasing power in ways that resist inflation. That way you have a way to be able to access that purchasing power without it being devalued at the time that you access it.

And what is able to resist inflation that way?

Another excellent question, and the answer is an investment that has not just an “agreed upon” valuation in the marketplace (which can change) but has an intrinsic value in the marketplace. Ideally, that intrinsic value is based on the fact that the investment is in demand for reasons other than just as a unit of money.

Of course, for that, I recommend diversifying and investing in precious metals, and I recommend that you take steps now to find out more about doing just that by requesting your free copy of the Birch Gold Insider’s Guide to Physical Precious Metals.

This article was originally published here

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